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What does Dodd-Frank actually say concerning the 3% cap on origination fees?

I'm thinking of purchasing a home this year. I was a contractor until a couple of years ago. I would like to purchase a forclosure that needs work at a discounted price, and do the work myself to build equity. I'm hoping to find a home that qualifies for a USDA loan, so that I can use money for repairs instead of a down payment. I'm a little confused as to what the rule concerning a cap on origination fees is under the new Dodd-Frank Act. I've heard everything from the rule applying to all loans, to the rule only applying to loans of $100,000 or more. I'm presently looking at a forclosure that is listed for $79,900, but I believe that the bank would accept an offer of quite a bit less than the asking price as the house needs a lot of work. The problem is that if I offer much less than the asking price most lenders will exceed that 3% cap in their origination fees. Does the new law actually prevent buyers from being able to finance a home at a reduced price?? this seems absurd to me. That would mean only buyers who can afford to pay cash could buy a $60,000 home. That rules out pretty much everyone except investors. Is that what the new law actually says, or have I been misinformed? If that is in fact what the law says, is there any way around it?
  • March 01 2014 - Central
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Answers (7)

Hi Jason, I can assist you with a USDA loan in SC. The price and the cap are not an issue and our fee is very low.  I'm very familiar with the program and use it often. It's a great way to purchase with no money down.  Please let me know if you need anything. Click my pic. to contact me.

Best Wishes!
Summer Davis
  • May 16 2014
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Profile picture for Blue Nile
Dodd/Frank also requires mortgage brokers to have set markups for each lender; which can be change from time to time, but applies to all loans.  This does make it a bit harder for the mortgage brokers to write the small loans.  Mortgage Bankers typically don't have that problem as many of the loan officers in the banks are on salary, not on commission, and they are maintaining the banks' reputation and building customer clientel.

If you can't find a mortgage broker to write the loan, you go to a local bank or local Credit Union.  Someone typically will write the loan.  And the good loan officers tend to be competitive and able to find competitive rates and terms.


Try the anonymous mortgage quote requests on Zillow, with your specifics; link at the top of the page.  Typically you will find several loan offers in just a couple minutes that can write your loan.
  • March 02 2014
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There is a lot of confusion out there.
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case in point, such as when agents try to give loan advice.


Contradicting their theory - our non-QM loans have lower rates, not higher, of any of our QM programs. 
  • March 02 2014
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There is a lot of confusion out there.  There s a term used called "Qualified Mortgage" (QM).   For a loan to be QM it has to conform to the new rules such as the 3% cap.  The lender can take a higher risk and do an Unqualified Mortgage.   The higher risk comes in when the mortgagor defaults on the loan because there is noting to protect the lender in the event of a default.  Thus the higher interest rate.  

I personally think these new rules are going to fuel the next bubble that esult in a bigger problem than we are presently working through
  • March 02 2014
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The word of the day is "Untended Consequences". While the government has come in and placed some in my opinion overreaching new regulations trying to curb loan fraud, the statistics actually show that loan fraud has risen substantially over the years. Click in the link below for further information, you will be surprised.

As far as your question is concerned, in order to help someone buy a home in  the lower price range, you my friend will be penalized because your loan is less than $100K. This will be in the form of a much higher interest rate.  That's right! I hope you know who to thank for that. 

Let me know if you need some assistance. Best of Luck!


http://www.fbi.gov/stats-services/publications/financial-crimes-report-2010-2011/financial-crimes-report-2010-2011#Mortgage
  • March 02 2014
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Thanks for the advice. That makes a lot more sense. Thanks for posting the links too
  • March 01 2014
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Different lenders have different interpretations.  Check out page 31 of this link.  The total allowed instead of 3% is 3,000 for loan amounts of between 60K & 100K 

http://files.consumerfinance.gov/f/201304_cfpb_compliance-guide_atr-qm-rule.pdf

If you want to look at the whole law:

http://www.consumerfinance.gov/regulations/ability-to-repay-and-qualified-mortgage-standards-under-the-truth-in-lending-act-regulation-z/#guide

Even with all this info in hand, it's still very confusing.  Understand that not all your loan fees need to be included, generally your origination (excluding bona fide discount points), non refundable upfront mortgage insurance, and any fees charged for lender affiliated services need to be included.

Bottom line, don't worry about it to hard.  Someone will figure out a way to originate your loan within the allowable numbers.  
  • March 01 2014
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