Editorials

Today, VA released Circular 26-10-01; unfortunately it did not provide the answer everyone hoped to see. The circular covers:

1.    Reiterated that the 1% cap on Origination Fee would continue

2.    Announced new documentation requirements and that

3.    Eliminated INTEREST RATE AND DISCOUNT DISCLOSURE STATEMENT effective immediately.

Below is a summary of the Circular.  A link directly to the Circular is at the very bottom of this newsletter. 

ALLOWABLE AND UNALLOWABLE FEES:  As stated in 38 C.F.R. 36.4813 fees the veteran may pay are limited when obtaining a VA guaranteed home loan. 

One Percent (1%) Origination Fee:  The lender/broker may only charge the veteran a flat fee up to one percent (1%) of the loan amount.  The flat fee is meant to cover the lender/broker's costs and services, which are not reimbursable as "itemized fees."  (You are not going to like this... this 1% fee is now the Origination fee as defined under RESPA). 

When the loan is an Interest Rate Reduction Refinancing Loan (IRRRLs), the 1% Origination Fee may not exceed one percent (1%) of the existing VA loan balance of the loan being refinanced plus the cost of any energy efficient less any cash payments from the veteran.

If an origination fee is charged, lenders/brokers may NOT assess veterans any other fees other than the allowable fees shown below (as long as they are reasonable and customary).

Here's the kicker... If an origination fee is not charged, the lender may assess other fees as long as the aggregate amount does not exceed one percent of the loan.

Allowed Reasonable and Customary Itemized Fees:

Appraisal and compliance inspections

Recording fees

Credit report

Prepaid items (taxes, assessments, and similar items)

Hazard insurance

Flood determination

Survey

Title examination

Title insurance

Special mailing fees for refinancing loans

Mortgage Electronic Registration System (MERS) fee

Other fees authorized by VA

Remember that the veteran may pay only the actual amount charged by the third party.

Examples of unallowable itemized fees can be found in chapter 8, Section 2d of the Lenders Handbook. One example of an unallowed fee is an Attorney Fee. The lender/broker may NOT charge the veteran for attorney's fees associated with settlement.

This Attorney Fee should not be confused with fees charged by an Attorney for a title exam. The Title Exam fee charged by Attorney is allowed as long as the associated fee reflects the actual cost and is reasonable and customary. VA states that they do not intend to prevent the veteran from seeking independent legal representation. If the veteran chooses; the veteran may independently retain an attorney and pay a fee for legal services in connection with their home purchase.

Should the veteran pay a fee to an attorney, make sure the closing documents clearly indicate that the attorney's fee is not being charged by the lender/broker, and is being paid by the veteran as part of an independent arrangement with an attorney.

Notation of Origination Fee on HUD-1:  Since VA will continue to have a cap on the origination fee and limits the types of charges that may be paid by the veteran, lenders must itemize the fees included in the "Our Origination Charge" line on the HUD-1 Settlement Statement.

If there is not sufficient space to itemize all of these fees on the HUD-1, lenders must provide a separate Origination Statement. The new Origination Statement must indicate the purpose of the charge and the amount (example: Origination Fee - $1,000 and MERS Fee- $15.00). The new Origination Statement must be signed and dated by the borrower. VA states that the itemized origination fees should not be split between the HUD-1 and the new Origination Statement.  Lenders should use only one of the two approaches to disclose the fees.

VA requires all VA loan applications that are taken on or after May 1, 2010 must have either the Origination Statement or a breakout of the origination fees on the HUD -1.  However lenders can use the Origination Statement or breakdown the fees on the HUD-1 sooner if they choose.

MAINTENANCE OF RECORDS:  A copy of the GFE and new Origination Statement (if applicable) must be maintained as part of the origination package. Lenders must submit them, along with other origination documents, if a loan file is requested for review by VA. Additionally, copies of invoices for all third-party services must be maintained as part of the origination package and available for review upon VA's request.  Your Quality Control Auditor will be looking for this documentation and will site the the loan as being deficient if the documentation is not located.

What will happen if you do not comply with the above?  Lenders/Brokers will be subject to removal from the program, subject to fines by VA, government-wide debarment, and other civil and criminal penalties that may be applicable. This is pretty hefty, so please make sure everyone is aware of the need to maintain the proper documentation.

Theresa  Ballard  is the CEO of BFO Solutions. BFO provides clients with the following services among others: Quality Control Review, Due Diligence,  Compliance Training. You can reach Theresa at 619-397-2603 or at tballard@bfosolutions.com