FHA answers a FAQ; it doesn’t officially change the certification

The Federal Housing Administration (FHA) released a new settlement certification this summer in anticipation of the implementation of the TRID rules on October 3. The new certification is intended to replace FHA’s current addendum to the HUD-1 Settlement Statement and will be used for the new Closing Disclosures once the TRID rules become effective.

The new certification reads:

“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.”

Please note that the new certification contains the language “which I have prepared”.  As we have all heard by now, many of the large lenders have indicated that settlement agents will not prepare the Closing Disclosures to be delivered to borrowers. Because of the perceived liability, several of the larger lenders have announced that they will prepare the deliver borrowers’ Closing Disclosures.

Settlement agents (closing attorneys in South Carolina) will prepare and deliver sellers’ Closing Disclosures in all cases and will prepare the borrowers’ forms for the smaller lenders who are not taking the responsibility internally.

American Land Title Association reached out to FHA, the Mortgage Bankers Association and individual lenders to inform them that the new certification would be inaccurate in the cases where the lender prepares the Closing Disclosure.  FHA did not revise its certification, but, in connection with issuing an additional 120 new FAQs to its Single-Family Handbook Frequently Asked Questions, it answered the following question this month:

FAQ 347:

Q: “The Model Settlement Certification requires the Settlement Agent certifying that he or she has prepared the Closing Disclosure but the CFPB’s requirements for issuing the new TRID Closing Disclosure will make this unlikely to be the case. Should the Settlement Agent sign the form anyway?”

A: “FHA does not wish for anyone to make a false certification. Because this is a model component, FHA will accept the tailoring of this phrase to the actual circumstances. This if the Settlement Agent does not prepare the closing disclosure, he or she should remove or strike through the statement ‘which I have prepared’ before executing the Settlement Certification.

FHA is only providing this guidance through the FAQ. It is neither revising the certification nor clarifying the instructions on the certification itself.  As a result, closing attorneys will be required to educate their staff members about the necessity to revise the certification for FHA closings after the new rules take effect.