VA Loans under the New RESPA

If you've heard anything about the new RESPA rules going into effect in January 1, 2010, you've undoubtedly heard that there are issues. One issue that jumps out at me is the handling of the VA non-allowable closing costs. I was all over HUD's RESPA site and VA's website and could find no answers, so I wrote an e-mail to HUD's RESPA questions address. Since I know I'm not the only one with this question I'll be sure to post any reply I get as well. Here's what I wrote to HUD:

I'm wondering how to handle "non-allowable" borrower fees like the ones in a VA loan. Certain fees, such as underwriting, processing, and the buyers part of the escrow fee for example, are "non-allowable" borrower fees in a VA loan. Traditionally these are paid by the seller in a purchase and paid with rebate pricing by the lender in a refinance.

First, on a purchase do we still disclose those fees even though the borrower cannot by law pay them? The FAQs say we should include the owners title policy in the GFE even though the seller traditionally pays that, so is it the same with the non-allowable fees? Is there a way to show seller paid closing costs on the new GFE at all?

Second, on a refinance those non-allowable fees are typically paid by the broker/lender using SRP or rebate pricing because there is no seller to pay them and the borrower is not allowed to pay them. Since any rebate must now go directly to the borrower that option is no longer available. Consider the fact that VA limits the origination fee to 1% of the loan amount and the fact that VA non-allowable fees are usually between $1,000 and $1,300. If the loan amount is anywhere near $130,000 the originator would be doing the loan for nothing, which is obviously not going to happen. If I'm reading the new rules correctly, VA refinances will be a thing of the past as of January 1st.

Since I'm sure your intent was not to deprive veterans of the opportunity to refinance or purchase a home, I'm assuming there is some exception or workaround that I'm not aware of. For VA loans the new GFE is unclear and leaves the originator in a position where they may end up covering those non-allowable fees, which is not a risk I think any of us are willing to take.

Thank you in advance for your response.