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| Iowa Mortgage Association - Prime Times May 7, 2010 In this issue: President's Message Upcoming IMA Event: "Understanding the Financial Markets" Recent Department of Labor Interpretation presents an immediate challenge to banks IBA to host Overtime Pay for Mortgage Lenders Webinar Mortgage rates at lowest levels in six weeks, Freddie Mac survey shows NFIP Extended Again Credit Reports & Fair Lending Compliance Iowa Finance Authority announces new program to assist repeat home buyers: Homes for Iowans New Resources from Iowa Finance Authority Iowa Finance Authority Announces Top Calendar Year 2009 Lenders Compliance Q&A RESPA Revisited: Again and Again  President's Message President's Message  2009-10 IMA President Kathy Klahn Well, by now the tax credit for new homebuyers has ended, as well as the tax credit for those that have owned a home for at least five years purchasing another. I think everyone was in hopes that the tax credits would be extended again. The IMA spring conference was great, and I especially appreciated Ronette Schlatter from Iowa Bankers Association updating us on clarifications with the new RESPA regulations. It is overwhelming at times and still we can't seem to find those consumers that feel they really benefited from all of this. Just lots more grey hair for the lenders. I know I've tried to relate back to some of the old techniques of being a great lender and team player and that is reminiscing quotes. Here's a few that hopefully will give you a moment to ponder: "DISCIPLINE: Discipline is the bridge between goals and accomplishments." It seem to take a lot more self-discipline today to make sure your follow through is complete and you constantly read up on the latest and greatest changes. "KNOWLEDGE: Today knowledge has power. It controls access to opportunity and advancement." Who says you can't teach an old dog new tricks? We older lenders are constantly having to learn something new everyday as well as retain it all. Lastly…………. "PERSEVERANCE: Never give up, Never, never give up! We shall go on to the end" (Winston Churchill) Hang in there, everyone. It is still a good feeling to be able to help someone become a homeowner. The best to you all, Kathy Klahn Upcoming IMA Event: "Understanding the Financial Markets" Upcoming IMA Event: "Understanding the Financial Markets"The Iowa Mortgage Association, Academy Mortgage and MGIC are proud to present…. Tuesday, June 8, 2010 Understanding the Financial Markets  with Barry HabibConnexions Event Center, Urbandale 10:00 a.m. to Noon More than ever, homebuyers are worried and hesitant about investing in real estate. Everywhere they turn, they're bombarded with exaggerated headlines and mixed messages about what's going on in the current economic climate and what it means to their unique situations. As a result, potential clients are left standing on the sidelines wondering:
You'll Learn:
You'll be able to use this information to educate your referral partners… execute better pricing for clients… and advise your clients as to why they should take action now. About Barry Habib Barry Habib is Chairman of the Board for Mortgage Success Source, which brings together the insight and advice of LoanToolbox, The Mortgage Market Guide, and Mortgage Mastery University. Barry has consistently been recognized as one of America's Top Loan Originators and is often featured on CNBC, NBC, CNN, and FOX television networks. Where Connexions Event Center http://www.connectingwithyou.com 1301 121st St., Urbandale, IA (just off the Douglas Exit at I-80) Phone: 515-276-3333 Registration
Recent Department of Labor Interpretation presents an immediate challenge to banks Recent Department of Labor Interpretation presents an immediate challenge to banksBy Karen Rieck, SPHR Vice President, Human Resources, Iowa Bankers Association The U.S. Department of Labor (DOL) issued an Administrator Interpretation on March 24, 2010, stating that employees who perform the usual duties of mortgage loan officers are not exempt from the Fair Labor Standards Act’s (FLSA) minimum wage and overtime requirements. The DOL determined that these employees do not meet the requirements of the administrative employee exemption because their primary duty is selling mortgage loan products, which does not relate to the internal management or general business operations of the employer. Administrative Employee Exemption To qualify for the administrative employee exemption, an employee must be compensated on a salary or fee basis of not less than $455 per week. Additionally, the employee’s primary duty must be the performance of office or non-manual work directly related to the management or general business operations of the employer or the employer’s customers, and the employee’s primary duty must include the exercise of discretion and independent judgment with respect to matters of significance. For work to be considered related to the management or general business operations of the employer, it must be “directly related to assisting with the running or servicing of the business.” Examples include work in functional areas such as accounting, budgeting, purchasing, advertising, research, human resources and similar areas. 