Additional FAQs
If the borrower is getting a "no cost" loan, must the lender list charges the lender is going to pay?
Yes. The charges to be shown on the GFE and the HUD-1 must include any payments by the lender to affiliated or independent settlement providers. These payments should be shown as P.O.C. (paid outside of closing).
The regulations at 3500.15 (b)(1)(i) state that where a lender makes a referral to a borrower the condition for providing an Affiliated Business Disclosure (AfBA) may be satisfied as part of and at the time of the GFE. Does this mean the lender does not have to give a separate AfBA disclosure if the information is part of the GFE?
No. A separate AfBA must be given. The regulation means the AfBA may be given at the time the GFE is given if this is when the affiliate is referred or is required to be used (a lender may require the use of an appraisal, credit reporting company, or attorney).
Must a mortgage broker disclose payments he receives that the borrower does not pay for directly?
Yes. The mortgage broker must disclose all payments and fees he receives whether they are received directly from the borrower or indirectly from the lender.
If I have a question concerning the calculation of the "Annual Percentage Rate" or "APR", can HUD answer it?
The calculation of the APR is part of the Truth-in-Lending Act (TILA) which is administered by the Federal Reserve Board. Questions concerning TILA as well as Section 32 (high cost loan disclosure) may be directed to the Federal Reserve Board at (202) 452-3693.
May a settlement service provider charge a fee that reflects its own fee plus any recording fees as the servicer provider's fee? Example: An attorney charges $500 for its services and the county charges $30 for recording fees. May the attorney simply charge the consumer $530 and pay the county as a cost of doing business?
No. The "Line Item" instructions to the HUD-1 state that "[f]or all items except for those paid to and retained by the lender, the name of the person or firm ultimately receiving the payment should be shown." The attorney must disclose all entities ultimately receiving the fee.
May real estate agents that are independent contractors be considered employees under the "employer-employee" exemption, for purposes of being allowed to be paid referral fees from employers?
No. The exemption applies only to bona-fide employees.
If the borrower's escrow account includes a surplus greater than $50 which HUD's rules require be refunded, may the servicer credit the surplus directly to the principal, rather than refund the surplus to the borrower?
No. However, the servicer may inform the borrower in the information accompanying the return of the surplus that the borrower may elect to use the refund to reduce principal or have it credited against the next year's escrow payments.
If there is a surplus in the escrow account and the borrower is in default, may the servicer retain the surplus as payment towards the amount in default?
HUD's escrow rules are inapplicable to loans that are in default, which is defined under the RESPA rules as current payments which are more than 30 days delinquent. The parties should consult the mortgage documents or state law to resolve whether escrow funds are available for this purpose.
May a consumer delay or avoid a mortgage transaction if it discovers that there exists a RESPA violation?
No. RESPA specifically provides that it does not affect the validity or enforceability of any sale or contract for the sale of real property, or any agreement arising in connection with a federally-related mortgage loan.
How should I report a violation of RESPA?
You should send a written complaint describing the practice that you believe violates RESPA. The complaint should include the names, addresses and phone numbers of the alleged violators. It is preferred that you include your name and phone number in case an investigator wishes to ask further questions. You may request confidentiality. Send the complaint to:
U.S. Department of HUD
Office of RESPA and Interstate Land Sales
451 7th Street, SW
Room 9154 Washington, DC 20410
You may also wish to send a complaint to State and other Federal agencies that have the responsibility for regulating the settlement providers engaged in the referenced practice.
We audit your loan file for HOEPA violations:
Here is some basic information about HOEPA from the Federal Trade Commission Website:
High-Rate, High-Fee Loans (HOEPA/Section 32 Mortgages)
If you're refinancing your mortgage or applying for a home equity installment loan, you should know about the Home Ownership and Equity Protection Act of 1994 (HOEPA). The law addresses certain deceptive and unfair practices in home equity lending. It amends the Truth in Lending Act (TILA) and establishes requirements for certain loans with high rates and/or high fees. The rules for these loans are contained in Section 32 of Regulation Z, which implements the TILA, so the loans also are called "Section 32 Mortgages." Here's what loans are covered, the law's disclosure requirements, prohibited features, and actions you can take against a lender who is violating the law.
