Compliance Blog

Posted by Sarah Loats

Under RESPA, if you allow the borrower to shop for third party settlement services, you supposedly don't have to worry about tolerances come closing-time. However, if you permit the borrower to shop for services, the GFE Instructions require you to provide the borrower with a "written list of providers".

If the borrower chooses a provider from the list, then they've selected a provider that you have 'identified" and you are now subject to the 10% tolerance restriction. The GFE Instructions provide, in part:

"There is a 10 percent tolerance applied to the sum of the prices of each service listed in Block 3, Block 4, Block 5, Block 6, and Block 7, where the loan originator requires the use of a particular provider or the borrower uses a provider selected or identified by the loan originator. Any services in Block 4, Block 5, or Block 6 for which the borrower selects a provider other than one identified by the loan originator are not subject to any tolerance and, at settlement, would not be included in the sum of the charges on which the 10 percent tolerance is based. Where a loan originator permits a borrower to shop for third party settlement services, the loan originator must provide the borrower with a written list of settlement services providers at the time of the GFE, on a separate sheet of paper."

Furthermore, according to the HUD Q&A below, the inclusion of a provider on the list is considered a referral under section 3500.14 of RESPA, subject to the restrictions against kickbacks and unearned fees.

"Q: The GFE Instructions require that where a loan originator permits a borrower to shop for third party settlement services covered in Blocks 4, 5, or 6, the loan originator must provide the borrower with a separate written list of settlement service providers at the time of the GFE. Is inclusion on the written list of identified providers considered a referral under Section 3500.14?

A: Yes, the inclusion of a specifically identified settlement service provider on the "written list" is considered to be a referral under 24 CFR § 3500.14(f)."

For more tidbits about the "written list", and other stuff, see the HUD RESPA FAQs.