With the deadline for implementation of the Federal Reserve's LO Compensation rule looming on April 1, 2011, there is likely to be a flurry of activity as industry participants and groups continue to prepare for the launch, while also continuing to push for a delay. HUD joined the mix by releasing guidance on the new rule as it relates to RESPA regulations, primarily addressing GFE compliance.
In their "RESPA ROUNDUP" publication, HUD seeks to clarify proper disclosures required by RESPA rules in accordance with the new rules on LO compensation and the GFE and HUD-1 settlement statement. The guidance seeks to address questions regarding four specific situations as it relates to completing disclosures.
The guidance amounts to various different scenarios that could be raised by the new rules and how to properly complete the GFE. It is not intended to address issues with the rule or answer rule compliance questions, it is only guidance on completing the GFE disclosure. In light of that, here is a brief overview of the guidance:
- Mortgage Broker Transactions with Indirect Compensation from the Lender in the form of a "flat fee or other compensation": In accordance with the GFE requirements, to properly account for this compensation, the broker must disclose the flat fee in Block 1, than note it as a credit in Block 2.
- No Cost Transactions where credit for Interest Rate Chosen covers LO or third party costs: Origination charges must still be listed in Block 1, and Third party fees must still be itemized and listed in Blocks 3-11, but the credit for interest rate chosen must be sufficient to cover the total charges resulting in $0 for the sum of Lines A and B.
- Using a credit/charge calculation prior to completing Block 2 of the GFE: this one is a variation of the first one stating that when the net payment to a broker from the lender is positive, it is entered as a negative in Block 2; and when the net payment is negative, it is entered as a positive in Block 2. However, the guidance rules, the LO Comp rule does prohibit a broker receiving payments from both the lender and borrower.
- Payments by Lenders to Borrowers for tolerance violations in wholesale transactions: as is widely understood, brokers and lenders are able to address charges that exceed thresholds in order to avoid a tolerance violation. The guidance warns about being cognizant of compensation compliance. Which means issuing a credit could have impacts on the duel compensation rule.
As a final note, the guidance states that the implementation of the compensation rule cannot be considered a basis for a changed circumstance that would allow for a revision of the GFE.