The Department of Housing and Urban Development has contributed to the debate over risk-based mortgage lending by warning FHA- insured lend-ers against imposing excessive origina-tion charges.
Although not inherently discrimin-atory, in some instances, the practice of charging overages may result in dis-crimination on a prohibited basis in violation of the Fair Housing Act or the Equal Credit Opportunity Act, HUD Assistant Secretary Nicolas Retsinas wrote in Mortgage Letter 94-43, dated Sept. 29 but released on Oct. 17.
Overages take in interest rates, origination fees and discount points that are higher than the lenders market rate for FHA- insured loans at the time. Except for Section 203(k) rehabilitation loans, HUD bans loan origination fees for all FHA-insured mortgages over 1% of the basic loan amount.
In addition, in some instances, the practice of permitting overages may result in a violation of FHAs Tiered Pricing Rule, Retsinas continued. A lender that permits overages must be prepared to demonstrate a business necessity for the practice, he wrote, adding that the government still would reject the use of overages in such cases if the business objective could be achieved by other means without a discriminatory impact.
Retsinas noted that the Fair Housing Act and ECOA ban discrimination on the basis of race, color, religion, sex and national origin. In addition, the housing act bars discrimination on the basis of handicap and familial status, while ECOA bars discrimination for marital status and receipt of public assistance.