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Will The FHA Raise Origination Fees?

by Peter G. Miller
December 14th, 2009

The rumor mill in Washington is rife with claims that the HUD will soon allow lenders to charge as much of an origination fee as the marketplace will allow instead of the 1 percent fee to which lenders are now limited.

The argument here is the old, discredited junk we’ve heard before: Smart consumers will gravitate to the lenders who charge the least and competition will force lenders to keep origination costs low.

If you think such arguments are in anyway true, then consider that on December 7th HUD announced that it was “immediately suspending Equitable Trust Mortgage Corporation (ETM) of Baltimore, Maryland, thereby preventing the Company from originating and underwriting new FHA-insured mortgages. FHA is imposing this action because ETM improperly overcharged 37 borrowers for broker and loan origination fees in excess of what the U.S. Department of Housing and Urban Development currently allows. HUD discovered that these unauthorized fees were charged to a substantially greater percentage of minority borrowers (68 percent) than non-minorities.”

Fees

What fees and charges? Ah, glad you asked.

“FHA limits the total loan origination charges a borrower is required to pay to one percent of the mortgage amount,” said HUD. “In this case, FHA found that ETM charged borrowers both a broker fee and an additional one percent origination fee. By charging both a broker and an origination fee totaling more than one percent of the loan amount, ETM received excessive compensation and improperly charged consumers duplicative and unreasonable fees to originate their loans.”

You can see where this is going. If there’s no cap on the origination fee then HUD would not have had grounds to complain about the Baltimore lender — or any other lender.

As it happens, just a few days later the issue was resolved. HUD announced that “it reached a settlement agreement with Equitable Trust Mortgage Corporation (ETM) of Baltimore, Maryland, thereby terminating the suspension imposed on December 7, 2009. FHA suspended ETM’s HUD/FHA approval because ETM improperly overcharged 37 borrowers for broker and loan origination fees in excess of what the U.S. Department of Housing and Urban Development currently allows.”

The announcement goes on to say that “by settling without admitting fault or liability, ETM has paid HUD a civil money penalty in the amount of $277,500. In addition, ETM agreed to refund the broker fee improperly charged to 37 borrowers. ETM will be contacting the 37 borrowers in an effort to refund the fees and these borrowers shall expect to receive refunds in amounts ranging from $500 to $9,135. The total amount repaid to borrowers will be $147,589.81. In the event that ETM is unable to contact the borrowers after using its best efforts, then ETM shall donate these funds to a HUD-approved Housing Counseling Agency.”

Reality

The idea that the public generally understands FHA loan requirements or can effectively shop around for the best FHA mortgage rates is nonsense — just look at the HUD releases or ask the 37 borrowers noted by HUD. Hopefully HUD will reject the anti-regulation idea that lenders are now trying to foist on the Department, the idea that they should be allowed to charge borrowers whatever the market will bear. After all, isn’t a lack of enforced regulation the core reason why the mortgage market collapsed?

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This entry was posted on Monday, December 14th, 2009 at 11:59 am and is filed under . You can follow any responses to this entry through the RSS 2.0 feed. You can skip to the end and leave a response. Pinging is currently not allowed.

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