29 C.F.R. § 541.201(b) Sales Relate to the Employer’s Day-to-Day Operations Based upon its analysis of the duties generally performed by mortgage loan officers, the DOL determined that such employees are primarily engaged in selling lending products. This is supported, in part, by the fact that mortgage loan officers are frequently compensated, at least in part, on a commission basis and performance is often evaluated based upon sales volume. The FLSA regulations state clearly “…an employee whose primary duty is selling financial products does not qualify for the administrative exemption.” 29 C.F.R § 541.203(b) MLOs’ Duties Do Not Relate to the Management or Business Operations of the Employers’ Customers The administrative exemption can apply if the employee’s primary duty is directly related to the management or general business operations of the employer’s customers. “Thus, for example, employees acting as advisors or consultants to their employer’s clients or customers (as tax experts or financial consultants, for example) may be exempt.” 29 C.F.R § 541.201(c) In this Administrator Interpretation, however, the DOL states that employees do not qualify for the administrative exemption by performing work related to the management or general business operations of the employer’s customers if these customers are individuals seeking advice for their personal needs, such as a home mortgage loan. “Individuals acting in a purely personal capacity do not have ‘management or general business operations’ within the meaning of this exemption.” The Interpretation acknowledged that advice to a business customer about a financial decision relating the business (such as a mortgage to buy land to build a new manufacturing plant) might qualify under the administrative exemption. Nevertheless, based upon its analysis of a typical mortgage loan officer’s primary duties, its determination that such employees are primarily engaged in making sales for the employer, and because homeowners do not have management or general business operations, the DOL determined that a typical mortgage loan officer’s primary duties is not directly related to the management or general business operations of the employer’s customers. Bottom Line This recent Interpretation reverses Wage and Hour Opinion Letter FLSA 2006-31 (Sept 8, 2006) which stated that mortgage loan officers met the qualifications of the administrative exemption. The reversal, of course, presents an immediate challenge to employers in the financial services industry. Employers are advised to review their compensation policies and practices with respect to any employee who “perform[s] the typical job duties” of a mortgage loan officer, regardless of job title. The determination of the proper classification of employees with respect to their entitlement to overtime pay under the FLSA must be made on a case-by-case basis, by reference to the relevant duties and responsibilities of the position at issue and the relevant regulations. For more information on the impact of this recent DOL Interpretation for mortgage loan officers and other potential positions within your bank, IBA is offering a webinar entitled “Overtime Pay for Mortgage Lenders – New Ruling Overturns Exemption” on Tuesday, May 18th. For more information or to register for this webinar, please visit the IBA website ( www.iowabankers.com). You may also contact the IBA’s Karen Rieck at (800) 532-1423 x4312.IBA to host Overtime Pay for Mortgage Lenders Webinar IBA to host Overtime Pay for Mortgage Lenders WebinarOvertime Pay for Mortgage Lenders Webinar May 18 • 1:30-3:30 p.m. The Iowa Bankers Association will present the "Overtime Pay for Mortgage Lenders" webinar on Tuesday, May 18 from 1:30 to 3:30 p.m. A recent Interpretation by the U.S. Department of Labor’s Wage & Hour Administrator reverses previous case law and DOL Opinion Letters which held that mortgage lenders fell under the Fair Labor Standards Act’s administrative exemption and need not be paid overtime for hours worked in excess of 40 hours a week. This new ruling will lead many banks to rethink their payroll practices and has implications for other banking positions as well. During this webinar employment lawyer and HR consultant Marian Exall will place this development in context and give practical pointers to aid community bankers in maintaining compliance with complex and changing compensation rules. The webinar will address:
