[HUD's Response to Questions from the Massachusetts Bankers
Association]{.underline}

[HUD-1 Questions]{.underline}

\(1\) The bank offers several loan programs (rates, term etc.). A GFE is
given within three days to match the product chosen by the applicant. If
the applicant subsequently changes products (example, midway through the
approval process), is a new Good Faith Estimate required?

**Answer**: The RESPA rules do not expressly impose any disclosure
requirements beyond the initial Good Faith Estimate of settlement costs
that must be provided to mortgage applicants within three days of
application. However, where the loan product sought by the borrower is
subsequently changed and the change results in different estimates of
settlement costs, HUD strongly recommends that a new Good Faith Estimate
be provided to the borrower.

\(2\) Is a person who is cosigning or guaranteeing a note (not the
borrower) required to be listed on the HUD-1?

**Answer:** As per the instructions for filling out the settlement
statement (24 C.F.R. 3500, Appendix A, Instructions for Completing HUD-1
and HUD-1A Settlement Statements \[hereinafter "Instructions"\]), where
there is more than one borrower, the name and address of each borrower
is required to be listed. Where two or more individuals are joint
obligors with primary responsibility on an obligation, they must all be
listed as borrowers on the settlement statement. Guarantors, on the
other hand, are not primary obligors and are not required to be listed
on the settlement statement.

\(3\) The bank has a list of closing attorneys that a borrower may
choose from. If one of the attorneys is on the bank's Board of
Investment (acts similar to a Board of Directors) (this is a mutual
savings bank), does an Affiliated Business Arrangement Disclosure need
to be provided if this attorney is chosen by the applicant? What if the
attorney is a member of the mutual savings bank Board of Trustees (meets
quarterly, primarily to ratify Board of Investment decisions) or the
Board of Corporators (meets annually)?

**Answer**: The relationships listed in the question between the bank
and the closing attorney would fall within the broad definition of an
"affiliated business arrangement" under Section 3 of RESPA (12 U.S.C.
2602). In accordance with the requirements under 24 C.F.R. 3500.15(b),
the bank would have to provide an Affiliated Business Arrangement
Disclosure (in the format set forth under Appendix D of Regulation X).
The disclosure must be provided regardless of whether the affiliated
attorney is ultimately selected by the applicant.

\(4\) Does the fee paid to the borrower's own attorney need to be listed
on the HUD-1? The bank does not require (this attorney).

**Answer**: An item should be listed on the HUD-1 if it is required by
the lender or if it is to be paid for at closing or settlement. The
Instructions provide that the HUD-1 shall itemize all charges imposed
upon the borrower and the seller by the lender and all sales
commissions, whether to be paid at settlement or outside of settlement,
and any other charges which either the borrower or the seller will pay
for at settlement. Charges to be paid outside of settlement shall be
included on the HUD-1 and HUD-1A but marked "P.O.C." (Paid Outside of
Closing) and shall not be included in computing totals. "P.O.C." items
should not be placed in the borrower or seller columns, but rather on
the appropriate line next to the columns and should not be used in
computing totals. 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." (See Instructions).

\(5\) Do items paid by the seller well in advance of the loan closing,
which are required by the bank, need to be listed on the HUD-1?

**Answer**: See answer to Question #4. RESPA and Regulation X require
that the settlement statement itemize all charges imposed upon the buyer
or seller by the lender, whether to be paid at settlement or outside of
settlement. Items paid outside of settlement that are required by the
lender should be listed as "P.O.C." and should be placed on the
appropriate line next to the columns and should not be used in computing
totals. (See Instructions).

\(6\) Is there an acceptable tolerance level for different amounts
between the GFE and HUD-1 if there is no "pattern of differences"?

**Answer:** Neither RESPA nor Regulation X provide tolerances for
variations between the figures disclosed on the Good Faith Estimate and
the final charges listed on the HUD-1 or HUD-1A. HUD believes that a
pattern or practice of quoting Good Faith Estimate amounts that are
lower than the corresponding amounts later shown on settlement
statements may serve as evidence that the disclosures were not made in
good faith.

