QUESTION
We need some assistance regarding our ability as a lender to charge the borrower notary fees on FHA and VA loans when it is an employee of the lender who is acting as the notary. Can you please provide some guidance?
ANSWER
With respect to a VA loan, the lender may not charge the borrower a separate itemized notary fee, regardless if the notary is an employee or not. All such fees are intended to be covered by the 1% flat fee charge.
[VA Lender’s Handbook Ch. 8.2-d]
With respect to an FHA loan, the current handbook provides that the lender may charge the borrower “reasonable and customary fees that do not exceed the actual cost of the service provided”.
[HUD Handbook 4000.1.II.A.6.a.x(A)]
The italicized section of the previous sentence implies that a lender may not charge for services provided by its employees as the lender did not incur any costs, as the employee’s salary is part of the lender’s overhead.
A prior version of the HUD handbook specifically delineated allowable fees which included a notary fee if notarization is required by the state and the notarization is performed by a notary who is not employed by the lender.
[HUD 4000.2 Rev-3 Ch. 5-2(O)]
HUD Handbook 4000.2 Rev-3 was superseded by Handbook 4155.2 which did away with the specific categories but stated that the cost for any item charged must not exceed the cost paid by the lender or charged to the lender by the service provider, thus making it impermissible to charge for services provided by the lender’s employees. Handbook 4155.2 has been superseded by Handbook 4000.1 discussed above.
Pertinent sections of the Handbooks cited above are set forth below.
HUD Handbook 4000.1.II.A.6.a.x(A)
x. Closing Costs and Fees
The Mortgagee must ensure that all fees charged to the Borrower comply with all applicable federal, state and local laws and disclosure requirements.
The Mortgagee is not permitted to use closing costs to help the Borrower meet the Minimum Required Investment (MRI).
(A) Collecting Customary and Reasonable Fees. The Mortgagee may charge the Borrower reasonable and customary fees that do not exceed the actual cost of the service provided. The Mortgagee must ensure that the aggregate charges do not violate FHA’s Tiered Pricing rules.
HUD Handbook 4155.2 6.A.3.a Collecting Customary and Reasonable Fees
The lender may only collect fair, reasonable, and customary fees and charges from the borrower for all origination services. FHA will monitor to ensure that borrowers are not overcharged. Furthermore, the FHA Commissioner retains the authority to set limits on the amount of any fees that a lender may charge a borrower(s) for obtaining an FHA loan.
Aggregate charges may not violate FHA’s tiered pricing rules, per ML 94-16.
Additionally, FHA does not allow “mark-ups.” The cost for any item charged to the borrower must not exceed the cost paid by the lender, or charged to the lender by the service provider.
Only the actual cost for the service may be charged to the borrower.
HUD Handbook 4000.2 Rev-3 Ch. 5-2(O)
CLOSING COSTS AND OTHER FEES (05/04)
Listed below are the customary and reasonable fees and charges that may be collected from the borrower by the lender and used to meet the minimum investment requirement for purchases and added to the existing indebtedness for refinances. The cost for any item charged to the borrower must not exceed the cost paid by the lender or charged to the lender by the service provider.
* * *
O. Courier/Wire/Notary Fees. Courier fees and wire fees may be charged only on refinances and only for delivery of the mortgage payoff statement to the lien holder and for closing documents to the settlement agent. The borrower must agree in writing to pay for the courier and wire fees, prior to loan closing. Notary fees may be charged if notarization is required by state law and is performed by a notary who is not employed by the lender.
VA Lender’s Handbook Ch. 8, 2-d: Lender's One Percent Flat Charge (11/08/12)
In addition to the “itemized fees and charges,” the lender may charge the veteran a flat charge not to exceed one percent of the loan amount.
Calculate the one percent on the principal amount after adding the funding fee to the loan, if the funding fee is paid from loan proceeds (except Interest Rate Reduction Refinancing Loans (IRRRLs).
Note: For IRRRLs, use VA Form 26-8923, IRRRL Worksheet, for the calculation.
The lender’s flat charge is intended to cover all of the lender’s costs and services which are not reimbursable as “itemized fees and charges.”
The following list provides examples of items that cannot be charged to the veteran as “itemized fees and charges.” Instead, the lender must cover any cost of these items out of its flat fee:
- notary fees
Joyce Wilkins Pollison
Director/Legal & Regulatory Compliance
Lenders Compliance Group
