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Financial Institution Letters |
Attachment B U.S. Department of Housing and Urban Development Responses to Questions under the Real Estate Settlement Procedures Act* Question 1. Whether a lender may "markup" a third party vendor's fees for the purpose of making a profit when no additional services are provided by the lender and thereby disclose the "marked-up" fee on the HUD-1, or whether the lender is limited to charging/disclosing its actual cost in obtaining the service? RESPONSE: Section 8(b) of RESPA provides that "[n]o person shall give and no person shall accept any portion ... of any charge made or received for the rendering of a real estate settlement service ... other than for services actually performed." 12 USC 2607(b). The RESPA regulations repeat this prohibition under 24 CFR 3500.14(c), adding that "[a] charge by a person for which no or nominal services are performed... is an unearned fee and violates this section." Under these provisions, any settlement service provider that charges a fee as a "mark-up" of a fee for a third party's services in a covered transaction without itself rendering services or furnishing goods in exchange for that portion of the fee would violate RESPA's prohibitions against split or unearned fees. This has been a long-standing position of HUD, and was most recently articulated in a preamble of a final rule issued with a statement of policy on computerized loan origination systems, on June 7, 1996 (61 Fed. Reg. 29238).1 That publication states, in part:
(61 FR 29238, 29249). The HUD-1 and HUD-1A Settlement Statement must reflect the amount actually paid to the third party settlement service provider-that is, the actual amount of the fee-in compensation for the third party services. This is set forth in the General Instructions to the HUD- 1, made applicable in 24 CFR 3500.8(b) and found in Appendix A to part 3500, which state that the settlement statement shall "itemize all charges imposed upon the Borrower and the Seller by the Lender... and any other charges which either the Borrower or the Seller will pay for at settlement...The names of the recipients of the settlement charges in section L...should be included in the blank lines." (Emphasis added.) The instructions for Section L pertaining to settlement charges further clarify that "[f]or all items except for those paid to and retained by the Lender, the name of the person or firm ultimately receiving the payment should be shown." Pursuant to these provisions, charges for third party services must be separated and specifically itemized. If the lender charges additional amounts for performing actual services in connection with a particular settlement service purchased from a third party (for example, processing and evaluating an applicant's credit report purchased from a third party credit reporting company), those amounts cannot simply be added to the fee paid to the third party provider for disclosure purposes. Rather, such charges by lenders for processing or other services must be broken out from the particular third party fee and specifically identified and disclosed in the line item reserved for processing or origination costs (line 801) or, in accordance with section 3500.9(a)(4), may be inserted in blank spaces. Question 2. In the context of processing a residential loan application to which RESPA applies and where the lender selects a credit reporting company, does the phrase "the cost of the credit report" (in Regulation X, 24 CFR section 3500, Appendix A, Instructions for HUD-1, line 804) mean the credit reporting company's charge to the lender? RESPONSE: Question 3. Whether, if a lender performs actual settlement services (for example, evaluation of a borrower's creditworthiness) additional to those provided by third party vendors, may the lender charge the borrower for both the actual services provided by the lender and those provided by the third-party vendor? RESPONSE: Question 4. In the context of processing a residential loan application to which RESPA applies and where the lender selects an appraiser from its approved list, does the phrase "appraisal fees" (in Regulation X, 24 CFR section 3500, Appendix A, Instructions for HUD- 1, line 803) mean the appraiser's charge to the lender? RESPONSE: Question 5. Whether, if a lender performs actual settlement services (for example, assessment of a property valuation) additional to those provided by third-party vendors, may the lender charge the borrower for both the actual services provided by the lender and those provided by the third party vendor? RESPONSE: * Letter from Gail Laster, General Counsel (HUD) dated December 10, 1999 to Honorable Bruce Mitchell, County Superior Court, Los Angeles, CA. 1The final rule was subsequently blocked by Congress (12 U.S.C. 2617(d)), and did not become effective (see 61 FR 51782, October 4, 1996). However, the quoted language was a restatement of long-standing HUD policy on Section 8(b), which remained unaffected by the disposition of the final rule. The statement of policy on computerized loan origination systems (Statement of Policy 1996-1) published with the final rule on June 7, 1996 (61 FR 29255), remains in effect.
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Last Updated 07/12/2000 | communications@fdic.gov |