\(7\) If the bank accepts a normally required item previously obtained
by the borrower (for example an appraisal) using their own funds well in
advance of an application being submitted to the bank, does the bank
need to list the item on the GFE or HUD-1? If so, how should the bank
show the item on the GFE or HUD-1?

**Answer**: The Good Faith Estimate must estimate, as a dollar amount or
range, each charge which will be listed in section L of the HUD-1 or
HUD-1A, including the appraisal. (See 24 C.F.R. 3500.7(c)). If an item
was previously obtained by the borrower, the item would be listed as
"P.O.C." In all instances, the settlement statement must itemize the
actual charges for those items required by the lender to close the
transaction. For instructions on the proper method of disclosing
"P.O.C." items on the HUD-1 or HUD-1A, see answer to Question #4.

\(8\) If the bank accepts work performed by a friend of the borrower for
a required item (for example a plot plan) and the friend does not charge
the borrower for this work, should this item be indicated on the HUD-1?
If so, how should the zero cost be shown?

**Answer**: See answer to Question #4. When the lender requires that an
item or service be purchased as a condition for obtaining a loan, HUD
takes the position that the charge for such item or service, even if
gratuitous, must be disclosed on the settlement statement. This item
should be disclosed as zero (0) in the appropriate line item of the
settlement statement. In order to assure clarity, HUD recommends that an
asterisk be placed next to the item, along with an explanation, either
at the bottom of the HUD-1 form or on a separate page, that the required
service was rendered gratuitously on behalf of the consumer.

\(9\) Is it a violation of RESPA if there are unexpected fees that
appear on the HUD-1 that were not indicated on the GFE?

**Answer:** Regulation X provides that the Good Faith Estimate should
list those charges that the borrower is likely to incur at settlement,
based upon the lender's experience in the locality of the mortgaged
property. It is therefore not a violation of RESPA to add fees to the
HUD-1 or HUD-1A that were not disclosed on the Good Faith Estimate if
such fees were, in good faith, unanticipated and unforeseeable at the
time that the Good Faith Estimate was prepared. (See 24 C.F.R.
3500.7(c)). Where there is a pattern or practice of not disclosing fees
on the GFE that are collected at settlement, particularly fees imposed
by lenders, it may serve as evidence that the exclusion of such fees
from the Good Faith Estimate was not in good faith.

\(10\) If a loan is to be sold by the bank after the closing, are costs
associated with this sale but paid by the borrower at closing listed as
"P.O.C."? (Services will not be performed until after the closing).

**Answer**: See answer to Question #4. Items that are either required by
the lender to close the loan or items that are payable at the closing
must be disclosed on the Good Faith Estimate and HUD-1 or HUD-1A. (See
Instructions). Under the situation described above, the item should not
be disclosed as a "P.O.C." item since it is a charge that the consumer
is paying for at closing. The name of the person or firm ultimately
receiving the payment should be disclosed. (Example: "Payment to
\[lender\] for \[XYZ\] Servicer.") (See Instructions).

\(11\) A bank pays a mortgage broker \$150 per loan, \[and the loan\] is
consummated by the bank. This flat fee is not paid by the borrower or
from any of the loan proceeds. Does this transaction need to be shown on
the HUD-1? If so where? Should it also be shown as "P.O.C."?

**Answer**: The Instructions specifically indicate that charges to be
paid by the lender to an affiliated or independent settlement service
provider should be disclosed on the settlement statement and shown as
"P.O.C." (See Instructions). The Instructions explicitly state that
"\[s\]uch charges also include indirect payments or back-funded payments
to mortgage brokers that arise from the settlement transaction." (See
Instructions). The \$150 payment should, therefore, be broken out from
any other origination fee and disclosed on any of the blank lines
provided in the 800 series of the HUD-1. However, given the nature of
the payment described in this question, the lender must carefully review
this payment to assure that it does not violate RESPA's anti-kickback or
unearned fee provisions (12 U.S.C. 2607) and that it is in full
compliance with HUD's Statement of Policy 1999-1, dated March 1, 1999,
regarding lender payments to mortgage brokers (64 Fed. Reg. 10,080).

