HUD recently issued new guidance on the new GFE: “All seller-paid fees must be disclosed on the GFE – including transfer taxes. If seller-paid fees are not disclosed on the GFE, then you are required to provide a refund to the borrower for any amount that exceeds tolerance limitations – regardless of whether or not the seller actually paid the fee.”

Here is a practical example. While not mandated, or typical of nationwide practice, it is common in Tucson for the seller to pay for an owner’s title policy. Per the sales contract the seller agrees to pay for an Owner’s Title Policy, cost $650. Loan officer does not indicate the cost of the policy on the Good Faith Estimate. At closing loan officer must pay the cost of policy, $650, to the buyer. The seller still pays for title policy. Buyer profits $650.

“The Real Estate Settlement Procedures Act of 1974 (RESPA) (12 USC 2601-17) became effective on June 20, 1975. The act requires lenders, mortgage brokers, or servicers of home loans to provide borrowers with pertinent and timely disclosures of the nature and costs of the real estate settlement process.
The act also protects borrowers against certain abusive practices, such as kickbacks, and places limitations upon the use of escrow accounts.”

As part of the disclosure requirement, borrowers are to be given an estimate of fees, known as a good faith estimate, that “bear a reasonable relationship to the borrower’s ultimate cost for each settlement charge and be based upon experience in the locality in which the property involved is located.”

According to HUD’s new guidance, a loan originator can accurately reflect the “ultimate” cost and base his estimate on the “locality in which the property involved is located” and still be penalized. HUD has exceeded the intent of RESPA as a method of protection and is awarding punitive damages when good faith errors are made, even if no harm comes to the consumer.