Mortgage rates at lowest levels in six weeks, Freddie Mac survey shows Mortgage rates at lowest levels in six weeks, Freddie Mac survey showsThe average interest rate for both 30-year and 15-year fixed rate mortgages have fallen to the lowest level in six weeks, according to the results of Freddie Mac's Primary Mortgage Market Survey released on Thursday, May 6. The average rate for 30-year fixed-rate mortgages (FRM) was 5.00 percent with an average 0.7 point for the week ending May 6, down from last week when it averaged 5.06 percent. Last year at this time, the 30-year FRM averaged 4.84 percent. The 15-year FRM this week averaged 4.36 percent with an average 0.7 point, down from last week when it averaged 4.39 percent. A year ago at this time, the 15-year FRM averaged 4.51 percent. The 5-year Treasury-indexed hybrid adjustable-rate mortgage (ARM) averaged 3.97 percent this week, with an average 0.7 point, down from last week when it averaged 4.00 percent. A year ago, the 5-year ARM averaged 4.90 percent. The 1-year Treasury-indexed ARM averaged 4.07 percent this week with an average 0.6 point, down from last week when it averaged 4.25 percent. At this time last year, the 1-year ARM averaged 4.78 percent. "Treasury bond and note yields declined this week, and rates on fixed-rate mortgages and hybrid ARMs followed suit," said Frank Nothaft, Freddie Mac vice president and chief economist. "Rates for both the 30-year and 15-year fixed-rate mortgages were the lowest in six weeks; initial rates on 5/1 hybrid ARMs hit an all-time low since they were added to the survey in the beginning of 2005. "The homebuyer tax credit helped support home sales in March, and anecdotal reports point to strong April sales as well. Pending existing home sales rose for the second consecutive month in March to the strongest pace since October 2009, just before the original deadline for the credit, based on figures published by the National Association of Realtors®. Three of the four Census regions showed an up tick in sales, led by the South with a 12.7 percent gain, while sales in the Northeast fell 3.3 percent. To receive the federal tax credit, homebuyers had to sign contracts by April 30th and settle by June 30th of this year." NFIP Extended Again NFIP Extended AgainThe Congressional authorization of the National Flood Insurance Program (NFIP) expired at midnight on Feb. 28, 2010. On March 2, 2010, the President signed a 30-day flood extension of the program reauthorizing the program through March 28, 2010. Unfortunately, Congress failed to pass a bill that provided for the extension of the NFIP before adjourning for their Easter recess, so the NFIP authorization lapsed again as of midnight on March 28, 2010. Upon their return from Easter recess, Congress extended the NFIP temporarily until May 31, 2010 and made coverage retroactive to Feb. 28, 2010. During lapse periods, the NFIP is left without authority to:
If a creditor made a loan secured by improved real estate in a special flood hazard area since Feb. 28, it should obtain a flood insurance policy on the improvements immediately now that the flood insurance is available. Any policy that was supposed to renew during the lapsed coverage can now be rewritten as well. Credit Reports & Fair Lending Compliance Credit Reports & Fair Lending ComplianceSeveral bankers have reported examiners have been challenging banks on a particular fair lending issue involving charges for credit reports and marital status. While particular cases often involve a combination of issues, the element attracting all the attention involves charging married joint applicants one fee for a joint credit report while charging unmarried joint applicants a higher fees for their separate credit reports. This happens when a “joint” credit report is ordered for a married couple but separate individual credit reports are ordered for unmarried joint applicants. The difference in price (typically 10 to 50 cents) is based on the credit bureaus fee schedule which many banks simply pass through to the borrower as a cost of the transaction. The Equal Credit Opportunity Act, as implemented by Federal Reserve Reg. B, specifies that “a creditor shall not discriminate against an applicant on a prohibited basis regarding any aspect of a credit transaction.” Prohibited bases does include “marital status.” Representatives from the American Bankers Association (ABA) have met with FDIC representatives in Washington, D.C. and spoken to Federal Reserve staff as well as credit bureaus and their representatives. The ABA reports while the difference in fees is small, the regulators’ position is that charging different fees for similarly situated married and unmarried applicants is a fair lending violation. While the regulators have not yet issued official guidance on this matter, the ABA has offered the following guidance. The ABA discussions with Consumer Data Industry Associations (CDIA), revealed all credit bureaus offer an option for a bank to submit a joint inquiry for credit reports, which will result in the delivery of two different consumer reports via the single request. (Presentation of this information may vary across credit repositories.) This inquiry option is available for banks which are processing a joint application for credit. There are a few important facts to consider regarding the joint inquiry option:
