The Department of Housing and Urban Development (HUD) has removed the 1 percent ceiling on loan origination fees for standard mortgages insured by the Federal Housing Administration (FHA).
The Mortgagee Letter issued last week came just days before new Real Estate Settlement Procedure Act (RESPA) disclosure rules took effect on January 1, requiring lenders to clearing disclose key loan terms and borrowing costs. According to HUD, the sum of all fees and charges from origination-related services required as part of the good faith estimate “will most often exceed the specific origination fee caps set for government programs.”
Without the cap, some consumer advocacy groups argue the fees charged to borrowers for government-backed loans could rise too much, but HUD says it expects competition among lenders to temper excessive increases.
The new RESPA rule standardizes the good faith estimate provided to applicants detailing mortgage terms and closing costs, making it possible for the first time for consumers to compare fees charged by different lenders and shop around for the best possible deal.
HUD says FHA will also be monitoring lenders to ensure the fees charged for origination services are “fair and reasonable.” The agency also stressed that the FHA commissioner still has the authority to set future limits on the amount lenders can charge borrowers for obtaining a government-insured loan and indicated that additional guidance on origination fees would be forthcoming.
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