What Loans Are Covered?
A loan is covered by the law if it meets the following tests:
for a first-lien loan, that is, the original mortgage on the property, the annual percentage rate (APR) exceeds by more than eight percentage points the rates on Treasury securities of comparable maturity; for a second-lien loan, that is, a second mortgage, the APR exceeds by more than 10 percentage points the rates in Treasury securities of comparable maturity; or the total fees and points payable by the consumer at or before closing exceed the larger of $561 or eight percent of the total loan amount. (The $561 figure is for 2008. This amount is adjusted annually by the Federal Reserve Board, based on changes in the Consumer Price Index.) Credit insurance premiums for insurance written in connection with the credit transaction are counted as fees.
The rules primarily affect refinancing and home equity installment loans that also meet the definition of a high-rate or high-fee loan. The rules do not cover loans to buy or build your home, reverse mortgages or home equity lines of credit (similar to revolving credit accounts).
What Disclosures Are Required?
If your loan meets the above tests, you must receive several disclosures at least three business days before the loan is finalized:
The lender must give you a written notice stating that the loan need not be completed, even though you've signed the loan application and received the required disclosures. You have three business days to decide whether to sign the loan agreement after you receive the special Section 32 disclosures.
The notice must warn you that, because the lender will have a mortgage on your home, you could lose the residence and any money put into it, if you fail to make payments.
The lender must disclose the APR, the regular payment amount (including any balloon payment where the law permits balloon payments, discussed below), and the loan amount (plus where the amount borrowed includes credit insurance premiums, that fact must be stated). For variable rate loans, the lender must disclose that the rate and monthly payment may increase and state the amount of the maximum monthly payment.
These disclosures are in addition to the other TILA disclosures that you must receive no later than the closing of the loan.
What Practices Are Prohibited?
The following features are banned from high-rate, high-fee loans:
All balloon payments - where the regular payments do not fully pay off the principal balance and a lump sum payment of more than twice the amount of the regular payments is required - for loans with less than five-year terms. There is an exception for bridge loans of less than one year used by consumers to buy or build a home: In that situation, balloon payments are not prohibited.
Negative amortization, which involves smaller monthly payments that do not fully pay off the loan and that cause an increase in your total principal debt.
Default interest rates higher than pre-default rates.
Rebates of interest upon default calculated by any method less favorable than the actuarial method.
A repayment schedule that consolidates more than two periodic payments that are to be paid in advance from the proceeds of the loan.
Most prepayment penalties, including refunds of unearned interest calculated by any method less favorable than the actuarial method.
The exception is if:
The lender verifies that your total monthly debt (including the mortgage) is 50 percent or less of your monthly gross income;
You get the money to prepay the loan from a source other than the lender or an affiliate lender; and
The lender exercises the penalty clause during the first five years following execution of the mortgage.
A due-on-demand clause. The exceptions are if:
There is fraud or material misrepresentation by the consumer in connection with the loan;
The consumer fails to meet the repayment terms of the agreement; or
There is any action by the consumer that adversely affects the creditor's security
Creditors also may not:
Make loans based on the collateral value of your property without regard to your ability to repay the loan. In addition, proceeds for home improvement loans must be disbursed either directly to you, jointly to you and the home improvement contractor or, in some instances, to the escrow agent.
Refinance a HOEPA loan into another HOEPA loan within the first 12 months of origination, unless the new loan is in the borrower's best interest. The prohibition also applies to assignees holding or servicing the loan.
Wrongfully document a closed-end, high-cost loan as an open-end loan. For example, a high-cost mortgage may not be structured as a home equity line of credit if there is no reasonable expectation that repeat transactions will occur.
How Are Compliance Violations Handled?
You may have the right to sue a lender for violations of these new requirements. In a successful suit, you may be able to recover statutory and actual damages, court costs and attorney's fees. In addition, a violation of the high-rate, high-fee requirements of the TILA may enable you to rescind (or cancel) the loan for up to three years.
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