Some have advised banks to order a separate credit report for each loan applicant in every instance. While this should satisfy Reg. B as well as restrictions for charges in mortgage loans under section 8 of the Real Estate Settlement Procedures Act (RESPA), it will not achieve the cost savings to joint applicants that is available from a “joint” credit report. It is also worth noting that some have suggested that privacy concerns have been a deterrent to ordering a joint credit report, but those concerns are no longer an issue under GLBA when two individuals submit a joint application. Editor’s Note: This article was originally published int he May 2010 issue of THE DISCLOSURE, the Iowa Bankers Association's compliance magazine. The article is based on guidance provided by the American Bankers Association in its April 12 and 26, 2010 publications, “The Compliance Source.” Iowa Finance Authority announces new program to assist repeat home buyers: Homes for Iowans Iowa Finance Authority announces new program to assist repeat home buyers: Homes for IowansHomes for Iowans, formerly known as Expanded Market, is the Iowa Finance Authority's (IFA) newest program to provide home buyers with trusted, sustainable homeownership opportunities. Homes for Iowans may assist both first-time and repeat qualified home buyers who are not eligible for IFA's FirstHome program. As with all IFA mortgage loan programs, Homes for Iowans provides the benefit of a safe, affordable, fixed interest rate mortgage, paired with the convenience of working with a local lender. The program income limits vary by county, and the statewide purchase price is $289,000. Check out the new online lender eligibility tool for income limits in specific areas, current program rates and more information.Contact: 800-432-7230 New Resources from Iowa Finance Authority New Resources from Iowa Finance AuthorityThe Iowa Finance Authority (IFA) has recently added a variety of tools to help participating lenders determine which IFA programs would best suit specific borrowers needs.
Iowa Finance Authority Announces Top Calendar Year 2009 Lenders Iowa Finance Authority Announces Top Calendar Year 2009 LendersThe Iowa Finance Authority (IFA) would like to thank the hundreds of participating lenders throughout the state for their partnership in providing Iowans with affordable homeownership opportunities through the FirstHome program. Through this partnership, IFA was able to provide more than $111.9 million in loans to help 1,357 families attain the dream of homeownership in fiscal year 2009. A special appreciation is extended to the calendar year 2009 top lenders in Iowa:
Compliance Q&A Compliance Q&AEditor's note: The following Q&As were originally published in the May 2010 issue of THE DISCLOSURE, the Iowa Bankers Assocation's compliance magazine. Assistance in preparation of the Compliance Forum is provided by members of the law firm of Davis, Brown, Koehn, Shors & Roberts, P.C., Des Moines. The Compliance Forum is not intended to be a definitive analysis of the subjects discussed or a substitute for personal legal advice.Q. Our bank has an existing first-lien mortgage loan for a customer. The same borrower has requested a home equity loan. The bank will file another mortgage secondary to the first it already has in place. Since the bank is both the first and second lien holder, should it use the 1.5% or 3.5% rate spread threshold when determining if this second loan is an HPML? If the bank treats the loan as a “subordinate” lien and uses the 3.5% threshold, is it then safe to assume the loan is not subject to Reg. Z’s escrow provisions for first lien HPMLs? What if the bank was doing this second loan to the customer but referred to an open-end first mortgage large enough to cover both loans as security for the home equity loan? Is the second loan treated as a “first lien” position loan or “subordinate lien” position? A. Under the first scenario where the bank is making a subsequent loan secured only by a junior mortgage, the loan would be considered to be in a subordinate lien position. Thus, for purposes of the HPML rules, the bank should use the 3.5% rate spread threshold. If the loan does meet the definition of an HPML, the bank