RESPA Roundup-No Cost Transactions Where Credit for Interest Rate Chosen Covers Loan

Compliance > Regulation X - RESPA > RESPA Roundups
No Cost Transactions Where Credit for Interest Rate Chosen Covers Loan Originator or Third Party Settlement Charges
 
Under HUD's RESPA regulations, where ”no cost” refers only to the loan originator’s fees, Line A would show a zero charge as the adjusted origination charge (see Example 2(a)). In the case of “no cost” loans where ”no cost” encompasses third party fees as well as the upfront payment to the loan originator, all of the third party fees must still be itemized and listed in Block 3 through Block 11 on the GFE. “The credit for the interest rate chosen must be large enough that the total for Line A will result in a negative number to cover the third party fees.”7 (See Example 2(b).)

Block 1 of the GFE includes lender and mortgage broker compensation as well as all other charges that the lender and mortgage broker involved in the transaction will receive.  The lender and mortgage broker have the discretion to determine the amount of their total compensation, which is disclosed in Block 1.

Block 2 of the GFE reflects the credit or charge for the interest rate chosen. If “no cost” with regard to the loan refers to only the lender and mortgage broker’s fees, Block 2 would offset Block 1 resulting in $0 on Line A. If the “no cost” refers to both Block 1
and the third party settlement charges (itemized in Blocks 3-11), the credit in Block 2 would cover Block 1 and Blocks 3 thorough 11, resulting in $0 for the sum of Lines A and B.

 

Example 2(a): No cost loan covering only lender and mortgage broker charges (i.e., not
third party settlement charges).

In this example, the total compensation for both the lender and mortgage broker is
$4,500, as reflected in Block 1.  To secure a no cost loan covering the lender and
mortgage broker charges, the borrower has locked in an interest rate of 6.375% such that
the credit for the interest rate chosen results in a credit of $4,500.  Block A results in $0.


See example 2(a) in the March 2011 RESPA Roundup found here:  http://www.hud.gov/offices/hsg/rmra/res/mlocomplrodup31811v2.pdf
 

Example 2(b): No cost loan covering lender, mortgage broker and third party settlement
charges.

In this example, the total compensation for both the lender and mortgage broker is
$4,500, as reflected in Block 1.  To secure a no cost loan, the borrower has locked in an
interest rate of 7.375% such that the credit for the interest rate chosen results in a credit of
$7,500.  Block A results in a credit of $3,000 to offset the total of all third party charges
in Block 3 through Block 11.

See example 2(b) in the March 2011 RESPA Roundup found here:  http://www.hud.gov/offices/hsg/rmra/res/mlocomplrodup31811v2.pdf

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