American Banker is reporting that the Department of Housing and Urban Development plans to lift the 1% cap on origination fees for Federal Housing Administration mortgages, sources close to the agency said.

HUD argues that competition will prevent fees from rising too much once the Real Estate Settlement Procedures Act takes effect Jan 1.

It’s believed that if borrowers think they’re being overcharged, they can shop around for a better deal and take their business elsewhere.  Phillip Schulman, a partner in the K&L Gates LLP law firm told American Banker that "HUD feels the marketplace will drive origination fees down once the 1% cap is removed."

The department had indicated last year that it might remove the cap when it completed the RESPA changes.

It’s doubtful that HUD would lift the cap on its FHA insured reverse mortgage program but it’s interesting to see HUD take more of a “free markets” approach to the origination fee. 

HUD to Life Cap (American Banker)