Written By: Bonnie Wilt-Hild, Op-Ed Writer
I received some pretty interesting news from one of my primary investor for 203k’s this week. It was regarding allowable fees on both streamline and standard 203k’s. Much to my surprise it was regarding what we could not charge which was somewhat of a surprise considering HUD’s removal of the cap on origination fees this year per ML 2009-53 as well as doing away with most of the non allowable closing cost per ML2006-4.
According to this particular investor, we are not allowed to charge lender fees on 203k’s nor are we allowed to charge more than 1% origination fee plus the allowable supplemental origination fees or either the streamline 203k transactions or standard 203k transactions. Pretty interesting considering we have been charging lender fees since HUD lifted the ban in 2006 where lender fees are concerned and of course were allowing more than 1% origination point since the lift of the cap this year under the new RESPA rules. So I decided to do some research, most importantly to prove them wrong but to also make sure that we were handling the fee piece of the transaction the right way and this is what I have determined.
Firstly, there is no indication in ML2006-04 that lender fees are prohibited on 203k’s, either streamline or standard excluding the tax service fee which of course is prohibited on all FHA transactions. Further I confirmed with HUD that lender fees as are normal and customary are acceptable and permitted. When disclosing these fees they must be included in box 1 of the GFE under “Our Origination Fee” as they would normally be disclosed on a standard 203b. These fees would include of course origination, underwriting fees, processing fees, application fees and the like. The additional fees that would be charged on the 203k which are exclusively 203k, fees such as supplemental origination fees, inspection fees, consultant fees and the like would be disclosed on the GFE as follows:
N/A – Not applicable to the Streamline program
Inspection fee_________Block 3_________Block 3
Architectural Fee________Block 6_________N/A
Engineering Fee________Block 6_________N/A
Consultant Fee_________Block 6 _________N/A
Permits _____________Not Disclosed ______Not Disclosed
Supplemental Orig______Block 1__________Block 1
Discount on Repairs_____Block 1_________Block 1
Title Update___________Block 4_________Block 4
Maximum origination charges are another subject entirely which have been addressed by HUD in ML2010-04. The Mortgagee Letter clearly states that both Home Equity Conversion Mortgages and 203k rehabilitation mortgage insurance programs retain their statutory origination fee caps of 1%. With this, I contacted HUD and they informed me that the cap on maximum origination fees on the Home Equity Conversion Mortgage product and the 203k, both standard and streamline, had not been lifted. We can as lenders collect the supplemental origination fee on the 203k’s and true discount points however no more than a 1% origination fee may be charged on these product types. Now what this means for all of us lenders is that if your institution has been charging more than a 1% origination excluding supplemental origination fee you now owe your borrowers a refund on any origination fee greater than 1% charged to these borrowers.
As an institution, the bank for which I am employed has begun issuing these refunds for origination fees charged which were greater than 1% and fortunately there was only 1. For those of you that are originating and closing a large volume of these loan types I recommend you review closed loans to determine if there are cases for which you owe a refund to your borrowers if for no other reason than to circumvent your investor requirements should they wake up as mine did and request that you begin refunding money to previous clients. Where lender fees are concerned, I think interpretation is the key, so if you run into this problem I suggest providing ML 2006-04.
In closing I would like to remind everyone to pay particular attention to the compliance piece on the K’s to make sure they have been disclosed properly under the new RESPA rule because the cost associated to curing the errors can become quite expensive. Additionally when underwriting, make sure you watch the repair piece of the rehabilitation and not just the dollar amount of repairs. Missing what may be considered a structural alteration to the property could then require the case be completed as a standard 203k instead of a streamline k and as we are all aware, the standard 203k’s have different requirements where the rehabilitation is concerned. As always, happy underwriting!
About The Author
Bonnie Wilt-Hild - As an op-ed writer, Bonnie holds mortgage underwriting position as the Senior FHA DE Underwriter for a major lending institution. With over 25+ years of senior-level FHA/VA Government underwriting experience, Bonnie is considered the "Queen of FHA Loans".