Sounds like a question poised for a real estate agent but in this case, we're exploring the new Good Faith Estimate guidelines that become mandatory in January 2010. In particular, pages 10 & 11 of the new section regarding the written list of third party providers.
The New RESPA Rule FAQs updated on October 7th clearly states that a lender only has to provide a list of 3rd party settlement providers to borrowers when the lender permits the borrower to shop around for services.
Q: When do loan originators have to provide the borrower with a written list of identified providers?
A: When a loan officer permits a borrower to shop for third-party settlement services, the loan originator must provide the borrower with a written list of settlement service providers at the time of the GFE, on a separate sheet of paper.
The word "permits" is used in six out of the seven Question and Answers covering this section.
Given this new GFE guideline, it may benefit lenders not to permit their borrower to shop for 3rd party providers. Providing a list would hold the loan originator liable for quoting the exact fees for every company listed. Much easier said than done! Third party providers often change fee structures and/or will charge extra fees for services not anticipated at the time the GFE is created i.e. preparing Quit Claim deeds, outside courtesy signings, and special delivery charges.
What if a borrower threatens to walk if they aren't allowed to shop? The best answer may be to provide a list with only one or two preferred providers that the loan originator can quote with confidence. If the borrower decides on a different service provider, "the amount paid for that service is not subject to a tolerance".
Purchase transactions
It gets more interesting when quoting a GFE on purchase transactions. In this case, the title and escrow company will be chosen on the signed Purchase & Sale contract. If you're going to provide the borrowers with the the new GFE prior to knowing who the service providers are, you may be taking an unwarranted risk. Escrow fees can differ wildly between companies, sub-escrow fees may apply, and the parties may choose between a Standard or special Homeowner's title coverage. The difference in price is commonly 10% unless discounts apply. There goes the tolerance! The best answer could be to provide a list with only one choice (quote worse case pricing with Homeowner's coverage, sub-escrow, no discounts, etc.) or, if HUD allows, using an all-together different form to estimate costs.
Talk to your company about which strategy best suits your needs. The new year will be here before you know it!
