With one month of living with the new RESPA 2010 rule under our belts, many of the issues that seemed so daunting just a short time ago are gradually being resolved. Undoubtedly, many of the remaining issues will be resolved in the upcoming days and weeks as the industry becomes more familiar with the effects of the new RESPA 2010 rule. In response to recent clarifications from the Housing and Urban Development (HUD) (including, without limitation, HUD's latest RESPA FAQs, dated January 28, 2010 and direct conversations with HUD representatives), feedback from our LOS partners and DocMagic customers who use LOS's, and interactions with compliance professionals in the residential mortgage lending industry, DocMagic has enhanced its software accordingly as specifically described below.
One issue that seems to persist and indeed get even murkier (if that is possible) is the interplay, or lack thereof, between yield spread premiums (YSPs) and the origination charge as those items appear in Blocks 1 and 2 on page 2 of the new Good Faith Estimate (GFE) in brokered loan transactions. We have previously written about DocMagic's take on this issue here.
While we believe this interpretation is reasonable (that is, that YSP paid to the broker is included as part of "Our origination charge" appearing in Block 1 on page 2 of the GFE as well as in Block 2 on page 2 of the GFE), many of our LOS business partners have taken a different approach, one that treats the amounts entered into Blocks 1 and 2 on page 2 of the GFE as independent of one another. However, given the nature of the LOS as the system of record, our customers' familiarity with their respective LOS systems' handling of the data, and the confusion among many LOS users regarding the different approach taken by their LOS and DocMagic, it makes considerable sense at this point for DocMagic to revise its default handling of YSPs and the aggregate of "Our origination charge" for purposes of completing Blocks 1 and 2 on page 2 of the GFE. Accordingly, effective February 3, 2010, DocMagic is revising its default handling of YSPs for purposes of completing Blocks 1 and 2 on page 2 of the GFE such that the amounts entered into Blocks 1 and 2 on page 2 of the GFE will operate independently of one another. Please continue reading to see how you should input data to ensure that the GFE is properly completed, the loan APR's are properly computed, and the integrity of the DocMagic high cost tests are maintained.
Entering Origination Charges and Fees
"Our origination charge" that appears in Block 1 on page 2 of the GFE and line 801 of the HUD-1 is the aggregate of all origination charges for lenders and mortgage brokers, including fees for administrative and processing charges, such as processing, application, administration fees, underwriting, document preparation, wire, lender inspection, mortgage broker, loan handling, and other miscellaneous fees. Currently, fees and charges for administrative and processing activities can be entered in as individual itemized charges; however, for purposes of the GFE, they are aggregated together and appear in Block 1 on page 2 of the GFE together with other origination charges.
In a transaction involving a broker, depending upon the LOS provider and investor requirements, these other origination charges will typically take the form of either a mortgage broker fee and/or a loan origination fee. After the broker has determined the amount of their broker fee or loan origination fee that are not included in the itemized administrative and processing charges, if any, enter the amount of the broker fee or loan origination fee in the corresponding field in the LOS, and DocMagic will ensure that all fees and charges categorized as origination charges are aggregated and appear in Block 1 on page 2 of the GFE and line 801 of the HUD-1.
Entering Yield Spread Premiums
There is no change to the manner in which YSPs should be entered into the LOS as a result of the change described in this article. The aggregate amount of all items categorized as Rate Credit or Charge is displayed in Block 2 on page 2 of the GFE and in line 802 of the HUD-1.
A Note About Changes to the DocMagic Screens and Additional Fee Categories: Please note that in connection with the changes described above, we have made some changes to the DMO and DMW displays (Click here for additional information about these changes). We've also added two new fee categories to the DocMagic application (Click here to view the additional fee categories).
Examples
To better assist DocMagic customers, we have included screen shots of suggested methods you may use to enter the applicable data for purposes of completing Block 1 on page 2 of the GFE and line 801 of the HUD-1, and Block 2 of page 2 of the GFE and line 802 of the HUD-1. If you do not see an example for your LOS and you have questions as to the correct method to enter the required data, please contact DocMagic's Customer Service Department for assistance.
For Calyx Point, click here.
For BytePro, click here.
Impact of Changes
Because of the changes discussed above, the following items are impacted:
Annual Percentage Rate (APR): Because broker fees and loan origination fees are finance charges, you will most likely see an increase in the APR when compared to the prior method.
Federal and State High Cost Tests - Points and Fees: Because broker fees and loan origination fees are prepaid finance charges, and because the starting point for the points and fees tests of virtually all high cost tests is prepaid finance charges payable in connection with the loan, you may experience a higher percentage of loans exceeding applicable high cost point and fee thresholds.
Federal and State High Cost Tests - APR Test (including Federal and State Higher-Priced Mortgage Loan Tests): Because broker fees and loan origination fees, as finance charges, will most likely result in an increased APR when compared to the
prior method, you may experience a higher percentage of loans exceeding applicable high cost and HPML (and comparable state) APR thresholds.
YSPs Paid to Borrower and State High Cost Tests: A number of jurisdictions require that any compensation to the broker, regardless of the source of the payment, be included as a point and fee for purposes of their high cost tests. We previously wrote about this
here. Generally speaking, the most common form of indirect compensation (that is, non-borrower paid compensation) paid to the broker has been yield spread premiums paid by the lender to the broker. Because YSPs are now reflected as credits to the borrower on the GFE and are no longer presumed to be paid to the broker, we have added "borrower" as a payee type for all premiums, including YSPs, in both DMO and DMW. The net effect of reflecting the borrower as the payee of YSPs or any other premium is to
exclude YSPs and other premiums from being captured as points and fees for purposes of the state high cost tests of those jurisdictions that include indirect broker compensation.
Please contact DocMagic's Compliance Department if you have any questions regarding the information set forth in this article.
Neither approach (that is, including YSP paid to the broker as part of the origination charge in Block 1 as well as including it in Block 2 on page 2 of the GFE versus treating the amounts entered into Blocks 1 and 2 on page 2 of the GFE as independent of one another by including YSP only in Block 2) is incorrect; rather, each approach simply handles the loan transaction data in a slightly different way to complete the GFE correctly. DocMagic adopted the first approach for several reasons, including the following: (1) after 01/01/2010, users could, with very minor exceptions continue to enter charges, fees and premiums into DocMagic exactly as they had been doing prior to that date, and DocMagic automatically performed the aggregation for each Block of the GFE; no new data entry methods needed to be mastered and additional training was minimized (again, with very minor exceptions); (2) because charges, fees and premiums were entered into DocMagic as they had been previously, the accuracy of APR calculations was maintained; and (3) with the implementation of the "Lender Credit to Borrower," the integrity of the results of all of DocMagic's high cost tests was maintained.
The aggregate amount is actually the net of all credits (e.g., YSP) and charges (e.g., discount points, buydowns) categorized as a Rate Credit or Charge.
If you are not using DMO or DMW, then the process is slightly different. In order to achieve the same net effect (that is, exclude YSPs from being captured as points and fees for purposes of the state high cost tests of those jurisdictions that include indirect broker compensation), enter a YSP (and YSP only) paid to broker. When DocMagic processes the data, DocMagic will automatically treat the YSP as if paid to borrower, and the YSP will not be included as a point and fee.
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