In 2002, the Department of Housing and Urban Development (HUD) proposed regulatory changes to RESPA, and simplified borrower disclosures. One form HUD recommended to become required was the Mortgage Broker Contract. The Mortgage Broker Contract required that mortgage brokers disclose who they represent (borrower, lender, or both) and how they get paid (borrower, lender, or both).
Our new platform implements HUD’s recommendations to the fullest extent allowed under RESPA, and submits to HUD’s proposed reform voluntarily. We believe voluntary reform is a positive step toward industry compliance. We also support the borrower’s right to exclusive representation and honest disclosure.
Because FHA loan correspondents are the lender’s agent, we cannot represent borrowers exclusively. Therefore, we will allow applicants to designate an agent (hereafter known as Exclusive Borrower Broker or EBB) to negotiate rate and terms and represent their interests throughout the transaction. However, we are the originator and must provide up front loan and agency disclosures, perform a phone or face to face interview, and complete loan processing in accordance with HUD guidelines.
As the originator, our contract is with the lender and we are their agent (hereafter known as HUD Approved Broker or HAB). The borrower’s contract with their EBB is for exclusive representation and may not hold themselves out as the lender’s agent. The HAB is paid by the lender while the EBB is paid by the borrower. A borrower can elect to use premium pricing to pay fees including the EBB broker fee. Nonetheless, compensation for either the EBB or HAB may never be based on rate, terms, or program or exceed what is stated in the original contract. Additionally, there are limits on maximum compensation.
The borrower’s right to hire their own agent for representation is supported under Title 24 CFR 203.27 (5) (e) which states: "Nothing in this section will be construed as prohibiting the mortgagor from dealing through a broker who does not represent the mortgagee, if he prefers to do so, and paying such compensation as is satisfactory to the mortgagor in order to obtain financing." Additionally, the 4155.1, Section 3, (I) states: "Mortgage Broker Fees: If the borrower must pay a fee directly to a mortgage broker, that expense must be included in the total of the borrower’s cash settlement requirements and appear on the HUD-1 Settlement Statement. (This requirement applies to instances in which the borrower independently engages a mortgage broker to seek financing and pays the broker directly. The payment may not come from the lending institution)"
Compensation must be in relation to services rendered, and EBB’s cannot simply send over an application and contract and expect to be compensated. EBB’s must perform under the terms of their contract as true borrower agents to receive compensation under RESPA. Furthermore, EBB compensation must be reflected on the Good Faith Estimate and HUD1 as per RESPA requirements. EBBs that provide the borrower’s initial application and borrower documentation to support the borrower’s loan request must provide accurate information.
Quality control and MARI reports will be completed on all parties. Simplified borrower disclosures as recommended by HUD will be provided to the borrowers in addition to State required disclosures and disclosures under RESPA. EBBs must review and sign receipt of borrower’s disclosures and must either be present at closing or review loan documents prior to closing. EBB’s must review loan documents for accuracy and explain loan documents to client. The HAB will confirm loan terms with borrowers prior to loan documents and will reconfirm prior to closing.
EBB’s wishing to participate must register with HAB prior to negotiating borrower’s loan with HAB. Registration includes:
1. Information summary for EBB company and/or agents
2. Evidence of current license for broker and agents
3. Evidence of E & O insurance* if available
4. Evidence of participation in FHA program training.
5. An acknowledgment of HAB’s policies and procedures.
EBBs that are on FHA’s LDP, Non-Procurement, Federal Exclusionary list or are otherwise disbarred, will not be accepted. EBB’s that breach their fiduciary duty to their client or engage in unethical, unacceptable, or illegal business practices will also be denied participation.
EBB’s must provide evidence of training for the program they wish to negotiate for client.
Although we require EBB’s to be pre-screened and acknowledge company policies and procedures, we are not contracting with the EBB and do not pay compensation to the EBB. EBB’s fees can be paid outside of closing, but must be disclosed on the HUD-1 Settlement Statement and must be considered in the borrower’s total cash to close. The EBB’s fee can be paid through escrow from the borrower’s loan proceeds or funds deposited in escrow. The borrower can also use a lender credit from rebate pricing to pay EBB’s fee. Neither the HAB or lender can pay EBB.
