twitter linkedin
facebook google+
Search:

Mortgage News

News by Subject
Complete list of specialty news sections.

Purchase Subscription
Subscribe to MortgageDaily.com and get immediate access to all news, statistics and archives.

Mortgage Advertising
Reach mortgage executives, loan originators and other people tied to mortgage industry.

Consumer Mortgage News
Free mortgage news for prospective borrowers.

Mortgage Newsletter
Free e-mail newsletter with the latest headlines from MortgageDaily.com.

Mortgage News Reprints
Put entire MortgageDaily.com stories in your online or printed newsletter or publication.

Mortgage Feedget RSS code
Condensed MortgageDaily.com stories free on your Web site or for your RSS reader.

News Archives
Archive of MortgageDaily.com stories by month going back to 1999.

Press Releases
Reports and announcements from MortgageDaily.com.

Mortgage Statistics
Data and statistics for real estate finance.

Mortgage Directories
Directories of lenders, branch operators and mortgage service providers.

Mortgage Graphs
Directories of lenders, branch operators and mortgage service providers.

home subscribe advertise reprints e-mail help RSS about us LOG IN

Mortgage News

 

Mortgage News

HOT Topics

production

servicing

compliance

legal

fraud

secondary

jobs

appraisal

site map

www.loan-academy.com/
Mortgage Compliance News | Mortgage Compliance Newsletter | Mortgage Regulations
News about complying with mortgage laws, rules and regulations.


RESPA Rule Still Unclear

Two More FAQs on the New RESPA Rule

Oct. 19, 2009

By RICHARD J. ANDREANO
Partner, Patton Boggs LLP


Despite efforts to clarify the new rule under the Real Estate Settlement Procedures Act, some issues are still unresolved. But the issue of prepayment penalties on government-insured loans has been addressed.

On Oct. 7, the Department of Housing and Urban Development issued two more FAQs on the new RESPA rule to be implemented on Jan. 1, 2010. One FAQ is a revised version of a previously withdrawn FAQ regarding prepayment penalties. The other FAQ addresses a concern that the revised HUD-1 does not sufficiently provide for the tax deductibility of points.

Under the new RESPA rule, both the good faith estimate and HUD-1/1A provide for the disclosure of basic loan terms, including whether the loan has a prepayment penalty. The initial version of the FAQs issued on Aug. 13 addressed a feature of FHA loans under which it is common for the borrower to be required to pay interest through the end of the month when a prepayment in full occurs other than on the due date of a periodic payment. This is because interest is accrued on a monthly basis with FHA loans. One FAQ addressed whether the requirement to pay interest after a prepayment in full must be disclosed as a prepayment penalty in the GFE and HUD-1/1A. HUD advised in the FAQ that the requirement is not a prepayment penalty and, thus, should not be disclosed as a prepayment penalty in the GFE or HUD-1/1A.

In the Aug. 19 version of the FAQs, the FAQ addressing the prepayment penalty issue was withdrawn without explanation. Apparently, HUD withdrew the FAQ after discussing the matter with the Federal Reserve Board. In the commentary to the Truth in Lending Act rules, the Fed takes the position that a requirement to pay interest after the prepayment in full of a mortgage loan is a prepayment penalty.

As addressed in the Sept. 28 and Oct. 5 editions of the Mortgage Banking Update, the Fed position presented an issue under TILA rules that went into effect on Oct. 1. The rules create a new class of mortgage loans known as higher-priced mortgage loans. Subject to exceptions, a loan is a higher-priced mortgage if it is secured by the consumer's principal dwelling and the annual percentage rate equals or exceeds a certain threshold. The threshold is 1.5 percentage points above the applicable average prime offer rate (or 3.5 percentage points above such rate for a subordinate-lien loan).

The average prime offer rate is computed by the Fed. Based on the rate in effect for the week of Oct. 12, a fixed-rate loan with a 30-year term would be a higher-priced mortgage if the annual percentage rate was 6.43 percent or higher. Because of the relatively low annual percentage rate threshold, industry groups believe that many FHA loans will be higher-priced mortgages, which presents an issue given the prepayment penalty restriction applicable to higher-priced mortgages and the Fed's position that a requirement to pay interest after the prepayment in full of a mortgage loan is a prepayment penalty.

