Email to HUD on 1/25/10. No answer as of this posting.

One should consider revising the wording in this section.

We do not require escrows however the majority of our borrowers request an escrow account.

Escrow Account Information

Some lenders require an escrow account to hold funds for paying property taxes or other property related charges in addition to your monthly amount owed of $ .

Do we require you to have an escrow account for your loan?

c No, you do not have an escrow account. You must pay these charges directly when due.

c Yes, you have an escrow account. It may or may not cover all of these charges. Ask us.

Because we do not require escrow we are checking the no box but on page 2 in Block 9 we are showing the initial escrow deposit that is required because of the "voluntary" escrow. This is very confusing to the applicant. However we cannot check the second box as that box indicates we require escrows where in fact we do not. But the first box indicates the borrower does not have an escrow where in fact they do. So regardless how we answer this question it is not a true answer.

Our other alternative since Block 9 is not subject to any tolerance is continue to check the No box and not disclose any figures in Block 9 and only show the escrow items on the HUD Settlement Statement at closing but this would not give the applicant a true picture of their closing costs which is the whole purpose of the GFE.

If revising the wording of this section is not an alternative then I would hope that HUD will update the FAQs to address how this section is to be completed where the financial institution does not require an escrow account but one is being set up at the applicant's request.

Good point Dan. I'll add one more to the "HUD really missed it with this new rule" stack.

From: HSG-RESPA [mailto:HSGRESPA@hud.gov]
Sent: Friday, January 29, 2010 3:48 PM
To: Dan Persfull
Cc: Romano, Anthony P
Subject: RE: Escrow Account Information Page 1 GFE


Thank you for your comments but if you are not requiring Escrows then check box 1. If the borrower later decides to have escrows then this can be a changed circumstance and those charges related to escrows may change.




Thank you for your reponse but based on your comment I bolded I'm not sure if you understood my concerns thoroughly.

The customer is requesting escrow at the time of application, HOWEVER, we do not require escrows.

So at the time of application and the completion of the GFE the applicant will have an escrow account but it is not a required account. They can decide at anytime before the loan closing they don't want the escrow or that they do want an escrow.

The way the section is worded the no answer is incorrect because they do have an escrow account and the yes answer is incorrect because we do not require an escrow.

Are you therefore saying since we do not require an escrow we should always check the no answer even though the applicant has requested escrow at the time of application?

Also since Block 9 is not subject to any change tolerance we would not be compelled to issue a revised GFE based on a changed circumstance if the applicant decided to include escrow or not include escrow. We most likely would as customer service but we would not be compelled to do so under the regulation.


In addition I would like to address the following from the 1-28-10 release of the FAQs

33) Q: Can loan originators request verification documents or charge fees prior to issuing a prequalification or preapproval?

A: No. In order to prevent over burdensome documentation demands on mortgage applicants, and to facilitate shopping by borrowers, the final rule specifically prohibits the loan originator from requiring an applicant, as a condition for providing a GFE, to submit supplemental documentation to verify the information provided by the applicant on the application. Loan originators, however, can require applicants to provide such verification information after the GFE has been provided, in order to complete final underwriting. In addition, the rule does not bar a loan originator from using its own sources before issuing a GFE to independently verify the information provided by the applicant.

Generally for a prequalification or preapproval request there is not enough information obtained that meets the definition of an application under 3500.2, therefore since the application does not meet the definition defined it would not be subject to the RESPA requirements and/or limitations.

Many applicants in today's market request to be preapproved for a loan, therefore before a financial institution is willing to give a loan commitment they want their underwriting complete. The missing information generally is the identification of a property. The verification documents are being requested in relation to the consumer's request to be preapproved for a mortgage loan, the documents are not being requested as a condition for issuing a GFE. As an application is defined in 3500.2 a GFE is not even required for a preapproval request. And the fact HUD assumes the financial institution had all the identified segments of an application defined in 3500.2 if the financial institution issues a GFE then the identification of a property does not constitute a changed circumstance and the financial institution takes the risk of having to possibly absorb some costs due to the tolerance restrictions.

I would urge you to reconsider this response concerning verification documents otherwise there will be numerous financial institutions that will discontinue their preapproval programs and this would be detrimental to the consumer.



Thank you,
Dan Persfull

Wow, what a quick response.


From: HSG-RESPA [mailto:HSGRESPA@hud.gov]
Sent: Friday, January 29, 2010 5:08 PM
To: Dan Persfull
Subject: RE: Escrow Account Information Page 1 GFE


Dan,

As to your first question: By acceding to the borrower’s request to establish an escrow account, the loan originator is requiring the monthly payment of funds to pay the escrowed items as a condition of the loan. It is, therefore, required by the loan originator to have an escrow account for the loan and the answer on the GFE is accurate in that factual scenario.

As to your second issue: Thank you for your comments, we appreciate and value feedback on our regulations and will consider your comments in any future rulemaking under the Real Estate Settlements Procedures Act.



David L. Friend, Esq.

RESPA Consumer Protection Compliance Specialist



David,

I'm not sure I agree with that logic but at least it's an answer I can live with.

Thank you for your time in addressing my concerns.

Dan

We require escrow, however, we grant our customers the option to pay points to waive it. If they elect to do this, do we still check yes, we require, even though in the end, we will not establish escrow and the consumer will be paying these charges when they are due?

If you allow them to pay a fee to waive the escrow then you are not requiring escrow for that transaction.

Thanks Dan!

Wow what an answer. I guess that's their way of saying thanks, but no thanks. Thanks for trying anyway.