What are FHA's rules with respect to tiered pricing?

The Mortgagee must ensure that the aggregate fees and charges do not violate FHA’s Tiered Pricing rule.  

The Mortgagee may not make a mortgage with a Mortgage Charge Rate that varies more than two percentage points from the Mortgagee’s reasonable and customary rate for insured mortgages for dwellings located within the area.  To determine whether a mortgage exceeds the two percentage point variation limit, the Mortgagee must compare Mortgage Charge Rates for mortgages of the same type, from the same area, and made on the same day or during some other reasonably limited period.  See Section 203(u) of the National Housing Act (12 U.S.C. 1709(u)), 24 CFR 200.12 at http://www.ecfr.gov/ 

The Mortgagee must document that any variation in the Mortgage Charge Rate is based on actual variations in fees or costs to the mortgagee to make the mortgage.  

Additional information including definitions for Tiered Pricing can be found in Handbook 4000.1 II.A.6.a.x.(D) available at https://www.hud.gov/program_offices/administration/hudclips/handbooks/hsgh

All policy information contained in this knowledge base article is based upon the referenced HUD policy document. Any lending or insuring decisions should adhere to the specific information contained in that underlying policy document.

Topic Number: KA-04517