In a Sept. 29 letter labeled as an 'official interpretation,' the Fed's director of the Division of Consumer and Community Affairs advised that the commentary provision under which a requirement to pay interest after a full prepayment is a prepayment penalty does not apply to FHA loans. The director rendered this advice on the grounds that the "commentary on this issue does not expressly address this issue in the context of monthly interest accrual amortization." (Please see the Sept. 28 and Oct. 5 editions of the Mortgage Banking Update for more information on the TILA issue.)

In the Oct. 7 version of the FAQs, HUD included a revised FAQ regarding the disclosure of whether the loan has a prepayment penalty. Citing the Sept. 29 letter from the Fed's director, HUD advises that the requirement with an FHA loan to pay interest after the date of a full prepayment is not a prepayment penalty and, thus, does not have to be disclosed as a prepayment penalty in the GFE or HUD-1/1A.

The new RESPA rule revises the approach to the disclosure of lender and broker compensation and the disclosure of points and yield spread premiums. All compensation received by the broker and lender are included in a single disclosure on Line 801 of the HUD-1/1A labeled, "Our origination charge." Line 802 of the HUD-1/1A is for the disclosure of "Your credit or charge (points) for the specific interest rate chosen." Line 802 would include any points paid by the borrower, or any yield spread premiums and other lender-paid broker compensation or closing cost payments. Such lender payments would be shown as a credit to the borrower from the lender.

The revised approach presents an issue as to whether points will be sufficiently designated as such in the HUD-1/1A to meet Internal Revenue Service requirements for the borrower to be able to deduct the points for tax purposes. Among other criteria, the IRS requires that the points be clearly shown on the HUD-1/1A as points paid for the mortgage loan.

A new FAQ provides that, "A loan originator may designate any origination point paid on page 2 of the HUD-1 Line 801. The designation should follow 'Our Origination Charge' either by adding the language "Includes Origination Point" (__% or $__) or by placing an asterisk (*) and adding the language at the bottom of the page."

Unfortunately, this advice appears to conflict with the new RESPA rule.

The new RESPA rule provides that Line 801 "is used to record 'Our origination charge,' which includes all charges received by the loan originator, except any charge for the specific interest rate chosen (points)." HUD will need to address the FAQ, which provides for disclosing the points in Line 801, and the RESPA rule, which provides that points may not be included in Line 801.


Richard J. Andreano is a partner at the Washington, D.C.-based law firm of Patton Boggs LLP. He focuses on regulatory compliance, transactional and administrative matters for residential housing and financial clients. He graduated with honors from the The George Washington University Law School, J.D., in 1983.
e-mail Rich at [email protected]attonboggs.com

SUBSCRIBERS: Edit Subscription | Subscription Help | or call 214.521.1300

Subscribe Contact Us Site Map

Copyright © 2017 Mortgage Daily, D a l l a s
Subsribers Only:

AMC directory

ARM indexes

mortgage company directory

mortgage regulations

net branch directory

p r i c i n g engine directory

wholesale lender directory

More Mortgage News Resources (full site map):

advertising news

appraisal news

bank news

biggest lenders

commercial mortgage news

corporate mortgage news

credit news

FHA news

financial regulation news

foreclosure news

GSE news

jumbo mortgage news

interest rates

loan modification news

loan originator survey

LOS Newsletter

MBS

mortgage associations

mortgage-backed securities

mortgage books

mortgage brokers

mortgage compliance

mortgage conferences

mortgage directories

mortgage education

mortgage employment

mortgage employment index

mortgage executives

mortgage fraud

mortgage fraud blog

mortgage fraud local news

Mortgage Fraud Index

Mortgage Graveyard

mortgage insurance news

mortgage lawsuits

mortgage leads

mortgage lender ranking

mortgage licenses

mortgage litigation

Mortgage Litigation Index

Mortgage Market Index

mortgage mergers

mortgage news

mortgage politics

mortgage press releases

mortgage production

mortgage public relations

mortgage rates

mortgage servicing

mortgage statistics

mortgage technology

mortgage video

mortgage Webinars

net branch

net branch directory

nonprime news

origination news

originator tools

real estate news

refinance news

reverse mortgage news

secondary marketing

social media

servicing news

subprime news

wholesale lenders