The following items are required upon application:
1. Fully executed EBB contract indicating EBB’s agency relationship to borrower and clear definition of EBB compensation. EBB compensation cannot exceed the maximum allowable for reasonable compensation and must be based on services rendered. Compensation must be paid by the borrower only. Lender or HAB paid compensation is not allowed. Agreement must provide an authorization to disclosure information to EBB and authorize HAB to release information on the borrowers behalf.
2. Signed Agency Disclosure and Agency Confirmation.
3. EBB must provide Goodfaith Estimate, California Mortgage Loan Disclosure Statement, Loan Application, and any related documentation. EBB must also transfer a copy of their Calyx Point Data File if available.
4. EBB will not be responsible for providing loan origination or loan processing functions, but may assist borrower with understanding and satisfying lender requirements.
5. EBBs are encouraged to provide borrowers with information regarding housing counseling, loan and default counseling, credit counseling, and reverse mortgage counseling referrals.
6. EBBs are encouraged to review credit reports with borrowers and assist them as needed in clearing up outstanding or incorrect credit information. EBB’s are also encouraged to assist borrowers in understanding the types of alternative credit that may be acceptable.
7. EBBs are encouraged to explain to borrowers how they can use premium pricing to reduce their cash to close.
8. EBBs are encouraged to assist borrowers by requesting waivers of prepayment penalties and short payoff requests.
9. EBBs are encouraged to request reasons that their borrower’s loan is declined in writing (if applicable), and request guidance on corrective methods to aid in future approval.
10. EBBs are encouraged to assist borrowers in formally disputing loan denials and/or suspensions for valid reasons.
11. EBBs are encouraged to review appraisals and explain appraisal to borrowers. In the event the EBB finds a material deficiency, EBB is encouraged to assist in getting the deficiency or discrepancy resolved.
12. Borrower may assign EBB as permanent designated agent for all post closing communications and offers between themselves and HAB except as required by HUD or lender for quality control audits.
13. EBBs must not interfere with loan processing functions or HAB’s agency relationship with lender.
14. EBB must understand that a contractual relationship does not exist between EBB, HAB or lender. EBB’s contract is with their borrower.
RESPONSIBILITIES OF EXCLUSIVE BORROWER BROKER (EBB):
Required services as per IBAA letter dated February 14, 1995 and reaffirmed in HUD’s Real Estate Settlement Procedures Act (RESPA) Statement of Policy 1999-1 Regarding Lender Payments to Mortgage Brokers:
EBB Mortgage Broker Duties Under RESPA:
(a). Taking information from the applicant and filling out the initial loan application;
(b) Analyzing the applicant’s income and debt and prequalifying the borrower to determine the maximum amount the applicant can afford;
(c) Educating the borrower in the home-buying and financing process, advising the borrower about the different types of loan products available, and demonstrating how closing costs and monthly payments vary under each product;
(d) Collecting financial information (for example, tax returns, bank statements) and other related documents that are part of the application process;
(j) Assisting the applicant in understanding and clearing credit problems;
(k) Maintaining regular contact with the applicant, real estate broker or salesperson, and HAB, between application and closing to apprise them of the status of the application and to gather any additional information as needed;
(n) Participating in the loan closing.
In accordance with IBAA letter dated February 14, 1995, EBB must also provide:
1. EBB’s must provide the borrower the opportunity to consider products from at least 3 other lenders. Programs/products must be shown on HUD’s proposed Mortgage Shopping Cart form and signed by borrower and EBB. Note: form to incorporate disclosure of EBB’s compensation for each program/product recommended.
2. The EBB’s compensation must be the same for each product offered regardless of which loan products the borrower ultimately selects.
3. Because EBB’s services must be reasonably related to the services performed and not related to any other factor (including but not limited to amount of business referred to a particular lender or HAB), maximum compensation will be limited to a maximum amount as determined to be reasonable.
