Due to some feedback from our article on the new
GFE and YSP, we wanted to try and clarify things.
Let's preface "mild correction" by admitting that there are
fewer more hotly contested debates among compliance gurus than disclosure of
PFC's and YSP. After working over the years with numerous people who I
consider highly educated regarding compliance (and some of them with ties to
state auditors), I still have yet to see a conclusive argument regarding a uniform
method of selecting PFC's ("prepaid finance charges" that
mortgage brokers must "select" to be included in the APR calculation),
or a uniform method of disclosing YSP (yield spread premium).
So let's clear the air with some facts.
The phrases from the article that are in question are obviously:
"One feature of The Good Faith Estimate is not going to make lenders
and brokers happy. It would require that lender payments to mortgage brokers
(often called Yield
Spread Premiums) be disclosed."
Yes, yes, yes... We know some of you think that YSP payments are already required
to be disclosed fully, and we know that you interpreted this
article as contrary to that long-held-belief. But take a step back, and examine
cold, hard, unyielding, antiseptic, dry, sleep inducing, US Code of Federal
Regulations, Title 24. §3500.7, section C, subsection 1:
"(c) Content of good faith estimate. A good faith estimate consists
of an estimate, as a dollar amount or range, of each charge
which will be listed in section L of the HUD-1 or HUD-1A in accordance with
the instructions set forth in appendix A to this part"
Ok, stay with me here, now we have to figure out what the heck is in section
L of the HUD-1. It's in appendix A of §3500 of the aforementioned
Code of Regulations:
"Section L. Settlement Charges.
For all items except for those paid to and retained by the Lender, the name
of the person or firm ultimately receiving the payment should be shown. In the
case of "no cost" or "no point" loans, the charge to
be paid by the lender to an affiliated or independent service provider should
be shown as P.O.C. (Paid Outside of Closing) and should not be used in computing
totals. Such charges also include indirect payments or back-funded payments
to mortgage brokers that arise from the settlement transaction. When used, "P.O.C."
should be placed in the appropriate lines next to the identified item, not in
the columns themselves.
Lines 808-811 are used to list additional items payable in connection
with the loan."
Ok, now we know we are at least talking about Yield Spread Premium as being
part of Section L of the HUD instructions. And, we already learned that a GFE
"must consist of an estimate as a dollar amount or range of each charge
listed in section L of the HUD-1."
SO, therefore, hence, thus, ergo: YSP is required to be disclosed on the GFE
as a dollar amount or RANGE!
I say again that even the most sagacious of scholars disagree on the topic.
Many broker licensees require a dollar amount on the GFE in order to be "on
the safe side." However, it is clear that is has only been required to
be spelled out in dollars and cents on the HUD and not on the GFE. This is perhaps
first realized by the up-and-coming mortgage broker who obtains his or her FHA
certification in which it is pounded into his or her head that although it was
not required to be disclosed as a dollar amount on conventional loans, it is
required as such on FHA loans.
The intent of the article was to make you aware of the proposed RESPA rule from
Friday, March 14th. We apologize if the gist of this communication was lost
due to wording. In retrospect, the above referenced quote from our article should
have been clearer, that "payments" meant "dollars and cents"
as opposed to simply disclosing the existence and range of those payments.