Effective January 1, 2010 the Department of Housing and Urban Development (HUD) who runs the Federal Housing Administration (FHA) modified their policies surrounding the maximum amount a mortgage lender may charge for “origination” fees on FHA mortgages. This is no surprise due to the recent changes the the HUD and GFE that went into effect January 1, 2010.
The idea behind the new good faith estimate (GFE) is that it will more easily allow consumers to shop for mortgage loans. To do this the new GFE combines certain fees into buckets. One of those buckets, bucket #1, is “Origination Charge”. Unlike the old GFE which broke out all the fees for the consumer to review the new GFE just lumps a bunch of fees into these buckets. The new “Origination Charge” bucket includes everything that is charged by the lender for originating the loan. On the old GFE these fees may have included, but were not limited to:
- Origination Fee
- Processing Fee
- Underwriting Fee
- Doc Prep Fee
- Funding Fee
- Tax Service Fee
- Admin Fee
Depending on the lender you selected, the state you live in and the structure of your fees/rates these “origination charges” could easily exceed 1% of the mortgage loan amount. With the old GFE the maximum “Origination FEE” was 1%. Until this new announcement was made the new “Origination CHARGE“, to include all of the fees listed above, was still at 1%. FHA realized that their rules were no longer suitable given the changes to the way in which lenders are now required to disclose the fees to the consumers.
How Does this Impact You?
At first glance this may seem a bad thing for consumers with FHA eliminating their maximum 1% “origination fee”. But upon further investigation and understanding of this change, knowing it is in direct response to the new GFE and HUD which are are meant to better protect and inform consumers when obtaining a mortgage loan. In addition, HUD further stated in their recent statement about removing the 1% max, that “FHA expects that lenders will continue to charge fair and reasonable fees for all origination services and the agency will continue to monitor to ensure that FHA borrowers are not overcharged”.
The new HUD and GFE are meant to be simplified by lumping fees into these buckets so that you may easily obtain several GFE’s from competing lenders and just look at the overall cost of the buckets to see who comes out better. If you are familiar with the creation of the Truth in Lending Act, its enactment was also meant to help consumers better understand the financing they are apply for and enable better comparison from one lender to another. What it did create was one of the most misunderstood disclosures used on the mortgage financing package due to the APR shown on that disclosure. For a better understanding of what APR is review my previous post on the topic.
All of these changes, although made with good intentions, will, in my opinion, just complicate the process by providing less transparency from the lender to the consumer. Instead of allowing consumers to see a break-down of all the fees they are now only going to see the buckets these fees fall in. I believe that consumers are smart enough to be able to see the fees and do the comparison on their own, but HUD doesn’t seem to think so. When everything surrounding this issue has settled down, I believe there will be very minimal impact to the mortgage industry and to consumers. Ultimately, it comes down to trust. Do you trust the lender you are working with to provide you with a great mortgage loan, protect your interests and provide great service while doing so? If not, I would suggest finding another lender. If so, then an extra $250 in fees probably isn’t going to make that big of a difference, considering you will have a lot less stress and actually close that loan when you are ready to close on your home purchase.
Lending A Hand
Scott Wynn
The Wynn Team
Tags: APR, Choosing a Lender, FHA, GFE
