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Banking Interpretations

Gen. Reg. Part 38.3

January 27, 2010

Roberta Kotkin, Esq.
General Counsel & Chief Operating Officer
New York Bankers Association
99 Park Avenue
New York, NY 10104-3300

Re: RESPA Changes

Dear Ms. Kotkin:

This is in response to our discussion on January 26, 2010, and your earlier letter in which you asked for confirmation from the New York State Banking Department (the “Department”) that recent changes to the Real Estate Settlement Procedures  Act (RESPA), which requires inclusion of the application fee on the GFE and HUD-1 line item entitled “Origination Charge” (perhaps along with other lender-retained charges), have not changed the character of the application fee such that it would no longer be permissible to charge it prior to acceptance of a commitment by the applicant.

Recent changes to RESPA
After January 1, 2010, RESPA requires all lender-retained fees, other than points, to be disclosed on the GFE and HUD-1 on one line item entitled “Origination Charge.”  Prior to January 1, 2010, fess such as application fee, credit report fee, appraisal fee etc., were disclosed and accounted for on separate lines in the GFE and HUD-1.

Relevant Banking Law and Regulations
Pursuant to New York law, in the case of purchase transactions, and refinancing transactions in which a commitment fee or points are paid or will be paid prior to closing, the amount of the application fee must be disclosed in writing prior to the collection of any fee.1 The foregoing disclosure requirements can be satisfied in one or more documents, including any form used to comply with applicable federal law or regulations.2   Further, no fee, other than an application fee, credit report fee, property appraisal fee and/or lock-in fee, can be collected from an applicant prior to the acceptance by the applicant of a commitment.3    Thus, only after an applicant accepts a commitment may a lender collect a commitment fee or any “points,” which as defined by 3 NYCRR 38.1(n) include an “origination fee.”

Reasoning and Conclusion
In transactions requiring the disclosure of an “application fee,” prior to the collection of such fee, disclosure in the new GFE will not suffice to fulfill the requirement of the regulation, as the new GFE requires an aggregation of all fees on one line; instead of a separate, identifiable disclosure required by 3 NYCRR 38.3(b)(1). 

However, once the proper disclosures are made, it is the Department’s position that a lender may continue to collect an application fee,4 prior to the borrower accepting a commitment, even though under federal law the “application fee” is considered an “origination fee,” and under New York law a lender cannot collect an origination fee prior to the acceptance of a commitment by a borrower.   A different conclusion would result in a lender not being legally permitted to collect an application fee prior to the borrower accepting a commitment.

Note, it continues to be the Department’s position that in accordance with 3 NYCRR 38.3(b)(1)(i) no origination fee, other than an application fee, credit report fee, property appraisal fee and/or lock-in fee, can be collected from an applicant prior to the acceptance by the applicant of a commitment.

I trust the foregoing is responsive to your inquiry.

Sincerely,
Harry C. Goberdhan
Assistant Counsel

_____________________

  1. 3 NYCRR 38.3(b)(1)
  2. 3 NYCRR 38.3(b)(2)(iii).
  3. 3 NYCRR 38.3(b)(1)(i)
  4. Providing all of the other requirements are met.