The Department of Housing and Urban Development last week eliminated the 1% cap on origination fees for Federal Housing Administration mortgages.
The change was expected because revisions to the Real Estate Settlement Procedures Act rule that took effect Jan. 1 require lenders to disclose single, bundled origination fees on new good-faith estimates. The single origination charge includes all administrative and processing fees.
Phillip Schulman, a partner at the K&L Gates LLP law firm, said HUD recognized that the aggregate charge "will often exceed the 1% origination fee cap."
While HUD will no longer limit the amount of the origination fees charged to FHA borrowers, Schulman said FHA lenders should not interpret the change as an opportunity to raise fees.
"Before FHA lenders get excited about unlimited origination charges, HUD reminds lenders that their fees must continue to be 'fair and reasonable' for the origination services performed in connection with FHA loans," he said.
Schulman said lenders should not be surprised if HUD issues additional guidance early this year on the amount of fees that can be charged. He expects that HUD will place a percentage cap on the overall amount of fees that can be charged to FHA borrowers.
