Simplified Disclosures... Problem Solved?

Title Insurance with Advantage Title Company - Nationwide

HUD released a new RESPA reform proposal which includes a standardized Good Faith Estimate.

 Technically this is an old reform proposal as they attempted the introduction of the 3-page GFE in 2002, but where met with heavy resistance.  They estimate this could save borrowers an average of $668 at settlement or $8.35 billion per year.

The new GFE would include: the interest rate, monthly payment, loan terms, origination charges, settlement charges, and disclosure of any yield spread premiums. Here is a sample of the new GFE:

HUD believes the new GFE would make it easier for borrowers to shop around. The savings that borrowers will receive will come at a cost of $5.88 billion per year to loan originators and $1.79 billion per year to title companies. Also, Loan originators and settlement service providers will have to pay $570 million to become compliant with the rule changes up front, and expect reoccurring compliance costs of $1.2 billion per year. This includes software, training, and legal advice.

I believe that all consumers have the right to shop for the best possible deal. Some lenders, brokers, and title companies are indeed overpriced. But, the educated consumer already knows how to shop around and we all know that cheaper is not always better. Many loan originators and title companies (such as Advantage Title) compete based on service and not on price. Putting loans in the hands of discount lenders and settlement service providers could make the problem worse. From a title companies perspective, would you rather have a $50 notary present at settlement that has no loan closing experience, or a $150 licensed settlement agent that brings with them knowledge and expertise. Sure, the borrower saved $100, but tell me how that is supposed to help borrowers better understand their loan...

The bottom line is the current mortgage mess was not caused nor will be solved by any piece of paper.  It was caused by a general lack of common sense, blindly optimistic expectations of the market, and over ambitious lenders and borrowers.

What do you think of HUD's RESPA reform? Do you think making it easier to shop around will solve anything?

Comments (2)

Teresa A Burrell
Burrell Closing Service Inc. - Orlando, FL
Mobile Notary Public

I do not think these reforms will produce the expected results. 

Additional disclosures will not ensure that the borrowers will actually understand the transaction unless the borrowers are willing to educate themselves.  Most borrowers put more time and effort into researching their new HD TV or car purchase than they do their mortgage alternatives.

By the way, I am not a "$50 notary."  If you employ a signing service, many will look for a notary who will accept the lowest fee possible and perform a "point and sign" closing.  These signing services charge the title company $150 to $250 or more, but pay a fraction of that to the notary who actually performs the closing.  There is no real savings to the title company or borrower when using a signing service who employs $50 notaries.  The initial time savings gained on the front end by not having to make a few calls is eventally lost on the back end by having to spend more time reviewing and correcting the work of these $50 notaries.  Why not build your own list of qualifed, experienced notaries and call them direct instead?

For those borrowers who can not, or prefer not to take the time to close in the title company office during regular business hours, a mobile notary is a good alternative.  It can save the borrower the expense of taking time off from work or having to find someone to look after the kids so they can conduct business.  Calling an experienced mobile notary direct instead of taking your chances with a notary provided by a signing service can make the loan signing process go more smoothly.  In many instances the title company and borrower can also save money by hiring direct since most mobile notaries do not have overhead expenses for office rent and employee salaries.

I have been a mobile notary for five years and am on my fourth notary commission.  Although I do work for some signing services who understand the value of using a notary with experience and are willing to pay a fair fee for that experience, most of my assignments are received directly from title companies.  The companies I work for know I will review the HUD and the Note with the borrowers to ensure they know their loan terms and the bottom line.  I do not give an opinion regarding the terms of their loan and if they have questions I am not qualified to answer, we call the loan officer or title company from the closing.

As long as the GFE was prepared correctly, using the correct payoff figures, recording fees, etc., there should be no suprises when it is time to sign the final loan papers.  Maybe the redesigned disclosure will generate more revised GFEs when suprises like payoffs with pre-payment penalties show up.  Theoretically, the smaller the difference in figures between the GFE and the final HUD, the smoother the closing.  Just because the GFE is being redesigned does not mean the average borrower will know how to use the information provided in order to shop for the best deal.  It may only serve to confuse them and make them even more suspicious of the process than they are now.

Mar 17, 2008 03:57 PM
Negrete's Notary Service Inc.

You both make some very god points. I think the thing that both of you are missing is the fact that there is going to be a SCRIPT that MUST be read before all closings are even started. This will hopefully give the borrower the full picture of their loan. They are not clear on who ( Title Company , NSA or the Signing Service ) will read the Script to the borrower. Also it states that the HUD-1 must be given to the borrower 3 days in advance of the closing and if it isn't, there could be fines and penalties imposed. If I could ask one thing to be change it would be that RESPA require the SCRIPT be read to the borrower 3 days in advance of the closing instead of the HUD -1 being the advance document sent to the borrower.

On the note about the Signing Services sending out sub-standard noatries, I have to agree to a point, there are some Signing Services that do pay sub-standard fees to thier NSA's. Those are the ones that make it very hard for the good Signing Service to keep a good reputation in the business. I for one take very good care of the NSA's that have done work for Negrete's Notary Service Inc. 

On the point of the Title Company hiring the NSA's direct. There are some Title Companies that just don't have the manpower to achive such a task because they have cut back so much since the business has been so bad lately.

And then you have the very large Title Companies that do have the in house Signing Services that don't pay the NSA's but a small fee to get the closing done and those are the ones that pay $50. And the NSA's that do take the $50 closings will hopefully not be in business for very long.

In conclusion I would say that we can agrue all day about this and the final say will be with RESPA and the federal goverment.

 Anthony J Negrete

Negrete's Notary Service Inc.

Mar 18, 2008 01:55 AM