The Department of Housing and Urban Development’s RESPA Office published additional guidance on complying with the Real Estate Settlement Procedures Act in light of the Federal Reserve Board’s (FRB) loan officer compensation rule.
Scheduled to become effective April 1, 2011, the rule was designed to prevent mortgage brokers and loan officers from increasing their own compensation by raising consumer loan costs, such as by increasing the interest rate or points. Despite several politicians and trade groups request to delay the implementation of the rule, the Fed continues to move forward with the changes.
According to HUD, the guidance seeks to clarify RESPA requirements related to proper disclosure on the GFE and HUD-1 settlement statement. “This guidance does not address substantive issues related to restrictions on mortgage loan originator compensation that are within the jurisdiction of the FRB,” said HUD.
The guidance addresses the following:
1) Mortgage broker transactions where the broker is compensated indirectly from the lender by means other than an amount that is computed based on the interest rate, such as by a flat fee or an amount that is based on any other computation;
(2) No cost transactions where the credit for the interest rate chosen covers third party settlement charges;
(3) Using a credit/charge calculation prior to completing Block 2 on the GFE; and
(4) Payments by lenders to borrowers to correct tolerance violations in transactions involving a mortgage broker.
“The Department urges timely and effective communication among the lender, its loan officers, and mortgage brokers to establish policies and procedures to ensure accurate calculation of compensation and credits in compliance with RESPA, as well as under the FRB compensation rule and any other applicable federal or state statute,” said the agency.
View a copy of the guidance here.