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VA Loans under the New RESPA

By
Services for Real Estate Pros with McMichael & Toledo, CPAs

If you've heard anything about the new RESPA rules going into effect in January 1, 2010, you've undoubtedly heard that there are issues. One issue that jumps out at me is the handling of the VA non-allowable closing costs. I was all over HUD's RESPA site and VA's website and could find no answers, so I wrote an e-mail to HUD's RESPA questions address. Since I know I'm not the only one with this question I'll be sure to post any reply I get as well. Here's what I wrote to HUD:

 

I'm wondering how to handle "non-allowable" borrower fees like the ones in a VA loan. Certain fees, such as underwriting, processing, and the buyers part of the escrow fee for example, are "non-allowable" borrower fees in a VA loan. Traditionally these are paid by the seller in a purchase and paid with rebate pricing by the lender in a refinance.

First, on a purchase do we still disclose those fees even though the borrower cannot by law pay them? The FAQs say we should include the owners title policy in the GFE even though the seller traditionally pays that, so is it the same with the non-allowable fees? Is there a way to show seller paid closing costs on the new GFE at all?

Second, on a refinance those non-allowable fees are typically paid by the broker/lender using SRP or rebate pricing because there is no seller to pay them and the borrower is not allowed to pay them. Since any rebate must now go directly to the borrower that option is no longer available. Consider the fact that VA limits the origination fee to 1% of the loan amount and the fact that VA non-allowable fees are usually between $1,000 and $1,300. If the loan amount is anywhere near $130,000 the originator would be doing the loan for nothing, which is obviously not going to happen. If I'm reading the new rules correctly, VA refinances will be a thing of the past as of January 1st.

Since I'm sure your intent was not to deprive veterans of the opportunity to refinance or purchase a home, I'm assuming there is some exception or workaround that I'm not aware of. For VA loans the new GFE is unclear and leaves the originator in a position where they may end up covering those non-allowable fees, which is not a risk I think any of us are willing to take.

Thank you in advance for your response.

John Occhi
AZ Veteran Notary Services - Marana, AZ
Mobile Notary Public/Certified Loan Signing Agent

Thank you for this post.  I have just written my own on the new RESPA rules and even went ahead and created a group, just for RESPA posts, like this one.

Would you please consider joining this new group and adding this post to the group.

Thank you in advance,

John

Jan 02, 2010 07:14 AM
Anonymous
Judy Smith

Looking forward to seeing this response.

Jan 05, 2010 02:31 AM
#2
Bela Toledo, CPA
McMichael & Toledo, CPAs - Grants Pass, OR

Judy,

I did get a reply from HUD, but it was less than inspiring.  See my newest blog post here:

http://activerain.com/blogsview/1407365/hud-s-response-to-my-va-question

Jan 05, 2010 02:57 AM
Kevin Tinsley
VAHomeLoans.com - Tacoma, WA
Washington State Tacoma Seattle VA Home Loans

Here's an update from a lender I received this evening. 

Well, it looks as if VA has NOT followed FHA in lifting the 1% cap to brokers...see attached circular released this afternoon.  (A bit unbelievable, in our opinion)

So, we will provide the following so that brokers can, at least, make 1% on VA loans. 

Purchase - add .5% fee, no Hyperion Lender Fee, and contingent upon seller paying non-allowables

 Refinance - add 1% fee, no Hyperion Lender Fee, and Hyperion will pay non-allowables

 Non-allowables do not include fees to broker (i.e. processing, etc.) Respa prohibits us from paying broker anything not listed as a Block 1 charge. In other words, max broker will ever make on a VA loan, purchase or refi, is 1%.  

Bottom line the veteran will be paying for these non allowable fees in the interest rate.  Whether they finance through a bank or mortgage broker, someone has to pay the 1000-1250 in misc non allowable charges.    I can see lenders pricing their VA loans with the cost of the non allowable fees already built into the pricing.  Ex.  5.25% par rate to broker that includes all lenders fees and settlement/escrow fees.

Jan 07, 2010 03:33 PM
Bela Toledo, CPA
McMichael & Toledo, CPAs - Grants Pass, OR

Kevin,

I saw this too and am pleased that Hyperion is finding a workaround.  I'm in Oregon and have worked with those guys for years, so it doesn't surprise me that they would be the first ones with a solution.

Of course, even that solution highlights one of the problems with the new RESPA.  Hyperion, as a lender, can price the loan higher and do whatever they want with the SRP.  You and I, as brokers, cannot.  This whole VA RESPA question is a non-issue for banks who can still collect their SRP and still don't have to disclose it.

Jan 11, 2010 06:07 AM
Anonymous
Answer

32)

Q: Does a loan originator have to show an appraisal fee (or other fee) paid to a third party on the GFE and HUD-1 even if the loan originator wants to cover 100% of the fee?

A:

 

Yes. The loan originator must list all required third party services on the GFE and HUD-1 regardless of whether the charge is paid by the borrower, seller, loan originator or any other party (except for administrative and processing services). If any party other than the borrower is paying for a service that was on the GFE, such as the appraisal fee, the charge remains in the borrower‘s column on the HUD-1. A credit from the paying party to the borrower to offset the charge should be listed on the first page of the HUD-1 in Lines 204-209 and, if the service was paid by the seller, Lines 506-509 respectively.

The credit for the appraisal fee (or other fee) could also be offset by a credit disclosed as a negative number in Line A of the GFE and listed as a negative number in Line 803 of the HUD-1.

Sep 29, 2011 10:08 AM
#6