HUD made the change to remain consistent with the Real Estate Settlement Procedures Act (RESPA), which will require mortgage lenders to disclose to borrowers a single origination fee on the Good Faith Estimate (GFE) and the HUD-1 Settlement Statement.   The regulations go into effect Jan. 1, 2010

Under RESPA, the single origination charge on the GFE and HUD-1 must include all administrative and processing fees related to the origination of the loans, including compensation for both the mortgage lender and broker. HUD recognized the bundled charge would exceed the 1% cap, according to a statement from the law firm K&L Gates.

To match the changes of FHA regulations, HUD will no longer limit the amount of the origination fee charged to FHA borrowers.

Great the new changes RESPA has rolled out allow the lenders/brokers to jack up the Origination Fee.  Now brokers can whack you a few points for origination AND pick up some Yield Spread kickbacks.  This makes me sick.

The FHA will expect lenders to charge “fair and reasonable” fees and will monitor them to ensure FHA borrowers are not overcharged, and FHA commissioner David Stevens intends to issue additional guidance on fee limitations, according to the letter.

Yeh right, fair and reasonable.  I have looked at well over 1,000 HUD settlements statements where brokers were supposed to be “fair and reasonable” but in fact they were limited by law to the amount they could charge for some types of loans.  You know what we found…they don’t care and many look for any angle to skirt the law.  Wow, no need for that anymore, now we don’t have a limit.

Thanks to Jon Prior @ HousingWire for this tip.

- The Bank Slayer

According to the letter (available to download here) and effective immediately, while borrowers are not eligible for a new FHA mortgage if they pursued a short sale agreement specifically “to take advantage of declining market conditions” or “to purchase another property at a reduced price”; they are cleared for a new FHA-insured mortgage if they were current on their previous mortgage and other debts at the time of the short sale and if the proceeds from the short sale served as payment in full.  These points are KEY!!!

Realtors, take note…if your seller needs to pursue a short sale and is still current, the sale will need to be handled differently than if they are in default.   Example, If a borrower executes a short sale while in default on their mortgage they will not be eligible for a FHA-insured mortgage for three years from the date of the pre-foreclosure sale.   But some lenders will make exceptions if the default was due to circumstances beyond the borrower’s control such as the death of the primary wage earner.  But this needs to be documented and handled diligently during the transaction.

It also means that anyone eligible for the Home Affordable Foreclosure Alternatives program (HAFA) would not be eligible for a new FHA-insured mortgage for three years.  Thanks to Jon Prior at HousingWire for this timely info.

-          The Bank Slayer