will NOT be required to escrow as the HPML is in a subordinate, not first, lien position.Under the second scenario where the bank makes a subsequent loan but secures that loan by a first-lien open-end mortgage it has in place, the loan is considered in a first lien position. As such, the 1.5% rate spread threshold would apply and if the loan meets the definition of an HPML, the bank must establish an escrow account prior to closing. Q. Is there a requirement to disclose on HE LOC periodic statements that rates may vary? I know that the program agreement needs to detail the variable rate information, but does the HE LOC periodic statement also have a similar requirement?A. Yes, there is a similar, but abbreviated variable rate disclosure requirement for periodic statements. The periodic statement requirements are found in Reg. Z section 226.7 in the discussion regarding the disclosure of periodic rates:
So, if your HE LOC program has a variable rate feature, your periodic statement must include a statement that “the periodic rate may vary.” RESPA Revisited: Again and Again RESPA Revisited: Again and AgainBy Ronette Schlatter, CRCM Senior Compliance Coordinator, Iowa Bankers Association Editor's note: The following article was originally published in the May 2010 sisue of THE DISCLOSURE, the Iowa Bankers Association's compliance magazine. What issue of Disclosure would be complete without a RESPA update? The March issue of The Disclosure included an article titled “RESPA Revisted” that summarized revisions to HUD’s Frequently Asked Questions (FAQs) posted to HUD’s website in late January. Just as you thought you might have the new RESPA rules figured, HUD has issued new guidance and it’s possible that what you thought you knew has changed (again!) HUD’s latest guidance is in the form of newly issued FAQs, edits to existing FAQs and a webcast posted to HUD’s website. The updated FAQs and webcast can be found on HUD’s RESPA home page at http://www.hud.gov/offices/hsg/ramh/res/respa_hm.cfm.As in the past, HUD has printed the new FAQs in bold print so they are easily distinguishable to the reader. In addition, HUD has edited or provided clarification to seven of its existing FAQs. HUD makes note of which FAQs were edited on the first page of the Table of Contents. This article will briefly summarize the new FAQs and clarifications. Preapprovals HUD expanded its discussion of preapprovals in the FAQs update. HUD has defined an “application” for the purpose of triggering a GFE to be the applicant’s name, Social Security number or other identifying number, income, property address, loan amount and other information deemed necessary by the creditor. Once a loan originator has these six pieces of basic information, a GFE must be provided. So what happens if the loan originator does not have all this information; for example, in the case of a prequalification or preapproval request? Is the loan originator obligated to provide a GFE? Can the loan originator request verification documents prior to issuing a preapproval letter? If the loan originator issues a GFE, is he bound by that GFE even if a property address is not identified? HUD addresses the issue of preapprovals by first defining a “preapproval” as “a document issued by a lender stating that a consumer qualifies for a specific loan amount.“ HUD states a preapproval is never to be used as a substitute for a GFE. That is, if an applicant has chosen a property to purchase and the loan originator is willing to qualify the applicant for a specific loan amount, then a loan originator should issue the applicant a GFE that facilitates shopping for a loan, rather than just a preapproval used to shop for a property. However, if a loan originator does not have all six pieces of information included in the definition of “application,” a GFE is not required. HUD also warns a lender cannot “avoid” obtaining the property address in order to avoid providing a GFE. In its previous FAQs, HUD indicated that a loan originator could not request verification documents when doing a preapproval until a GFE was provided. The revised FAQs clarify if the loan originator is missing one of the elements it requires for a loan application (e.g., the property address) and is not required to provide a GFE, the originator is not prevented from verifying information for which the customer voluntarily provides documentation. The loan originator can also always use its own sources to independently verify the information on a borrower’s application for a preapproval, regardless of whether it could also be treated as an application for a GFE. However, if a loan originator receives an application from a prospective borrower for a preapproval, and that application contains enough information to constitute an “application” per RESPA’s definition, then the loan