Bulletin: SLS2010020

Dear Associates:

This Bulletin is to provide updates on RESPA.

VA Circular 26-10-9 July 30, 2010 and 26-10-9 Change 1 August 6, 2010

Additional guidance is given in VA Circular 26-10-9 (as amended by 26-10-9 Change 1) as to itemization of charges required for VA loans - particularly as to "lump sum" credits to the borrower in the 200 series, lender's charges included in 801 and title services charges included in 1101. VA loans for which applications are taken on or after October 1, 2010 will require these itemizations. The VA clarifies that the required breakout should be done on any attachment or addendum that can be attached to the HUD-1. The purpose of the itemization is to show that the borrower has not paid any fees that under VA rules are "disallowed." Both Circulars can be found on the following website: http://www.benefits.va.gov/homeloans/circulars/26_10_9_change1.pdf.

HUD's RESPA Roundup

HUD has indicated that it does not intend to issue any further FAQs following those dated April 2, 2010. HUD has, however, added a new item called RESPA Roundup to its websitewhich will be posted from time to time. The first posting, RESPA Roundup July 2010, covers the Interpretive Rule issued by HUD's General Counsel concerning RESPA Section 8 issues (discussed below) and provides additional information on GFE and HUD-1 issues. The RESPA Roundup September 2010 provides details concerning documenting payments to subordinate lien holders on the HUD-1 when closing a short sale. Both the July and September RESPA Roundups can be found on HUD's RESPA website at www.hud.gov/offices/hsg/ramh/res/respa_hm.cfm.

2010 HUD-1

The RESPA Roundup July 2010 's final section addresses the question of what should be recorded on pages 2 and 3 of the HUD-1 if a service, such as an owner's title policy, was listed on the GFE but not actually obtained as part of the transaction. HUD's answer: "[t]here should be nothing entered in that line on Page 2 of the HUD-1 and the estimate of the charge should not appear in the comparison chart on Page 3 of the HUD-1." HUD's answer creates a quandary as to what happens if simultaneous issue rates are used for GFE estimates in Box 4 (Title services and Lender's title insurance) and in Box 5 (Owner's title insurance). This is particularly an issue in those geographical areas in which it is not customary for the seller to purchase the owner's title insurance for the borrower. HUD has made it clear that every GFE issued for a purchase money loan must always include an estimate for the owner's title policy. It follows then that the simultaneous issue rates would be used for the GFE estimate for the lender's title policy. However, if the borrower elects not to buy the owner's title policy, simultaneous issue rates will not apply at closing and the full rate will be charged for the lender's title policy. According to HUD's view in the REPSA Roundup July 2010 , if no owner's title is purchased at the closing, no amount is to be entered on Line 1103 and in addition, no entries are to appear for the owner's title insurance in the comparison chart on page 3 of the HUD-1 under either the "GFE" column or the "HUD-1" column. The comparison chart will however have entries for "Title services and lender's title insurance" which under the "GFE" column will be the estimate based on simultaneous rates and under the "HUD-1" column will be the much increased actual charge calculated at the full premium rate. Quandary: Will not this often cause a violation of the "10%" tolerance category (assuming the borrower has selected an attorney/title company from the lender's provider list)? This problem was raised with HUD by email. Email responses from a HUD compliance officer state that the borrower's election not to purchase the owner's title policy may be a change of circumstance permitting the lender to issue a new GFE at closing in which the new GFE's Box 4 could reflect the full rate for the lender's title insurance and a "$0" in Box 5 for the owner's policy thus resolving the potential tolerance violation. This position has only been stated in an email from one HUD compliance person. Perhaps a future RESPA Roundup will address these questions more formally so both lenders and the title industry will have additional guidance. Remember - HUD's view as set forth in the RESPA Roundup July 2010 applies to any service estimated on the GFE which is not obtained as part of the loan transaction, not just the owner's title insurance. Examples could be survey, termite inspection, or any other items listed in the GFE. Apparently HUD's purpose is to prevent lenders from "loading" or "padding" the GFE with services that they will not actually require as part of the transaction.

HUD Interpretive Rule

HUD's Office of General Counsel issued an Interpretive Rule published in the Federal Register on June 25, 2010 dealing with Section 8 of RESPA (the "no kick-back" "no referral fee" prohibition contained in RESPA). Specifically the Interpretive Rule addresses the issue of compensation paid by a home warranty company ("HWC") to a real estate broker or agent for marketing services. The standards outlined in this Interpretive Rule would most likely be used by HUD in evaluating any sort of "marketing or sales agreement" for settlement services. In addition to its publication in the Federal Register, the complete Interpretive Rule is also posted on HUD's RESPA website. The RESPA Roundup July 2010 summarizes the Interpretive Rule as follows:

"1) a payment by an HWC for marketing services performed by real estate brokers or agents on behalf of the HWC that are directed to particular homebuyers or sellers is an illegal kickback for a referral under Section 8;

2) depending on the facts of a particular case, an HWC may compensate a real estate broker or agent for services when those services are actual, necessary and distinct from the primary services provided by the real estate broker or agent, and when those additional services are not nominal and are not services for which there is a duplicative charge;

3) the amount of compensation from the HWC permitted under Section 8 for such additional services must be reasonably related to the value of those services and cannot include compensation for referrals of business."

Exemption from GFE/HUD-1 Requirements for Certain Subordinate Loans

By document dated October 6, 2010, HUD Secretary Shaun Donovan under his authority as Secretary, has exempted certain subordinate loans from the RESPA requirements of providing a Good Faith Estimate (GFE) and the HUD-1. The exemption was in response to requests made by several entities that operate housing assistance loan programs for low and moderate incomed people. The exemption applies only to subordinate loans and those that meet a number of specified conditions, including that the loans carry a 0% interest rate. The complete list of conditions is in the exemption announcement which can be found on HUD's RESPA website as provided above.

While Stewart Title Guaranty Company has reviewed the Final RESPA Rule, we remind you that settlement services are outside the scope of our agency contract. Information, interpretations and views of Stewart Title Guaranty Company as to the new HUD-1 and Final RESPA Rule are offered as a courtesy only and expressly do not constitute legal advice. You may or may not agree with or follow such views and interpretations. You are advised to consult your own legal counsel in making all decisions regarding laws and regulations pertaining to escrow and closing matters.

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