Written by Richard Triplett, CMB*

In keeping with the previous articles written on general RESPA reform and page 1 of the revised GFE, this article will cover certainly one of the most controversial aspects of the revised GFE: Page 2.  Due to the overwhelming effect this will have on mortgage brokers, lenders, and all third party providers of services, it is the primary reason for threatened law suits to prevent the final rule.

It is important to note that as you go through this page of the revised GFE, keep in mind the specific tolerance restrictions on whether or not a specific fee can increase prior to the loan settlement. I have noted the tolerances for increase in the charges in each section. The only carve out provided for violation of the settlement charge tolerance restrictions, along with the issuance of a "revised" GFE prior to settlement, involves "changed circumstances".

Changed Circumstances - There are various provisions regarding changed circumstances (indicated below); however, the definition of changed circumstances is:

• Acts of God, war, disaster or other emergency
• Information particular to the borrower or transaction relied on in providing the GFE is found to be inaccurate or changes after the GFE was provided, including information about the credit quality, the amount of the loan, the estimated value, or other information used to provide the GFE
• New information regarding the borrower or transaction that was not relied upon for issuing the GFE
• Other circumstances, including boundary disputes, the need for flood insurance or environmental problems

Changed circumstance does not include the following:

• The borrower's name
• The borrower's monthly income
• The property address
• Estimated value of the property
• The mortgage loan amount
• Any information in the credit report generated prior to issuance of the GFE, unless the information has changed or found to be inaccurate
• Market price fluctuations

Various examples provided regarding issuance of a revised GFE include:

• Circumstances affecting settlement costs - If the changed circumstance results in an increase in settlement costs at closing and exceeds the tolerances, a revised GFE can be given within 3 business days of receiving the information sufficient to establish the changed circumstance. If a revised GFE is given, the increase in charges must be limited to only those charges where the changed circumstance resulted in the higher charge.
• Circumstances affecting the loan - If there is a change to the borrower's eligibility for the specific loan terms identified in the original GFE, the originator may provide a revised GFE to the borrower, but it must be issued with 3 business days of receiving the information sufficient to establish the changed circumstance.
• Borrower-requested changes - If a borrower requested change results in a change to the terms of the loan or the settlement charges, an originator may provide a revised GFE within 3 business days of the borrower's request.
• Expiration of the original GFE - If the borrower does not express an intent to continue with an application within the mandated 10 business days, the GFE must be in effect, or longer if the lender establishes a longer time frame, then you are no longer bound by the issued GFE.
• Charges and terms dependent upon interest rate - If the interest rate is not locked or a lock has expired, the charge or credit for the interest rate, the adjusted origination charges, per diem interest and loan terms related to the interest rate may change. Once the borrower does lock (or re-lock) the rate, a new GFE must be provided reflecting the rate dependent charges and terms. All other terms and charges not affected by the rate must remain the same.
• New home purchases - If the loan is for a new home purchase and the settlement is expected to be beyond 60 calendar days from the GFE issuance, the originator may provide the GFE with a separate disclosure (clear and conspicuous) stating that any time up until the 60 calendar days before the closing a revised GFE may be issued. If this is not done, the originator cannot issue a revised GFE.

Page 2 of the New GFE:

Your Adjusted Origination Charges
1. Our origination charge This charge is for getting this loan for you		(Zero tolerance)
2. Your credit or charge (points) for the specific interest rate chosen This charge is for getting this loan for you [ ] The credit or charge for the interest rate of XXX% is included in “Our Origination charge.” (See item 1 above) [ ] You receive a credit of $XXXX.XX for this interest rate of XXX.XX%. This credit reduces your settlement charges. [ ] You pay a charge of $ XXXX.XX for this interest rate of XXX.XX%. This charge (points) increases your total settlement charges. The tradeoff table on page 3 shows that you can change your total settlement charges by choosing a different interest rate for this loan.		(Zero tolerance after rate is locked)
A	Your Adjusted Origination Charges	$(Zero tolerance after rate is locked)

Our origination charge - This section must be completed to include all fees payable to "all" originators. This means all fees paid to a mortgage broker and the mortgage lender combined, as applicable. There is still some debate and clarification needed regarding the lender liability for this section in a wholesale origination transaction. RESPA allows for the GFE to be issued by the mortgage broker to meet Regulation X requirements, and in this case, the lender does not necessarily need to re-issue it. The concern is the liability to the lender for relying on the GFE issued by the mortgage broker in terms of the lender's fees or charges. Without this needed clarification from HUD, it must be assumed, given the final rule, that the GFE must be accurate since there is no stated tolerance for this section. Therefore, I would assume if the lender is relying on the GFE issued by the mortgage broker that the mortgage broker has established the lender's charges unless the lender issues a revised GFE to the applicant.
    
