Regulatory focus on Real Estate Settlement Procedures Act compliance has revealed a strange quirk, reported Rose Oswald Poels, senior vice president and counsel at the Wisconsin Bankers Association. She spoke as part of a panel that addressed the WBA’s annual executives conference earlier this week in Milwaukee.
Based on conversations she has had with bankers who have been examined for RESPA compliance already this year, Oswald Poels said examiners from the FDIC and OCC are cracking down on situations where fees at closing change after the fees have been provided in a good faith estimate. Resolution of discrepancies, however, seem to reward the wrong party.
“When you generate a GFE within three days of application, it is deemed to be a binding GFE,” Oswald Poels explained. “HUD’s opinion is that basically any fee you disclose on that GFE should not have to change from the time of application to the time of closing.
“That means you have to have good conversations with service providers like title companies and appraisers,” she said.
The goofiest part of the arrangement, however, is that the GFE includes owner’s title insurance. In Wisconsin, she said, the borrower ususally doesn’t pay for that.
“It makes no sense, sellers commonly pay for it in Wisconsin,” she said. “But that means you have to know how much that owner’s title policy is at the time you issue a GFE. Most banks are discovering they don’t know so they take an educated guess and it turns out when they start to do their HUD closing documents that the difference in dollar amount throws them out of tolerance by more than 10 percent.” Any amount over 10 percent needs to be refunded by the bank to the borrower, even though the borrower didn’t pay for the title insurance.
“Does this make any sense?” Oswald Poels asked.