\(12\) The bank offers the customer a coupon for money towards closing
costs. May the amount of the coupon be shown as a credit on the front of
the HUD-1? Or must it be applied toward particular closing fees?

**Answer**: This amount must be shown on lines 204-209, which are used
to list "items paid by or on behalf of the borrower." (See
Instructions).

\(13\) A bank collects an application fee. These monies are used for the
appraisal and credit reports. The GFE shows the fees paid on line #808.
The designated providers are given at application. On line #808 of the
HUD-1, is the bank also required to enter the names of the providers on
line #808 of the Settlement Statement?

**Answer**: The amount of the "application fee" should be disclosed on
the Good Faith Estimate and the settlement statement, on line 808 or any
other blank line in the 800 series. Since this fee is payable at or near
the time of application, it should be marked as "P.O.C." and the charge
should not be used in computing totals. The specific charges relating to
the appraisal and the credit report must then be broken out on lines 803
and 804. As per the Instructions, these lines must identify the name of
the person or firm ultimately receiving the payment, and also be marked
as "P.O.C." (See Instructions). To assure that there is no confusion
about double charging, fees listed in line numbers 803 or 804 should
indicate that those fees are included in the "application fee" amount,
or alternatively, the line in the 800 series containing the "application
fee" could include an annotation clarifying that the charge includes
those fees listed in 803 and 804.

\(14\) Who is responsible for the GFE and HUD-1 when the bank purchases
a loan (table funds) from a correspondent lender?

**Answer**: Regulation X defines two alternatives for the delivery of
the Good Faith Estimate. In instances where the correspondent lender is
the exclusive agent of the bank, the responsibility for submitting the
Good Faith Estimate falls on the correspondent lender or the bank. (24
C.F.R. 3500.7(a)(4)). If the correspondent lender is not the bank's
exclusive agent, the correspondent lender must provide the Good Faith
Estimate within three days of receiving the loan application, and if
this is done, the funding lender is not required to provide an
additional Good Faith Estimate. In such cases, the funding lender
remains responsible for ascertaining that the form has been delivered.
24 C.F.R. 3500.7(b). RESPA imposes the duty to prepare and deliver the
HUD-1 or HUD-1A upon the "person conducting the settlement," which under
Regulation X is the settlement agent or the lender if the lender acts as
the settlement agent in the transaction. (See 12 U.S.C. 2603(b), 24
C.F.R. 3500.10(a), (b)).

\(15\) What HUD-1 line number should be used for overnight delivery
fees?

**Answer**: Such fees should be listed in any of the blank lines of the
series pertaining to the specific settlement service provider that
requires the use of the service in question. For example, if a lender
requires the use of overnight services, the fees pertaining to this
service should be disclosed on one of the blank lines in the 800 series
of the HUD-1 or HUD-1A.

\(16\) What HUD-1 line number should be used for Tax Service and Flood
Determination fees?

**Answer**: Since such services are generally required by the lender,
tax service and flood determination fees should be listed on any of the
blank lines in the 800 series of the HUD-1 or HUD-1A.

\(17\) A bank charges a fee for document preparation. A portion of the
fee goes to the bank and a portion goes to the attorney. Should this fee
be split and placed on two separate HUD-1 line numbers? If so, which
line numbers should be used?

**Answer**: The regulations specify that "\[f\]or 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." (See Instructions).
The correct method of disclosing this item would therefore be to
separate that part of the fee that the bank pays the attorney and to
list it on line 1105 or 1107. The remaining portion of the fee, which
relates to the document preparation work actually performed by the
lender, should be separately identified in one of the blank lines of the
800 series. It is important to note that Section 8 of RESPA prohibits
anyone from collecting any fee or portion thereof, unless it is for
goods delivered or services actually rendered. (12 U.S.C. 2607 (a)-(c)).

\(18\) Are fees that are collected after closing, such as inspection
fees on a construction loan (where the fee is deducted from each
advance) required to be on the GFE or HUD-1?

