How many service providers must my lender identify?

Q: On the Service Providers List on my GFE, is the mortgage lender required to disclose more than one provider for attorney, surveyor and pest inspection, or can they just provide one for each service?

A: Real Estate Settlement Procedures Act (RESPA) issues are always thorny to interpret, and the regulations did just change a couple of years ago.

In the instance of providing a list of service providers, it can be a little complicated.

If the lender allows you to shop for certain services, they must provide you with a list of providers at the time of the GFE, according to HUD. That list need only have one firm per shoppable item, and will likely most often be the service provider the lender typically works with. There may be more on the list, but the lender should not be seen as "endorsing" these providers in any way; rather, they merely point out possibilities for you to explore.

If the lender does not allow you to shop for a service, the lender will be bound by a "fee deviance rule," where the fees stated to you in the disclosure can rise by no more than 10 percent from the stated cost on your disclosure.

If the lender allows you to shop, and you pick a provider that is not their preferred service provider, the lender is not bound by the 10 percent fee deviance rule. That is, if a settlement provider the lender prefers charges $500 for a service, your cost will never be more than $550. However, if you choose your own provider, that cost will be whatever the provider charges, and the lender is not responsible for fees which may be higher than those charged by their preferred provider.

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Keith Gumbinger
Keith Gumbinger
Mortgage Expert
Vice President, HSH.com
About Keith: Mortgage market observer and analyst with 35 years experience... (more)
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