Compliance Blog

Posted by Anthony Demangone

Let's wrap up the GFE portion of the new RESPA rules today.  There's not much more to 3500.7.  However, stay focused, as the last two sections are very important.

3500.7(g)

This section reminds us that the GFE is not a loan commitment.  Specifically, HUD states "(t)he loan originator is not required to provide a GFE if the loan originator does not have available a loan for which the borrower is eligible."

There is a HUD FAQ Q and A that might confuse you. Here's GFE General FAQs, #1.

Q: What happens if a GFE is not provided to a borrower?

A: In a transaction involving a federally related mortgage, the loan originator is required to provide a GFE to the borrower. Failure to provide a GFE as required is a violation of Section 5 of RESPA.

Hmmm.  The reg says no GFE is required if the borrower is not eligible for a loan.  This FAQ says you always need to provide it.  Here's my take.  I think HUD's Q and A simply means that when you are required to provide a GFE, failure to provide it is a violation.  But if the applicant isn't eligible for any of your loan products, there's no requirement.  And just in case you were unclear, even the issuance of a GFE is not a loan commitment.

Q: Is a GFE a loan commitment?

A: No, the GFE is not a loan commitment. A GFE is an estimate of settlement charges a borrower is likely to incur to obtain a specific loan.   GFE General FAQs, #9.

3500.7(i)

Cure, baby, cure.  A violation of section 3500.7 is deemed to have violated section 5 of RESPA.  There is hope, though.  If any charges at settlement exceed the charges listed on the GFE by more than any allowed tolerances, can can cure the mistake!  Simply reimburse the borrower the amount by which the tolerance was exceeded.  You can do this at settlement of within 30 calendar days after settlement.  You'll be OK if you deliver or place the payment in the mail within 30 calendar days after settlement.

There are a number of "cure" Q and A's within HUD's FAQ document.  Here's one that caught my eye:

Q: Does the settlement agent have to stop the closing if a tolerance would be violated?

A: No, the settlement agent does not need to stop the closing. While HUD recommends that the lender cure the tolerance violation at closing, the lender has 30 calendar days to cure.   HUD RESPA FAQ, Right to Cure and Tolerance Violations #3.

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HUD has been busy lately.

• HUD issued a number of mortgagee letters. Letters 09-28,29 and 30 address appraisal standards for FHA mortgages.  If your credit union does those, I'd familiarize yourself with the guidance documents.
• HUD also issued Letter 09-35 to discuss loan mitigation issues surrounding FHA loans.
• Also, you may want to keep the mortgagee letter link handy if you are responsible for HUD issues at your credit union.  From it, you can access any mortgagee letter dating back to 1976.