originator must provide a GFE within three days and is prohibited from requiring supplemental documentation from that prospective borrower to verify the information as a condition for providing the GFE. HUD has clarified its previous position on preapproval GFEs by stating GFEs can be issued without a property address as long as the loan originator determines that the address is not one of the required pieces of information that it needs to issue the GFE. However, it is important to note that HUD has not eliminated its FAQ that states that, where a GFE is provided before the property is chosen, the loan originator does not have a changed circumstance to revise the GFE when the applicant later selects the property. So what does all this mean? Quite simply, it means, if you issue a GFE without a property address, you live by it once the property is identified unless another changed circumstance occurs. Worksheets Two new FAQs were added on the topic of “worksheets.” The use of worksheets was also a discussion point in the HUD webcast available on HUD’s website. For purposes of these questions a “worksheet” is a document issued by a loan originator that may include generic information regarding interest rates and loan fees, or a document that may provide additional information to the consumer regarding the cost of the overall transaction outside of loan fees that are disclosed on the GFE. At times HUD has encouraged the use of “worksheets” to provide additional information to consumers. But apparently HUD has recognized some abuse of these “worksheets” and has provided guidance on their purpose and limitations. The new FAQs confirm loan originators can use “worksheets” but should to take precautions to ensure the following: The worksheet should not look like a GFE and should not lead the customer to believe that it is a GFE; Important Dates Another FAQ that was revised dealt with Line 1 in the “Important Dates” section. Previous guidance indicated if a loan originator did not offer a rate lock program, “NA” could be used in the “Important Dates” section. The updated FAQ indicates Line 1 should be completed the same way whether or not the loan originator offers a rate lock. In Line 1, the loan originator must state the date, and if applicable, time until which the interest rate for the GFE will be available. “NA” is not acceptable in Line 1. This updated FAQ supports the informal guidance provided by a HUD RESPA specialist to the IBA. The informal guidance (e-mail correspondence) clarified the distinction between a “locked” and “unlocked” rate on the GFE is related to whether the interest rate related charges (Blocks 2 and 10) and loan terms are available until a certain date. If a rate and the charges associated with the rate are going to be available at closing, it is the equivalent of “locking” the interest rate in the context of the GFE. For example, when a consumer applies for a loan, the bank commits to the current rate quoted on its rate sheet as of the application date. The bank will honor that rate until closing as long as closing occurs within 60 days. If the interest rate is available for 60 days from the date of GFE, the date in Line #1 should be 60 days after the date of GFE. Line #4 would indicate “NA” because the bank has committed to the stated rate on the GFE. Whereas, if the interest rate is only good for one day, and floats thereafter, Line 1 should indicate the next day’s date. Keep in mind, the GFE is not a rate-locking document, rather it is a description of charges and loan terms and how long they will be available. LPMI A new FAQ was added on the topic of lender-paid mortgage insurance (LPMI). If a loan contains mortgage insurance that is paid by the lender and will not be charged separately to the borrower, it should NOT be disclosed in the “Summary of your loan” section of the GFE or as a charge in any Block on the GFE. Because the LPMI has already been captured in the interest rate and is not charged separately to the borrower, it is not disclosed on the GFE or HUD. Verification Fees HUD had previously indicated that fees for verification of employment or deposit were considered “processing fees” and, as such, should be disclosed in Block 1 of the GFE. Well, HUD has done a “360” on this issue and a new FAQ indicates if the loan originator knows at the time it provides the GFE that there will likely be a charge by the borrower’s employer or banking institution for the VOE (verification of employment) or VOD (verification of deposit), the amount of that charge should be estimated in Block 3 of the GFE as a “required service.” The key factor in determining where VOE and VOD fees are placed is based on who requires the use of the third party verification service. If use of the “work number” is required by the borrower’s employer, then the