Real Estate Settlement Changes January 1

Real Estate Settlement changes January 1

December 13th, 2009

The Real Estate Settlement Procedures Act (RESPA), a consumer protection statute enacted in 1974, will have a new face beginning January 1, 2010.  RESPA was basically designed to give effective disclosure to homebuyers and sellers prior to initiating the real estate purchase process, so there were no "surprises" at the closing table.

The new RESPA reforms are aimed at giving the consumer better information earlier in the process and the ability to shop for the best deal by comparing service providers.

Potential buyers need only give six pieces of information - name, monthly income, social security number, property address, sale price, and loan amount desired.  They can do this with several banks or lenders and get a Good Faith Estimate (GFE) within three days.  The GFE results can then be compared side-by-side so the consumer then can make an informed decision on which scenario and providers to use.

The GFE has three parts - charges that can not increase, those that can only increase a maximum of 10 percent, and those that can change at settlement if you don't use the service company identified by the lender.

That said, here's the downside of the new RESPA. 

There will need to be a huge increase in communication between the lender and whoever is doing the closing - either a title company or attorney.  That's a scary thought, especially when a lawyer is involved.

The other concern we have as realtors is that lenders - who are often located 100 or 200 miles from us here in Cape May County - are going to be supplying names of home inspectors, termite inspectors, etc., to the prospective buyers.  The only way we can sidetrack a potential logistic fiasco is to give these buyers a list of reputable local puveyors to submit to the lender upon first contact.

The new HUD-1 Settlement Statement used at closing, which is now three pages instead of two, also has two drawbacks.  Closings will take longer and the HUD-1 is less detailed and more about total costs.

The federal goverment received 12,000 public comments prior to designing the new RESPA and its GFE and HUD-1 forms.  Once realtors, title companies, lenders, attorneys, sellers, and buyers get used to the new format and procedures, hopefully all the parties concerned will be pleased.