Bulletin: SLS2010010

Dear Associates:

The initial 120 days of RESPA reform and dealing with the 2010 HUD1 has ended. During this 120 day period HUD has provided additional guidance and we have learned more from our experiences in closings.

Resources

HUD's RESPA web site (www.hud.gov/offices/hsg/ramh/res/respa_hm.cfm) continues to be the best resource for guidance. HUD has posted both its RESPA Implementation Briefing given in December 2009 and its March 18, 2010 webinar for viewing. Everyone working with the 2010 HUD1 is encouraged to view both. In addition HUD uses this website to post its most recent FAQs. At this time the most recent FAQs are dated April 2, 2010 which is the twelfth version of the FAQs. Everyone should periodically check HUD's website for new information and review the most recent FAQs. When questions arise, it is advisable to first look at the RESPA regulations, including Appendix A and Appendix C (the new Rule is on the website and the complete regulations are found at 24 CFR 3500), then consult HUD's FAQs for further guidance. If your particular question is not answered, you can email HUD at HSGRESPA@hud.gov.  

In addition to these resources, should you have questions about the new HUD-1 form, you may contact the Underwriting Counsel designated for your state on our State Counsel list attached.  The designated Underwriting Counsel will provide our views and interpretations of the new RESPA Rule and the use of the HUD-1 form.

VA and FHA Loans

HUD has specified in its recent webinars posted on its website that fees which "government loan programs" require to be itemized may be itemized on the HUD1. The VA released its Circular 26-10-01 dated January 7, 2010 relating to RESPA rules and VA loan charges. FHA released its Mortgagee Letter 2009-53 dated December 30, 2009 as to its policies and RESPA. For VA loans certain fees to the borrower are "allowable" and others are "unallowable" meaning that those fees cannot be charged to and paid by the borrower. Lenders will regularly instruct you to itemize fees that are "rolled" into lines 801 and 1101 which can be done either on page 2 of the HUD1 or on an addendum to the HUD1. It is expected that the VA will release further guidance on this issue at a future date.

FAQs Concerning Transfer Taxes

The April 2, 2010 HUD FAQs provide needed guidance as to the borrower's portion of transfer taxes for both the GFE and the HUD1. See FAQs #1 and #2 under GFE-Block 8 on page 34. In summary, first look to state or local law relating to the transfer tax to see if the party responsible for payment of the tax is specified by statute. If it is unclear under the state or local law, "the amount to be disclosed on the GFE is governed by common practice or experience in the locality of the property."

Changes in FAQs Concerning Tolerance Cures

The prior references to HUD1 page 3 have been REMOVED in both FAQ #9 on page 42 and FAQ #13 on page 43 which address the documentation of a tolerance cure on the HUD1. Based on these revisions, it is no longer required that tolerance cures be shown anywhere on HUD1 page 3.

Lender Instructions, Indemnity Agreements and Fee Guarantees

The RESPA regs are clear that the lender is responsible for the cure of tolerance violations. HUD has stated that if a loan originator pressures a settlement agent to reduce their charges or to "cover the difference" to bring costs into compliance with the tolerances as a condition of receiving further referrals of business, it may be a potential violation of RESPA Section 8(a). See FAQ #6 on page 41. Section 8(a) is RESPA's "anti-kickback" "anti referral fee" provision. Even so, some lenders are including indemnity and other provisions in their loan instructions seeking to "shift" the burden of tolerance violations to the settlement agent. Others are requesting settlement agents to sign separate indemnity agreements or guarantees of the amounts quoted by settlement agents for GFEs. Some provisions are "hidden" and do not per se mention "tolerance cures." For example, loan instructions given by one lender include a "preliminary HUD1" as part of the loan package. The instructions state that no changes can be made in the fees reflected on the enclosed preliminary HUD1. Even if the final HUD1 at closing was approved by the lender's loan processor, this particular lender will issue an invoice to the settlement agent seeking reimbursement for any refunds made by the lender post-closing to borrowers for Truth-in-Lending violations and RESPA tolerance violations. This lender will not authorize any closings by the settlement agent until the invoice is paid.

All standard loan instructions, particularly for those lenders with which you regularly do business, should be carefully reviewed. Be watchful of any provisions shifting responsibility from the lender to you. Make sure such provisions are brought to your management's attention. Also, unless your management has decided otherwise, it should be made clear to lenders in writing at the time quotes are given for GFE purposes that the quotes are not guaranteed and are subject to change.

Post-closing Revised HUD1 Preparation

Lenders can cure tolerance violations either at closing or within 30 days thereafter. When a lender cures a violation post-closing the lender will most likely request the settlement agent to prepare a revised HUD1 reflecting the tolerance violation cure. HUD's FAQ #7 on page 41 states that the settlement agent is required to prepare the revised HUD1 if requested by the lender. The lender can either fund the tolerance cure amount to the borrower directly or through the settlement agent. If the lender directly refunds to the borrower, the tolerance cure credit amount will be reflected on the revised HUD1 as POC Lender. If you are asked to prepare a revised post-closing HUD1, it is suggested that (i) the lender provide clear written instructions for the revised HUD1, (ii) the settlement date on the revised HUD1 should remain as originally stated although the date of the revised HUD1 should be the date it is prepared, (iii) all lender instructions for the revisions and the revised HUD1 be kept in your closing file for that transaction, and (iv) provide a copy to the borrower.

HUD April 2, 2010 FAQs

VA Circular 26-10-01

VA Handbook of Allowable Fees

FHA Mortgagee Letter 2009-53

HUD RESPA Legal Working Group and State Counsel List

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.
If you have questions related to this bulletin, please contact your local underwriting personnel or Stewart Legal Services.

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