Your credit or charge (points) for the specific interest rate chosen - The first box identifies whether any discount points are already included in the origination charge listed above. The second and third boxes identify points and yield-spread premiums as either a credit or a charge to the applicant. This is the specific section causing most of the controversy from the mortgage broker perspective. Since this section is so controversial I am providing the instructions by HUD regarding completing this section:

For loans involving a mortgage broker - Boxes two and three must be used. Only one box can be checked to either indicate a credit (Box 2 - yield-spread premium) or a charge (Box 3 - discount points) on the specific transaction and the rate/point structure chosen by the applicant. HUD has indicated that you cannot have both a credit and a charge in this section, so again, only one box may be selected. The final rule specifically states, "The credit or charge for the specific interest rate chosen is the net payment to the broker from the lender (i.e., the sum of all payments to the mortgage broker from the lender, including payments based on the loan amount, a flat rate, or any other computation, and in a table funded transaction, the loan amount less the price paid for the loan by the lender)".

It additionally states, if the net payment to the mortgage broker is positive, there is a credit to the borrower and the figure would be entered as a negative amount in Box 2. If the net payment to the mortgage broker is negative, there is a charge to the borrower and it is entered as a positive amount on Box 3. If the net payment is zero, a "0" can be entered in either the credit or the charge blocks. 

For loans without involvement of a mortgage broker - The lender can choose not to separately disclose and credit or charge for the interest rate chosen; however, if no positive or negative figure is shown here, the first box must be chosen indicating the credit or charge for the interest rate chosen is included above in the origination charges.

Section A - This is just the total of the two sections. However, for "no cost" loans, if the term "no cost" is reflective of only originator fees, Box 1 must reflect a zero. If the "no cost" promotion also includes third party fees, those fees must be itemized and listed on the GFE and the total for line A will result in a negative number equal to the third party fees covered in the loan originator's definition of "no cost". The credit for the interest rate must be large enough that the total for line A will result in a negative number to cover the third party fees.

The remaining sections of this page are fairly self-explanatory in terms of where to place the charges. The tolerances are identified for you in the chart above. Some of the questions I have regarding this page deal with other entities outside of what is considered a settlement service and where to place these items, or whether the lender is expected to anticipate these costs in its origination charges. A few of those items that come to mind include:

• Banks charging for verifications of deposit accounts
• Employers requiring fees for verifying employment
• Verification charges by landlords
• Mortgage servicers charging for mortgage verifications
• Borrower requested grant deed charges or quit claim deed charges
• Processing the IRS 4506 prior to closing
• Escrow holdbacks for repair or construction items
• Homeowner counseling charges, etc.  

There could be any number of such charges possible within an individual transaction. Perhaps we will receive some clarification from HUD as the implementation of this new disclosure progresses.

In addition, as a multi-state lender or broker, estimating the exact cost of recording fees and any transfer taxes/stamps for the particular jurisdiction would be necessary at the time of the GFE. Consider all of the potential riders necessary for the recording of the security instrument and, in some cases, cover letters or additional riders required by the recording entity.

Reserves or escrow - In this section, it is wise to do a comparison with the new HUD-1 for items such as any up front mortgage insurance (indicated on the HUD-1 as Section 3 above). One item in this section that perplexes me is regarding the fact that even though HUD line 902 is for any upfront mortgage insurance premium, it lists number of months even though the charge is not based on a monthly figure. I also find that the VA Funding fee is an item glaringly missing. Homeowner's insurance under HUD line 903 also indicates "years" rather than months for any insurance that must be reconciled at the time of closing.

In short, it is quite apparent that there are a number of questions, issues and indeed additional clarification necessary as we prepare to implement this newly revised disclosure.

Other Articles in this Six-Part Series:

• Part I - RESPA Reform Final Rule - Part 1
• Part II - RESPA Reform: Revised GFE Page 1
• Part IV - RESPA Reform: Revised GFE Page 3
• Part V - RESPA Reform: Revised HUD-1 Settlement Statement
• Part VI - RESPA Reform: Implementation Considerations

Richard Triplett, CMB, is an AllRegs Academy instructor and Chief Compliance Officer for Gregg & Valby, LLP in Houston, Texas. This article first appeared in the AllRegs Weekly Digest and may be viewed in its original format at http://www.allregs.com/ealerts/updates090112_RevisedGFE02.htm. Copyright © 2009 AllRegs. Reprinted with permission from AllRegs, http://www.allregs.com/.

* Any opinions expressed in the above article are to be construed as the author's opinion only and do not necessarily reflect those of DocMagic, Inc., including members of its Compliance Department.