**Answer**: Generally, construction loans are only covered where the
lender has issued a commitment for permanent financing. (24 C.F.R.
3500.5(b)(3)). In instances where RESPA does cover transactions
involving construction loans, inspection fees required to be paid as a
condition for settlement must be disclosed on the settlement statement.
(See Instructions). The fact that these inspection fees are collected
after closing through a deduction from periodic advances does not alter
this result; these fees are essentially equivalent to fees collected at
closing from loan proceeds.

\(19\) If an error is discovered on the HUD-1 at closing, may a written
correction be made at that time? And, should any or all parties,
including the closing agent initial the correction? Since the HUD-1 does
not need to be signed, how should an institution correct any error
discovered after the settlement has occurred? Would the institution be
required to get an acknowledgment from the borrower that they have
received the corrected copy?

**Answer**: The Instructions make clear that the settlement statement
must list "actual charges and adjustments" in connection with the
settlement. Pursuant to this requirement, any mistake discovered at
settlement should be corrected at the time of settlement. Corrections
may be handwritten, provided that they are appropriately initialed by
the affected party or parties and the settlement agent. Moreover,
servicers should act with due diligence in correcting any errors or
omissions on any completed settlement statement forms as quickly as
possible, and must use all reasonable means to inform borrowers of any
such changes or corrections. Although HUD does not require that an
institution attain a borrower's acknowledgment on any post-closing
corrections to the settlement statement, HUD believes that obtaining
consumers' signatures to demonstrate acknowledgment of any changes would
constitute a prudent business practice.

[Aggregate Accounting Adjustment Questions]{.underline}

\(1\) Is an institution required to enter a zero ("0") in the borrower's
column on the last line of the 1000 series if the aggregate accounting
adjustment equals zero?

**Answer:** Yes. The aggregate accounting adjustment is the difference
between the required balance using aggregate analysis and the required
balance using single item analysis. Since every escrow account can be
analyzed using single item and aggregate analysis, the aggregate
accounting adjustment can always be calculated. Absent a rounding error,
the aggregate accounting adjustment is either a negative number or a
zero (0). Whatever the aggregate accounting adjustment is, even if zero
(0), that number must be entered on the final line of the 1000 series of
the settlement statement. (See 24 C.F.R. 3500.8(c)).

\(2\) Experience has shown that there is occasionally a positive number
that results when calculating the aggregate accounting adjustment when
there is only one escrow item. In these instances, should this positive
number be omitted when completing the HUD-1, or should the institution
enter this positive number on line 1008?

**Answer**: The computation steps set forth under 24 C.F.R. 3500.17(d)
should always yield a zero when there is only one escrow item.

\(3\) Is the aggregate adjustment calculation required to be reported if
there is only one escrow item?

**Answer:** Yes.

# ["P.O.C." and Third Party Settlement Service Providers]{.underline} 

\(1\) Does the bank need to indicate on the HUD-1 the different entities
making the "P.O.C." payments? (Bank pays for some, borrower pays for
some).

**Answer**: 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. (See Instructions). Making additional notations on the
HUD-1 to identify the payment source of a particular fee serves to
clarify the transaction. In HUD's Statement of Policy 1999-1, dated
March 1, 1999, regarding lender payments to mortgage brokers (64 Fed.
Reg. 10,080), the Department clarified that in the interest of clarity,
any payment from a lender to a mortgage broker is to be clearly
identified and labeled as a fee paid by the lender (Example: "Mortgage
Broker Fee from lender to XYZ Corp. (P.O.C.)."). (64 F.R. 10087).

\(2\) If the answer to question #1 is yes, may the bank use symbols to
indicate the entity making the payment (placing the symbol next to the
"P.O.C.") and explaining the symbol at the bottom of the page?

**Answer**: If the lender determines it appropriate to disclose the name
of the payee, this approach is acceptable.

\(3\) How should the bank complete a line item on the HUD-1 correctly if
there is not enough room on the line item to indicate the name of the
entity receiving the payment and/or listing "P.O.C." and the name of the
entity?

