www.hudclips.org 


U. S. DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT
WASHINGTON, D. C. 20410-8000

May 7, 1990
OFFICE OF THE ASSISTANT SECRETARY FOR
HOUSING-FEDERAL HOUSING COMMISSIONER
Mortgagee Letter 90-14
      TO:  ALL APPROVED MORTGAGEES
      SUBJECT:  Use of Good Faith Estimates to Establish Closing Costs and
                  Other Allowable Fees, and HUD-1 Disclosure of
                  Third Party Participation
 
      A.   GOOD FAITH ESTIMATES
 
           Beginning 60 days from the date of this letter, HUD will
      discontinue the procedure whereby the estimated closing costs are
      required to be shown on the appraisal report or on the Conditional
      Commitment Direct Endorsement Statement of Appraised Value (Form
      HUD 92800).  This automatically eliminates computing the maximum
      allowable mortgage amount at the time the value is established.
      Computing the maximum mortgage amount will now be the responsibility
      of HUD's loan examiner for prior approval cases or the Direct
      Endorsement (DE) underwriter for DE cases.
 
           We will continue to use closing costs to determine the maximum
      mortgage amount, but we will use the actual figures furnished in the
      Good Faith Estimate (GFE) given to the borrower by the lender.  A
      copy of the GFE must accompany all applications, including
      refinances, in order for the loan examiner or DE underwriter to
      compute the maximum allowable mortgage.  When submitting DE cases
      for insurance, the GFE is to be included with the original Form
      92900 WS (Mortgage Credit Worksheet).  You are reminded that only
      those closing costs paid by the buyer and which are acceptable to the
      local HUD office become a part of the acquisition cost.  Likewise,
      only those costs acceptable to the local HUD office may be added to
      the estimate of value in arriving at a maximum mortgage amount.  The
      closing costs that are included in the acquisition cost or added to
      the estimate of value must be highlighted on the GFE.
 
           Occasionally, there are unusual services which the mortgagee
      provides or arranges for the buyer and for which it may he
      compensated separately.  There are no specified dollar limits on the
      amount that the mortgagee may charge for these services.  Rather,
      any charge may be made where it is reasonable and customary in the
      area where the transaction takes place.  HUD Field Offices are given
      wide discretion in determining what fees are reasonable and customary
      in the areas for which they are responsible.  Of course, when the
      lender is simply collecting for services performed by other parties
      for credit reports, surveys, etc., the charge to the purchaser must
      not exceed the cost of the service.
 
_____________________________________________________________________
 
                                   2
 
     Your attention is also directed to Mortgagee Letter 88-15 which
outlines HUD's policy regarding courier fees and fees for express mailing.
Fees which require a written request from the mortgagor are not considered
to be typical or customary and may not be included when determining the
maximum mortgage amount.
 
     You are reminded that when the mortgagor is obtaining the maximum
mortgage, it is the lender's responsibility to assure that the highlighted
closing costs used in arriving at the mortgage amount are a reasonable
reflection of the actual closing costs as itemized on the HUD-1 Settlement
Statement.  "Reasonable" is defined as being within $250 of actual costs.
 
B.   HUD-1, SETTLEMENT STATEMENT DISCLOSURE OF THIRD PARTY PARTICIPATION
     FOR FHA-INSURED MORTGAGES
 
     For all mortgages that are to be FHA-insured and where there is third
party (other than the borrower and seller) involvement in the transaction,
the type and nature of participation by the third party must be disclosed
on the HUD-1 Settlement Statement.
 
     Participation can come from: (1) non-profit and governmental agencies
that provide assistance with the downpayment, discounts or other closing
costs for first-time homebuyers or low- to moderate-income families, and
(2) any other party, such as the mortgagee, real estate agent or broker,
or relatives who provide closing costs or temporary buydown or interest
rate reduction.
 
     The appropriate sections of the HUD-1 should be completed to show the
type of assistance and the provider.  For example, Block 200 should show
the downpayment assistance and Block 1000 should show the buydown escrow.
If the third party pays for a settlement charge, the payment should be
shown on the appropriate line in Section L of the HUD-1 with a statement of
the amount paid and by whom.  The amount paid would not in any instances be
shown in either the buyer's or the seller's columns.
 
     The above examples are not inclusive, but rather are provided as
a guideline.
 
     If you have any questions, please contact the local MUD Field Office.
 
                                   Very sincerely yours,
 
                                   C. Austin Fitts
                                   Assistant Secretary for
                                     Housing-Federal Housing Commissioner