Allowable Changes Settlement Agents Can Make

Important Subtleties To Be Aware Of In The Closing Disclosure

Dear Member,

Here is something that will be of interest to those of you who handle residential transactions that include FHA loans. Recently, the Federal Housing Administration issued 120 new FAQs to its Single-Family Handbook Frequently Asked Questions. Check out #374 (!), discussing allowable changes settlement agents can make to the new settlement agent certification which replaces the current addendum to the HUD-1.

Earlier this summer, the FHA released its new certification, which stated:

To the best of my knowledge, the Closing Disclosure which I have prepared is a true and accurate account of the funds which were (i) received, or (ii) paid outside closing, and the funds received have been or will be disbursed by the undersigned as part of the settlement of this transaction. I further certify that I have obtained the above certifications which were executed by the borrower(s) and seller(s) as indicated. (Emphasis added.)

However, we know that most lenders have decided to take responsibility for preparing the Closing Disclosure under the new TRID rules. Following the release of the certification, ALTA noticed this language and brought it to FHA’s attention, pointing out that, if left unchanged, this certification puts settlement agents in the untenable position of falsely signing the certification or holding up transactions for the FHA's low-income and first-time homebuyers.

To address this problem, FHA announced in FAQ 374 that settlement agents should remove or strike through the "which I have prepared" language from the certification if they did not prepare the Closing Disclosure. As ALTA’s CEO Michele Korsmo points out, "Unfortunately, the FHA is only providing this guidance via the FAQ. The agency has not revised the certification itself, and has not clarified the instructions on the certification itself. This could lead to confusion for loan processors and post-closers when settlement agents strike out the language. Additionally, settlement agents need to train their closers to know about the FAQ and to work with the processor ahead of closing to get the authorization to strike out the language."

ALTA will continue to monitor this situation with the goal of getting the certification language changed rather than burying this guidance in a FAQ. Kudos to ALTA!

Hope this info is helpful. As always, thank you for your support of The Fund!

Best Regards,

Melissa Jay Murphy
Senior Vice President and
General Counsel