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April 2010
Index of all
past
Affiliate Corner columns
 
Help clients with GFE worksheet information
By Tish Gaddy and Michael Lucero
Heritage Title Company
Effective January 2010, all lenders, mortgage brokers and banks are required to use the "new" Good Faith Estimate (GFE) worksheets for all borrowers on new loans. As a REALTOR®, you may be asked some questions by your clients regarding charges or line items on the GFE.
Below is a brief Q & A on some of the fees that can be shown as "averages" on the GFE.
Question: What services can be estimated and charged using an average charge?
Answer: Third-party charges for services that are not based on the property value or loan amount may be estimated, charged, and reported using an average charge. These third-party charges are permitted for services that include but are not limited to appraisals, credit reports, flood certificates, tax service, and recording documents (such as charges by a locality on a per page basis). Average charges may not be used for items such as transfer taxes, interest charges, escrow reserves and insurances (including title insurance).
Question: How long does the settlement service provider have to keep documentation on how it calculated an average charge?
Answer: The settlement service provider must keep documentation used to calculate an average charge for at least three years after any settlement for which that average charge was used.
Question: What if the use of an average charge is not permitted under state law?
Answer: The use of an average charge is only one option under HUD‘s RESPA rule. HUD‘s average charge provision does not preempt state law. If a state in which a settlement service provider does business prohibits average charges, the settlement service provider may not use an average charge in that state.
Question: How is an average charge calculated?
Answer: The settlement service provider using an average charge must define a specific class of transactions for a specific time period (not less than 30 calendar days, nor more than six months), LAST UPDATE: Sept. 4, 2009, for a specific geographical area, and for a specific loan type. The average charge is based on a calculation of the average amount paid for the settlement service for the particular class of transaction. HUD does not prescribe a particular method for calculating the average charge, but it must be determined in such a way that the total amounts paid by borrowers and sellers through use of an average charge will not exceed the total amounts paid to the applicable settlement service providers in the particular class of transactions.
Question: If in using the average charge method of calculating and disclosing settlement charges, a settlement service provider charges borrowers and sellers (in the aggregate) too much for the settlement service, does the excess amount need to be refunded or is it permissible for the provider to keep the excess amount?
Answer: The excess amount does not have to be refunded, but it is not permissible to retain the excess amount. The excess may be applied to the next average charge period, for example. When such a procedure is followed, the average charge applied for the subsequent class of transactions must be adjusted, so that the sum of the previous excess amount and the total amount paid by the borrowers and sellers in the subsequent class does not exceed the total amount paid to the applicable settlement service providers.
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