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More Clarity by the CFPB on QM-Affiliated Arrangements!

MBA ILLUSTRATIVE QUESTIONS AND ANSWERS

Question 1 (Fees to Affiliates and Third Parties): What portion of a fee is counted toward the QM’s 3% cap and HOEPA’s 5% threshold when a fee is paid to an affiliate of a creditor for a closing cost where part or all of the fee is passed through to a non-affiliated third party? Is the total fee paid the affiliate counted or only that portion paid to and retained by the affiliate?

Example – A creditor is affiliated with an appraisal management company (AMC). A fee in the amount of $500 is paid to the affiliate for appraisal management and the appraisal itself. The appraisal itself is conducted by a non-affiliated appraiser who is paid $400 for the appraisal with the AMC retaining $100 for management services. In this example, is the total $500 included in points and fees or only the $100 retained by the AMC?

Answer 1- Only the portion of the charge paid to and retained by the affiliate
of the creditor is included in the points and fees calculation.1 Here, the $100 retained by the affiliate needs to be included in the points and fees. The CFPB’s interpretation of “paid to” in the rule only counts sums which are paid to and ultimately retained by an affiliate.

Question 2 (Title Insurance Premiums and Commissions): If an affiliated title services company is paid a premium for title insurance, some of which it retains as commission and some of which it remits to a non-affiliated title insurer, what amount of “fee” is counted in the points and fees?

Example – A fee in the amount of $1500 for title insurance is paid to a title service provider affiliated with a creditor. $1,000 is retained by the affiliate provider as commission for the policy and $500 is paid to a non-affiliated title insurer as its portion of the premium. In this example, is only $1,000 counted as points and fees?

Answer 2 – Yes. As indicated, the CFPB’s interpretation of “paid to” in the rule covers sums which are paid to and ultimately retained by an affiliate. In Example 2, only the $1,000 portion of the fee paid to and retained by the affiliate is counted toward points and fees.

Question 3 (Amounts Paid to an Affiliate for Escrow): Where an affiliate title
services company is paid amounts to establish an escrow or impound account for taxes, hazard insurance and homeowners’ association dues, are any of these amounts included in points and fees? Also, what happens if additional amounts are paid to cover pro rata payments of these items for the year?

Example – An affiliated title and escrow services provider or settlement agent is
paid $5,096 representing 6 months of taxes to Maryland, half a year’s hazard
insurance premium payable to an unaffiliated hazard insurer. The consumer also pays the affiliated title services provider her pro rata share of the annual charge for taxes, hazard insurance and homeowners association dues paid by the seller of the home for the period of such purchaser’s ownership. Are any of these amounts included in the points and fees?

Answer 3 – No. Escrowed or amounts otherwise paid for taxes, hazard
insurance and homeowners’ association dues are excluded from the points
and fees calculation unless they are retained by an affiliate.

Question 4 (Affiliate Overhead Costs) – Are amounts for overhead paid by affiliated
settlement service providers excluded from the points and fees calculation?

Example – An affiliated title company receives a total of $2000 per closing and
can prove that it pays salaries and other overhead amounting to $1000 per
closing. Can it exclude its overhead from the points and fees calculation?

Answer 4 – No. Amounts for overhead are regarded as amounts retained by
the affiliate. The fee the affiliate receives is not broken down or analyzed
beyond the amount retained as part of the transaction.

Tammy Butler, Master CMB

Author Tammy Butler, Master CMB

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