Excessive Fees on FHA Loans

The FHA Home Ownership Centers have been requiring lenders to refund unreasonable fees to borrowers for years but this practice has increased over the last year. In many cases the company has charged a broker fee in addition to a 1% origination fee. In other cases the lender has charged a processing, underwriting, administrative and broker fee and FHA has required a refund of fees that were excessive or appeared to be a duplicate. FHA’s authority to require refund of fees comes from two specific areas. 1) The FHA handbook states lenders can only charge fees that are ‘reasonable and customary for the area’ and 2) under RESPA where lenders can only charge a fee where there is a bona fide service. Under RESPA 2010, all origination fees are now shown within block 1. Lenders must be very cautious in their interpretation of FHA’s policy that eliminated the 1% cap on the origination fee. This was only done to accommodate the change in the GFE format, it does not change that the fees must be reasonable and customary. Lenders should monitor their pricing policies and the pricing patterns of retail and wholesale originators. The itemization of block 1 fees may be important in an audit to support that lender fees are reasonable for the area. In addition, the total revenue from Block A and any yield spread premium paid to the broker should be reasonable for the area.