EBB AGENCY RELATED DUTIES AND OTHER DUTIES NOT INCLUDED IN IBAA LETTER:
In addition to duties required under RESPA as outlined in IBAA letter dated February 14, 1995, EBB is responsible for specific agency duties as required under their Mortgage Broker Contract. Agency duties include but are not limited to:
1. Negotiating an acceptable loan commitment for borrower from lender’s HAB;
2. Providing required legal and agency disclosures as required by State and Federal Law (M.L.D.S., Agency Relationship Disclosure, and Mortgage Broker Contract);
3. Reviewing required disclosures provided to borrower from HAB/lender to ensure that rate, fees, and loan terms are in accordance with negotiated commitment;
4. Providing borrowers with referral information for non-profit agencies to assist with homebuyer education, credit and budget counseling, CCS counseling, and default counseling;
5. Acting as borrower’s representative with borrower’s current loan servicer in regard to prepayment penalty waivers, short sale approval, and other loss mitigation functions;
6. Assisting the borrower in completing a bona fide dispute in regard to an adverse action decision and requesting reconsideration of credit decision and or appraised value;
7. Assisting in the resolution of disputes between borrower and HAB/Lender;
8. Acting as borrower’s representative in clearing tax, child, support and other liens from title;
9. Assist borrower in working with their attorney to obtain bankruptcy court approval when borrower is participating in a Chapter 13 repayment plan;
10. Reviewing borrower’s final loan documents to ensure that final loan terms comply with negotiated commitment;
11. Ensure that the best interests of the borrowers are being served at all times in accordance with terms of contract and EBB and borrower’s Agency Relationship;
12. Monitoring market conditions and renegotiate new rate and terms for borrower in the event of a substantial change in the market;
RESPONSIBILITIES OF THE HUD APPROVED BROKER (HAB):
Required services as per IBAA letter dated February 14, 1995 and reaffirmed in HUD’s Real Estate Settlement Procedures Act (RESPA) Statement of Policy 1999-1 Regarding Lender Payments to Mortgage Brokers:
HAB MORTGAGE BROKER DUTIES UNDER RESPA:
(a) Application: confirming and clarifying information from the applicant and completing a verified application for the lender that is signed and certified by the borrower and employee of the HAB that conducted the borrower interview;
(b) Verifying and analyzing the borrower’s income and debt to income ratio and qualifying borrower for requested program as per FHA guidelines;
(e) Initiating/ordering VOEs (verification of employment) and VODs (verifications of deposit);
(f) Initiating/ordering requests for mortgage and other loan verifications;
(g) Initiating/ordering appraisals;
(h) Initiating/ordering inspections, engineering reports, and pest inspections;
(i) Providing disclosures (truth in lending, good faith estimate, others) to the borrower;
(k) Maintaining regular contact with the borrower, EBB, realtors, lender, between application and closing. EBB’s contract with borrower to does not override HAB’s responsibilities to communicate and verify information with borrower and others;
(l) Ordering legal documents;
(m) Determining whether the property was located in a flood zone or ordering such service;
(n) Participating in loan closing.
EBB’s and HAB’s duties overlap on items (a) application, (b) qualifying, (k) communications, and (n) participation in loan closing due to agency and contract obligations. The EBB initiates these duties for the borrower whereas the HAB verifies the information for the lender. EBB’s participation provides value to the borrower through expanded services and exclusive representation whereas the HAB’s participation provides a value to the lender through increased quality control and lower origination costs. Both borrower and lender benefit in terms of lower loan costs, improved loan quality, and exclusive representation. Any duplicative work completed is for the benefit of loan quality and will not result in a duplicate charge to borrower.
HAB AGENCY RELATED DUTIES AND OTHER DUTIES NOT INCLUDED IN IBAA LETTER:
The HAB, as the originator for the lender, is the responsible to HUD and lender for compliance with HUD/FHA guidelines. As such, the HAB is responsible for quality assurance and compliance with RESPA, TILA, and State and Federal disclosure requirements as well as compliance with Fair Lending. As such HAB is also responsible for:
1. Initiating/completing MARI report on all parties;
2. Checking LDP and Non-Procurement Lists on all parties;
3. Completing a quality control audit;
4. Completing a compliance audit for RESPA, TILA, and State and Federal disclosures;
5. Provide simplified financial disclosures in addition to disclosures required under RESPA to ensure borrower's understanding of loan terms;
6. Provide access to HUD’s website at branch office for borrowers and toll free numbers for borrowers to contact HAB directly;
7. Provide an acceptable dispute resolution process for borrowers;
8. Completing an AUS evaluation on loan file and verifying and assigning the results to lender;
9. Completion of all submission and processing forms as required by HUD and shipping the file to Lender in casebinder to lender;
10. Completing a Quality Satisfaction Survey with borrower and reconfirm application information and loan terms prior to requesting loan funding from lender;
11. Perform all other functions as required by lender, FHA, and HUD;
12. Electronic storage and transfer of mortgage records to lender.
