FHA mortgages could get a bit more expensive for borrowers, now that the government has lifted a cap on what lenders can charge for originating the loans.

Under previous guidelines, lenders could charge no more than 1 percent of the loan amount as their origination fee. However, the Department of Housing and Urban Development lifted that limit, effective Jan. 1, to reflect new guidelines under the Real Estate Settlement Procedures Act (RESPA) taking effect that day.

Under those guidelines, lenders must provide potential borrowers with a new Good Faith Estimate form that bundles all lender charges into a single origination fee. Bundling all lender charges into a single fee is intended to make it easier for borrowers to compare loan offers when shopping for home mortgages.

"FHA expects that lenders will continue to charge fair and reasonable fees for all origination services and the agency will continue to monitor to ensure that FHA borrowers are not overcharged," said FHA commissioner David Stevens, in the mortgagee letter announcing the changes.

The 1 percent limit will still apply to FHA reverse mortgages and to FHA 203(k) loans, which provide funds for renovating a home purchased with an FHA loan at the same time.

The cap may soon be replaced by another; Stevens said in the mortgagee letter that the FHA intends to issue additional guidance on fee limits, though he did not give any indication what form that might take.

Published on October 30, 2008