ALTA Addresses Problems of Roll-up Lines and Lack of Itemization on HUD-1
|July 7, 2011|
One significant change to the RESPA rule adopted in November 2008 and implemented in January 2010 was the introduction of “roll up” lines and aggregate line item totals on the HUD-1 Settlement Statement. This concept was designed to help consumers shop for settlement services by making it simpler to aggregate classes of charges. While HUD’s stated goal was improving consumer understanding of charges, roll ups have not been an effective tool for achieving this transparency and simplicity, and itemization of charges is a more logical solution, ALTA’s RESPA Task Force wrote in a paper addressing RESPA reform.
Under the new RESPA rule, HUD created groupings of fees with lines that roll up but do not necessarily add up in order to make simpler aggregates of classes of charges. HUD’s stated goal was to facilitate consumer shopping by making it easier for consumers to compare the charges on the HUD-1 with the estimates provided on the final GFE. However, the Task Force believes this redesign of the HUD-1 and the idea of roll up lines altered the HUD-1 from an accounting of debits and credits for all fees related to the transaction into a top-line summary of the fees associated with the transaction.
HUD based this change on consumer testing. According to HUD, consumers preferred a simpler view of the various categories of charges they incur as part of the transaction instead of a detailed accounting of the transaction.
To assist consumers in comparing final costs and initial estimates for settlement services, the HUD-1, uses roll up lines to group fees into categories similar to those used on the GFE. These roll ups are only used on the Borrower’s side of the transaction, and attempt to prevent surprises at the closing table.
Roll-ups work by not itemizing administrative fees, simply defined as fees associated with the cost of doing business (such as processing, shipping and courier fees) while itemizing all other fees. For example the Rule states that any third party charge that is not administrative and falls under the definition of “title service” must be itemized outside the column with the vendor name and the amount of the fee. The result is that the itemization does not add up to the aggregate or roll up line inside the column. The Task Force said this has created confusion for many consumers, lenders and other parties involved in the transaction.
In the nearly 18 months since implementation of the new GFE and HUD-1 disclosure forms, experience has demonstrated that while consumers do desire a simpler way to compare fees, they also desire and deserve an itemization of the charges of the transaction. In addition, lenders meeting requirements under TILA and other government agencies such as the Department of Veterans’ Affairs (VA) insist on this type of itemization.
As reported by ALTA in August 2010, lenders must include an itemization of (a) seller, lender, mortgage broker, or real estate agent/broker credits and (b) title service charges, according to a circular released July 30. The VA said the itemization is required to enable VA reviewers to determine who paid what charges and to ensure veteran borrowers did not pay unallowable fees.
As a result, typical practice is for a fourth page to be added to the official three-page HUD-1 disclosure. The fourth page serves as an itemization of fees outside of the HUD-1 document. In essence, the itemization of fees is still occurring in today’s RESPA world, it is just occurring off of the HUD-1. In fact, some industry participants indicate that because the previous HUD-1 form provided for itemization, that lenders require settlement providers to use the outdated HUD-1 form, according to the RESPA Task Force.
“Cleary, there is a need for fee itemization and a debit/credit account of transactions that are subject to RESPA,” the Task Force wrote. “As the CFPB considers the degree of transparency and simplicity provided in disclosure forms on behalf of consumers, it should consider the confusion created when itemization lines (outside the column) of Borrower’s charges on the HUD-1 do not add up to the aggregate line item total. In addition, the roll up concept does not apply to the Seller’s fees, and this lack of uniformity creates additional confusion for consumers in the transaction.”
At a minimum, ALTA’s RESPA Task Force suggests using the lines outside the column to itemize all fees related to the transaction to ensure that fees add up to illustrate the aggregate line item total. Allowing this level of detail to occur on the HUD-1 provides transparency to the consumer and allows the consumer to better understand the aggregate lines and what charges constitute those fees. In addition, this solution satisfies many lender requirements as well as government agency requirements. If roll up lines are to be utilized, and we do not recommend that they are, it should be done in such a way that illustrates how one arrived at the aggregate total and it should be applied uniformly to both Borrower’s and Seller’s sides of the transaction.