amount can go in Block 3. Whereas, if the loan originator as a matter of routine uses the “work number,” rather than contacting the borrower’s employer directly, the charge would go in Block 1. It is a subtle but important distinction. Transfer Taxes HUD also provided clarification on the disclosure of transfer taxes on the GFE. HUD defined “transfer taxes” as taxes charged by state and local governments on mortgages and home sales based upon the loan amount or sales price and on the property address. The new FAQ states the amount the borrower is likely to pay for transfer taxes should be disclosed in Block 8 of the GFE. In some areas this amount, as a matter of practice, is governed by state or local laws. If state or local law is unclear or does not specifically attribute transfer tax to a seller or borrower, the amount to be disclosed on the GFE is governed by common practice or experience in the locality of the property. Since Iowa law specifically states a seller is responsible for paying transfers taxes, Block 8 should show $0 for loans secured by Iowa properties. If the seller is paying all or a portion of the transfer tax that was not disclosed on the GFE, then that amount should be listed in the seller’s column in the 1200 series on the HUD-1. Homeowners Insurance The debate over proper disclosure of homeowner’s insurance rages on but hopefully will be put to rest with a new FAQ on the matter of proper disclose of homeowner’s insurance on refinances and subordinate lien loans. The newly-added FAQ indicates if a borrower is refinancing the mortgage on his or her home and the new lender is requiring the borrower to maintain the existing hazard and flood insurance policies on the home, Block 11 may be completed with $0. While the FAQ does not specifically address subordinate lien loans such as home equity loans, HUD addressed the matter in its webcast posted on its website. HUD indicated the same held true for subordinate lien loans: if subordinate lien lender is requiring the borrower to maintain the existing hazard and flood insurance policies on the home, Block 11 may be completed with $0. Conversations with regulatory contacts indicate if the GFE notes $0 in Block 11, the HUD statement may also be completed noting $0 so as to facilitate comparison between the GFE and HUD. Lenders are not required to show the annual homeowner’s insurance premium as P.O.C. (paid outside closing) by the borrower. Curing Tolerance Violations HUD also edited its FAQs on curing tolerance violations. To cure a potential tolerance violation, the settlement agent must prepare a revised HUD-1 that states the actual charges paid by the borrower and seller. If the lender pays for a portion of a charge to cure a potential tolerance violation, the amounts for the charge shown on page two of the HUD-1 must be corrected to show the actual amount charged to the borrower. The settlement agent should include on a blank line in the applicable series a notation that the lender has made a P.O.C. payment of a specified amount to correct a potential tolerance violation. After the revised HUD-1 has been prepared by the settlement agent, the settlement agent must provide the revised HUD-1 to the borrower, the lender and the seller as appropriate. Or as an alternative, a cure for a potential tolerance violation may be listed as a credit to the borrower on page one of the HUD-1 with a description of the service(s) the credit is applied to. If the tolerance cure is applied to the overall tolerance category “Charges That in Total Cannot Increase More Than 10%”, the tolerance cure credit may be listed as a “lump sum” amount on a blank line in Lines 204 thru 209 with a description of the tolerance category cure. In its webcast, a HUD representative indicated the lump sum adjustment should NOT be reflected on the HUD page three 10% comparison chart. The comparison chart should reflect the tolerance violation with the “cure” reflected on page one of the HUD. It is also interesting to note a FAQ was added to clarify it is NOT tolerance violation if the amount on Line 801 on the HUD (Our origination charge) decreases from the amount disclosed in Block 1 on the GFE. Yield Spread Premiums Lenders working with brokers or acting in a broker capacity will want to review HUD’s new FAQ on the matter of Yield Spread Premiums (YSPs). The FAQ clarifies the disclosure of the yield spread premium: the YSP payments to the broker are treated as a credit for the interest rate chosen in Block 2 of the GFE. In addition, HUD provides an example how to disclose the YSP in Blocks 1 and 2 for two different scenarios. Thankfully, the newly added FAQ is consistent with the GFE and HUD instructions for disclosure of YSPs. To remove yourself from this mailing list, click here. |
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