Actual versus Average Charges

QUESTION

When may a HUD-1 Settlement Statement include charges for services that will be greater than the actual charge?

ANSWER

The amount stated in a HUD-1 Settlement Statement for any itemized service may not exceed the amount actually received by the settlement service provider for that specific itemized service, unless the charge is an average charge determined in accordance with Regulation X, the implementing regulation of the Real Estate Settlement Procedures Act (RESPA).

Regulation X provides requirements for how a settlement service provider may impose an average charge for certain services. This is called the “average charge” approach. It should be noted that the average charge may not be used for any settlement service where the charge for that service is based on the loan amount or property value.

Thus, the average charge may not be used with charges such as transfer taxes, interest charges, reserves, escrow, or in fact any type of insurance (i.e., mortgage, title and hazard insurance). [24 CFR § 3500.8(b)(2)]

While RESPA permits the use of any average charge under certain conditions, an average charge may not be permitted under other laws or loan program requirements. Therefore, where using the average charge, the lender should take into consideration all applicable laws and loan program requirements. 

Jonathan Foxx

President & Managing Director
Lenders Compliance Group

Appraisals in Disaster Areas

QUESTION
What documentation is required after the appraisal is completed and the subject property is located in a disaster area?

ANSWER
With Hurricane season and wild fires in full swing, the question is common to all agency types of loans: FHA, VA, Conventional, and USDA. Such natural disasters include, but are not limited to, hurricanes, mud slides, rising waters/flooding, wild fires, tornadoes, et cetera.

When the property is located in an area where a natural disaster has struck, a lender must certify to its investor and/or Agency that the property was not damaged, and the value is supported; or, if repairs are required to be made, that the lender is notified prior to the loan closing or, in some cases, prior to purchase in the secondary market.

In the scenario where an appraisal was completed “As Is,” “Subject to Completion of Repairs,” or “Subject to Completion per the Plans and Specifications’” prior to the disaster event, the lender must provide evidence the subject property did not sustain any damage or value deterioration due to the disaster event affecting the area in which the property is located. The most accepted form to be used is either the 1004D or 442 Appraisal Update and/or Completion for FNMA and FHLMC or the 92051 Compliance Inspection Report for FHA and VA loans. This evidence must be provided by a licensed appraiser, but not limited to the appraiser who prepared the original appraisal.

In the scenario where the appraisal was completed after the declared disaster event, the appraiser must provide a statement in the report to the effect that the subject property was not affected by the noted disaster event and the value of the original appraisal is supported.

If a lender is unclear or unsure if the subject property has been involved in a disaster event that warrants a recertification of value, it should consult the investor or Agency website for alerts, as well as the Federal Emergency Management Agency (FEMA) website, where all declared disaster areas by state and county are listed.

The FEMA website for disaster area listings is: http://www.fema.gov/disasters.

Brandy George
Director/Underwriting Operations
Lenders Compliance Group

HMDA-LAR: Systemic Errors

QUESTION
I have recently become aware that a HMDA-LAR we previously filed for 2013 contained systemic errors. Am I required to correct and resubmit the HMDA-LAR?

ANSWER
It depends on the number of errors contained in the previously filed HMDA-LAR. The CFPB has set forth specific HMDA Resubmission Guidelines in its Examination Procedures of October 2013.

You can find a complete copy of these guidelines at:

http://files.consumerfinance.gov/f/201310_cfpb_hmda_resubmission-guidelines_fair-lending.pdf. 

Institutions reporting fewer than 100,000 loans or applications on their HMDA-LAR are required to correct and resubmit HMDA data when 10% or more of the HMDA-LAR entries are inaccurate. Institutions reporting 100,000 or more loans or applications on their HMDA-LAR are required to correct and resubmit HMDA data when 4% or more of the HMDA-LAR entries are inaccurate. 

This begs the question of how an institution would know what percentage of its entries are inaccurate unless it scrubbed 100% of the loan files and compared the data to the HMDA-LAR entries!  For this reason the CFPB suggests an institution review a sample size, on a consistent basis, to ensure that systemic problems are detected and addressed.

The CFPB Examination Procedures indicate that the Bureau’s examiners will randomly select up to seventy-nine loans to review for institutions with 100,000 or fewer loans or applications on their HMDA-LAR. If the loans are reviewed and eight are identified as HMDA-LAR entries with errors, the CFPB will require a complete resubmission of the HMDA-LAR following a scrub of 100% loan files referenced on HMDA-LAR.  

It is suggested that institutions do whatever is necessary to ensure the accuracy of their HMDA-LAR, as the CFPB has imposed civil monetary penalties upon institutions for failing to have accurate HMDA data; such fines ranging from $1,500 to $425,000.

Michael Barone
Director/Legal & Regulatory Compliance
Lenders Compliance Group

Preapproval Programs

QUESTION
In the case of preapprovals, we are unsure about whether we should include them in the code for preapprovals in the HMDA-LAR. The HMDA guides only refer to a Preapproval Program. If we offer preapprovals, are we involved in a Preapproval Program? 

ANSWER 

Among other reporting requirements, an application type and action taken on a request for a preapproval under a preapproval program would need to be reported on the HMDA-LAR. There are three elements of a covered preapproval program that lead to the requirement for such reporting.

The essential components of a preapproval program are:

1. The lender conducts a comprehensive analysis of the applicant’s credit-worthiness (i.e., including such verification of income, resources, and other matters as is typically done by the lender as part of its normal credit evaluation program);

2. A written commitment to the applicant is issued and valid for a stated period of time for a up to a specified amount (i.e., purchase money mortgage to purchase a home); and,

3. The written commitment is not subject to conditions other than:

a. Conditions that require the identification of a suitable property;

b. Conditions that require that no material change has occurred in the applicant’s financial condition or credit-worthiness prior to closing; and,

c. Limited conditions that are not related to the financial condition or credit-worthiness of the applicant that the lender ordinarily attaches to a traditional home mortgage application (i.e., cleared termite inspection, acceptable title insurance binder).

It is valid to include as a condition that an applicant must provide a settlement statement showing adequate proceeds from the sale of the current home, where such proceeds are to be used from the sale of the current home to purchase the new home subject to the preapproval.

[12 CFR § 203.2(b)(2); 12 CFR, Part 2, Supplement I § 203.2(b)-3]

Jonathan Foxx
President & Managing Director
Lenders Compliance Group