Actual Versus Average Charges

Question: When may a HUD-1 Settlement Statement include charges for services that will be greater than the actual charge? Answer: The amount stated in a HUD-1 Settlement Statement for any itemized service may not exceed the amount actually received by the settlement service provider for that specific itemized service, unless the charge is an average charge determined in accordance with Regulation X, the implementing regulation of the Real Estate Settlement Procedures Act (RESPA). Regulation X provides requirements for how a settlement service provider may impose an average charge for certain services. This is called the “average charge” approach. It should be noted that the average charge may not be used for any settlement service where the charge for that service is based on the loan amount or property value. Thus, the average charge may not be used with charges such as transfer taxes, interest charges, reserves, escrow, or in fact any type of insurance (i.e., mortgage, title and hazard insurance). [24 CFR § 3500.8(b)(2)] While RESPA permits the use of any average charge under certain conditions, an average charge may not be permitted under other laws or loan program requirements. Therefore, where using the average charge, the lender should take into consideration all applicable laws and loan program requirements.  Jonathan Foxx is president and managing director of Lenders Compliance Group and Brokers Compliance Group, mortgage risk management firms devoted to providing regulatory compliance advice and counsel to the mortgage industry. He may be contacted at (516) 442-3456 or e-mail at [email protected].