By Hafez Daraee
The Daily Record Newswire
Good news: The U.S. Department of Housing and Urban Development and the U.S. Department of Veterans Affairs have issued several new rules that will help loosen the tight credit markets.
1. Waiver of flipping restrictions
On Jan. 15, HUD announced a one-year waiver of the resale rules applicable to Federal Housing Administration-insured loans. FHA's anti-flipping rules do not allow FHA-insured loans to be used to purchase a home if a seller acquired a title within 90 days of the date of sale.
To qualify for this waiver, the sale of the property must be an arm's-length transaction with no commonality interest between buyer, seller or other parties participating in the sale transaction. If the new price exceeds the initial price by 20 percent or more, additional conditions must be satisfied, such as proof of the seller's legitimate renovations or repairs that support the increase in value; if no such work has been performed, the appraiser must provide an appropriate explanation of the increase in property value.
2. New rules designed to help consumers better compare settlement costs
The most significant changes to the Real Estate Settlement Procedures Act have modified the manner in which settlement charges are disclosed on the new good faith estimate forms. As of Jan. 1, 2010, HUD's new GFE form must be used in all residential mortgages.
HUD recently clarified the level of change it will tolerate on the new GFE. Depending on the type of settlement service, the charges quoted on the GFE fall into three categories: charges that cannot change on the GFE (HUD calls these "first bucket" charges); charges that can increase up to 10 percent on the GFE ("second bucket" charges); and charges that can change without regard to the amount stated on the GFE ("third bucket"). The loan origination fee would be a first bucket charge. Appraisal fees would be a second bucket charge. Daily interest fluctuation would be a third-bucket charge.
The intent of the new GFE is to disclose all charges in a simpler form so that the consumer can make an appropriate comparison of services provided by a variety of lenders. The estimates on the new GFE must be good for 10 business days and must be fully disclosed on the new HUD-1 settlement statement forms.
3. Disclosure of real estate broker commissions under RESPA
On Jan. 22, HUD's general counsel issued a clarification of how real estate broker commission fees are to be disclosed on the HUD-1 settlement statement. RESPA now allows Realtors to charge a flat fee or a percentage fee, as long as: (a), the fee is disclosed in the listing or buyer's broker agreement; (b), the fee charged on the HUD-1 form is equal to what was disclosed; and (c), the fee disclosed on line 700 of the HUD-1 is disclosed as part of the commission.
HUD goes on to state that RESPA does not prescribe how commissions should be distributed between the listing and seller brokers; therefore the division of compensation is negotiable.
4. New rules addressing the disclosure of VA origination fees on the new GFE
A qualifying borrower may be charged up to a 1-percent loan origination fee on VA loans, together with certain other allowable charges. But the new GFE form lumps all origination fees and other allowed charges into one category called "our origination charge." The VA's new circular explains how to properly identify these charges on the GFE when the origination fee, together with other allowable fees, exceeds 1 percent of the loan amount.
Two options are available: The lender can itemize the charges in section 800 of the HUD-1 settlement statement, or the lender can issue a separate origination statement, to be signed and dated by the borrower, indicating the purpose of the charges and the amount. If a lender chooses the second option, the HUD-1 should not be separately itemized.
While the VA is encouraging lenders to comply with its new rule immediately, lenders are not required to comply with this new rule until May 1.
Lenders are no longer required to issue an interest rate and discount disclosure statement for VA-guaranteed loans if the new GFE and HUD-1 have been used. But in all cases the GFE and HUD-1, as well as copies of any invoices for all third-party service providers, must be maintained in the file and submitted to the VA if a file is selected for review.
The residential mortgage lending community was hit hard when the housing bubble burst in 2008. HUD and the VA, however, are taking steps to help the market recover. Any questions should be directed to a legal representative.
Hafez Daraee is an attorney in Jordan Schrader Ramis' Dirt Law and business-law practice groups. Contact him at 503-598-5579 or at hafez.daraee@jordanschrader.com.
Published: Wed, Feb 24, 2010
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