Special offer

Are You Ready For Some RESPA Reform? Part I, An Overview Of The New Regulations--New GFE and HUD-1

By
Services for Real Estate Pros with Vetstein Law Group, P.C., TitleHub Closing Services LLC

RESPA reform

New, sweeping changes regulating how lenders, closing attorneys and title companies disclose loan and closing costs are set to go into effect January 1, 2010. The new regulations are part of a long awaited reform to the 30 year old Real Estate Settlement Practices Act known as RESPA aimed at providing greater transparency and fostering better consumer choice in loan and closing costs. The changes are so significant that HUD recently took the unusual step of giving lenders a 120 day reprieve in enforcing the new regulations.

The major components of the new RESPA reform are the new and substantially revised Good Faith Estimate (GFE), in which lenders disclose loan and closing costs to borrowers, and the HUD-1 Settlement Statement, which is a detailed financial breakdown of the entire real estate transaction signed at closing.

Highlights of the new changes include:

  • Borrowers must receive a standard GFE disclosing key loan terms, including the loan’s terms; whether the interest rate is fixed or otherwise; any prepayment penalties and/or balloon payments; and total closing costs.
  • Lenders must provide borrowers with a standard origination charge for the loan which must include all points, appraisal, credit, and application fees, administrative, lender inspection, wire, and document preparation fees
  • Lenders have the option of providing borrowers with a list of approved service providers such as closing attorneys and title insurance companies.
  • A tolerance range has been specified for various categories of loan/closing costs to prevent unnecessary escalation of promised vs. actual charges.
    • Fees quoted for lender origination charge cannot change.
    • Fees for title and closing costs where the lender selects the provider or where the borrower selects the provider from the lender’s approved list cannot change by more than 10%.
    • Fees that borrowers can shop for themselves can increase (or decrease) by any amount.
  • The final page of the GFE contains worksheet-like charges to compare different loans and terms that the borrower can use to shop pricing.
  • Controversial lender payments to mortgage brokers, known as yield-spread premiums, must be disclosed in a standard manner.
  • The charges quoted on the GFE are then carried over to the HUD-1 Settlement Statement to ensure that the prescribed tolerances are met.

Here is a link to the new Good Faith Estimate (GFE) form and a link to the new HUD-1 Settlement Statement form.  The most recent FAQ from HUD can be found here.

I think that overall the changes will provide consumers with greater disclosure and transparency of the myriad loan closing fees and costs in a typical real estate purchase.  It also creates an incentive for lenders to assemble a competitively priced team of preferred settlement service providers, so it can guarantee to its customers that the price of the preferred vendors’ settlement services will never increase by more than 10% at closing.  If borrowers aren’t happy with that, they are free to shop and find a better deal themselves.

I plan to do a series of upcoming posts on this important RESPA reform, highlighting the salient sections of the new GFE and HUD-1. As always, contact Richard Vetstein with any questions.

Posted by

 

 

Comments (3)

Suzy Morris
The Morris Team - Carlsbad, CA

A lot of good info, Richard.  Thanks for posting. 

Nov 27, 2009 11:09 AM
Eric J
Eric J - Dream Home Financing - Freehold, NJ
Dream Home Financing

I am happy to see the measures being taken to improve disclosure. I have lost quite a few loans to lenders who are not as transparent as I am regarding the total costs of the loan. Maybe this will also help me.

That being said, these changes are also hurting the borrowers and realtors because it is creating delays and in some instances adding to the costs.

 

SUBSCRIBE TO MY BLOG :)         Follow My Twitter !!

 ** Home Shoppers MUST READ **

Free Realtor Advertising For AR Members

           Dream Home Financing  Stated Income Loans   Mortgage News And Trends

 Have a great day .....Eric - Dream Home Financing

Nov 27, 2009 11:12 AM
John Occhi
AZ Veteran Notary Services - Marana, AZ
Mobile Notary Public/Certified Loan Signing Agent

Great Article on this important topic - Changes with RESPA.

I recently wrote my own article on the topic and could not find a group to post it to - so I created the RESPA Group, here in ActiveRain.  In just 4 days we are up to 39 members and 23 valuable blog posts.

I would like to invite you to join the group and repost this important resource to the group so many will be able to easily find it, when researching and following the topic.

Thanks for your consideration,

John

Jan 06, 2010 12:19 PM