The U.S. Department of Housing and Urban Development (HUD) has removed the one percent loan origination fee cap on FHA mortgages originated on or after January 1, 2010, according to a mortgagee letter.
The move is consistent with changes to the Real Estate Settlement Procedures Act (RESPA), as the sum of all fees and charges from origination-related services must now be included in one box on the new Good Faith Estimate (GFE).
HUD assumed the new consolidated figure representing all compensation to the mortgage lender and/or mortgage broker for loan origination would likely exceed the specific origination fee caps previously set for government programs.
However, HUD doesn’t believe the rule change will be a free-for-all for lenders and brokers to charge whatever they please going forward.
“FHA expects that lenders will continue to charge fair and reasonable fees for all origination services and the agency will continue to monitor to ensure that FHA borrowers are not overcharged,” the letter said.
“Furthermore, the FHA Commissioner retains the authority to set limits on the amount of any fees that mortgagees charge borrowers for obtaining an FHA loan and the agency does intend to issue additional guidance on the subject.”
In other words, a new cap on the origination fee will likely be set once the dust has settled…likely after an unknown number of borrowers are exploited.