HUD Eliminates 1% Cap on FHA Mortgages
The US Department of Housing and Urban Development (HUD) removed the 1% origination fee cap on loans insured by the Federal Housing Agency (FHA), according a mortgagee letter sent out this week. HUD made the change to remain consistent with the Real Estate Settlement Procedures Act (RESPA), which will require mortgage lenders to disclose to borrowers a single origination fee on the Good Faith Estimate (GFE) and the HUD-1 Settlement Statement. The regulations go into effect Jan. 1, 2010 and have software developers scrambling to fit in the updates before the deadline. Under RESPA, the single origination charge on the GFE and HUD-1 must include all administrative and processing fees related to the origination of the loans, including compensation for both the mortgage lender and broker. HUD recognized the bundled charge would exceed the 1% cap, according to a statement from the law firm K&L Gates. To match the changes of FHA regulations, HUD will no longer limit the amount of the origination fee charged to FHA borrowers. FHA lenders shouldn’t get too excited about unlimited origination charges. The FHA will expect lenders to charge “fair and reasonable” fees and will monitor them to ensure FHA borrowers are not overcharged, and FHA commissioner David Stevens intends to issue additional guidance on fee limitations, according to the letter. “Don’t be surprised if this additional guidance is released in early 2010 and results in a percentage cap on the overall amount of fees that can be charged to the FHA borrower,” according to the statement from K&L Group. “For now, however, HUD's deregulation of the 1% origination fee cap is welcomed news for FHA lenders ready to comply with RESPA's new disclosure requirements.” Write to Jon Prior.