**Answer:** Such problems may be resolved by filling out the necessary
disclosures by hand or by placing an asterisk or other clear symbol or
indication on the appropriate line and clearly explaining the asterisk
or symbol at the bottom of the HUD-1 or HUD-1A or on a separate page
attached to the HUD-1 or HUD-1A.

\(4\) The bank requires a Title V (Massachusetts Septic Compliance
Certificate) to be presented at the closing. This is a cost paid for by
the seller in advance of the closing when the inspection is performed.
Does this cost need to be reflected on the HUD-1? If so, what is the
location and proper format for this fee?

**Answer**: This item should be listed on one of the blank lines
provided in the 1300 series of the HUD-1 or HUD-1A, which are used to
list additional settlement charges relating to inspections. This item
should be listed as "P.O.C." and identified as paid by the seller.

\(5\) Is the bank required to list all items paid to other parties in
connection with the HUD-1 for a "no closing costs" loan product? If so,
should all of these items be listed as "P.O.C."?

**Answer**: Yes. HUD's regulations at 24 C.F.R. 3500.7(a)(2) and the
Instructions are very clear that for so-called "no cost" or "no point"
loans, "the charge to be paid by the lender to an affiliated or
independent settlement service provider should be shown as "P.O.C."
(Paid Outside of Closing) and should not be used in computing totals."
(See Instructions).

\(6\) If an applicant pays any fees at the time of application, is the
bank required to list these fees as "P.O.C." on the GFE? If so, should
these items be included or excluded in the "Total Estimated Closing
Costs" amount shown on the GFE?

**Answer**: Regulation X at 24 C.F.R. 3500.7(c) requires that the Good
Faith Estimate list an estimate of each charge "that the borrower will
normally pay or incur at or before settlement." Items paid for by
applicants in advance of closing, such as application fees, must
therefore be listed on the Good Faith Estimate and identified as
"P.O.C." The Good Faith Estimate does not, however, require that there
be a total estimated closing cost disclosure; this is only required on
the settlement statement. (See Appendix C).

# [Questions Relating to Title Charges]{.underline}

\(1\) Is it required to indicate anywhere on the HUD-1 the actual dollar
amount of the commission earned by the settlement agent (closing
attorney) for issuing a title insurance policy?

**Answer**: Yes. The Instructions specifically state that the HUD-1 must
"itemize all charges imposed upon the borrower and the seller by the
lender *and all sales commissions*, whether to be paid at settlement or
outside of settlement." (See Instructions)(Italics added).

\(2\) Is it a requirement that line 1113 be completed indicating what
services the closing agent did to earn his/her commission for the title
insurance policy?

**Answer**: The Instructions clarify that payments to settlement agents
are to be detailed on lines 1101 through 1106 in accordance with the
services performed by the agent in the transaction. If an attorney acts
as the agent, the total amount of the payment should be listed on line
1107, along with entries on the blank line immediately below to identify
item numbers of the services listed which are covered by that overall
fee. If line 1107 is already being used to disclose the fees and
services of the attorney in representing any of the parties to the
transaction, then line 1113 should be used to disclose the commission
(and those services covered by the commission) that the attorney is
earning in his or her role as title agent in the transaction. (See
Instructions).

\(3\) If a closing agent bundles services under line 1107, must they
indicate under line 1107 the items 1101-1106 that were included in the
fee shown in 1107?

**Answer**: Yes, the HUD-1 form is clear in this regard. (See
Instructions).

\(4\) If the fee listed on 1108 is for the cost of the title insurance
policy, does the closing agent need to list any other numbers
(1101-1106) beneath line 1108?

**Answer**: Yes, the HUD-1 form is clear in this regard. As per the
Instructions, line 1108 should list the overall fee for the policy and
the blank line beneath it should disclose the item numbers of the
services which are covered in the overall fee. (See Instructions).

\(5\) Is it a true statement that there may be no duplicate numbers or
services listed when describing the fees earned in 1107, 1108 and 1113?
(For example, 1103 may not be listed in more than one of the three line
numbers described above?).

**Answer**: This statement is correct. Section 8 of RESPA forbids
duplicative fees. (See 24 C.F.R. 3500.14(g)(3)).