HUD to Lift Fee Cap on FHA Loans

The Department of Housing and Urban Development plans to lift the 1% cap on origination fees for Federal Housing Administration-insured loans, according to sources close to the agency. The change is expected to be unveiled within the next few weeks. HUD argues that competition will prevent fees from rising too much once a regulation overhauling up-front disclosures takes effect Jan 1. (FHA is the fastest growing niche in the market.) If borrowers think they are being overcharged, the thinking goes, they can shop around for a better price and potentially take their business elsewhere. "HUD feels the marketplace will drive origination fees down once the 1% cap is removed," said mortgage attorney Phillip Schulman, a partner in the K&L Gates LLP law firm. HUD has been hinting for a while that it might remove the cap when it completed a new Real Estate Settlement Procedures Act rule. However, the agency is expected to reserve the right to reinstate or add limits on fees charged to the borrower.