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RESPA REFORMS BENEFIT CONSUMERS

By
Real Estate Broker/Owner with Realty One Group

Proposed changes to the Real Estate Settlement and Procedures Act will provide tremendous benefits to consumers as it pertains to the disclosure of closing costs, interest rates, and prepayment penalties that are associated with a new mortgage or the refinance of a current mortgage.

On March 12, 2008, the Department of Housing and Urban Development published in the Federal Register the Proposed Rule To Simplify And Improve The Process of Obtaining Mortgages and Reduce Consumer Settlement Costs, which provides for a more detailed explanation of the interest rates and closing costs that a consumer can expect to pay for the procurement of a mortgage with a particular mortgage broker or mortgage lender. 

The biggest change will be seen in the Good Faith Estimate (GFE) that a consumer receives at the time of the loan application.  The proposed GFE is broken down into 4 pages of detailed information, with important dates and loan details that are often overlooked with the current, outdated GFE from 1974.

A brief summary of the changes to the Good Faith Estimate are as follows:

Important Dates.  Deadlines for interest rates and settlement are spelled out, giving the

                                   Consumer specific timelines for interest rate availability and interest rate

                                   locks that allow the consumer to choose their interest rate.

 

Summary of your loan terms.  This section details specifics with regard to the interest rate

You have chosen, as well as the term of the mortgage and the principal and interest payment that you can expect to pay each month.  This section also tells you specifically whether or not your monthly payment, interest rate or loan balance can rise, as well as if there escrows are collected monthly to pay for your property taxes and insurances.  This section also addresses prepayment penalties and balloon payments.  If there is a prepayment penalty, it spells out the maximum penalty in terms of dollars that you can expect to pay if the mortgage loan is refinanced or paid off early.  A balloon payment would spell out when the balloon payment is due and the dollar amount of the balloon payment when it becomes due.

 

Summary of your settlement charges.  This section spells out how much your mortgage broker or mortgage lender will charge you for their services, including charges those charges for points or other prepaid interest charges.  This section also includes those settlement charges required to process and close your mortgage loan which include title insurance, real estate appraisals, as well as recording fees and taxes. 

 

Shopping for a loan offer.   Encourages consumers to shop for the best loan possible, and to compare GFE's to find the best loan for them.

 

Understanding which charges can change at settlement.  This section spells out the charges that you can expect to increase and those costs that cannot increase from the initial GFE to the day of closing.  Costs for daily interest charges, homeowners insurance and title services will likely change; however, the points and mortgage broker fees cannot change the day of closing, without the consumer having received some type of re-disclosure prior to the day of closing.  This is especially important to consumers who have had mortgage brokers or lenders increase their fees at the last minute without full disclosure to the consumer.

 

Looking at trade-offs.    Once you have been offered a particular interest rate and estimated settlement costs, could still choose other loans that offer a lower interest rate or settlement costs.  If you want a lower interest rate, your settlement charges will likely increase.  If you want lower closing costs, your interest rate will likely increase.  Within this section, a table is created to give the consumer a side by side comparison of the interest rate and settlement costs of their GFE as it compares with a loan with a lower interest rate and higher settlement costs, and a loan scenario with a higher interest rate and lower settlement costs.  This in itself is highly beneficial to the consumer that allows them to compare three loan scenarios and choose the loan scenario that they want.

 

Your financial responsibilities as a homeowner.  This tells the homeowner the annual costs that they can expect to pay in the event that their mortgage lender will not be collecting escrows from the consumer to cover these costs.  This disclosure eliminates any confusion as to who is paying these costs, so there are no surprises when these costs come due annually.

 

Applying for this loan.  If a mortgage broker or mortgage lender is charging an application fee, it must be disclosed under this section.

 

Getting more information.  This section encourages consumers to ask about several types of loan programs that may be available to them, as well as directing consumers to the many government publications made available to them such as HUD's Special Information Booklet on settlement charges, a as well as Truth-in-Lending Disclosures, and other consumer information booklets available through the Federal Reserve Board.

 

Using the shopping chart.  This section is made available to consumers to help them shop for mortgage loans from different lenders, including interest rates, settlement costs, & prepayment penalties to name a few. 

If your loan is sold in the future.  This lets the consumer know that in the event that their mortgage is ever acquired by another mortgage lender that the loan terms, adjusted origination charges and total settlement charges cannot change.

 

The changes contained within the proposed GFE will undoubtedly allow the consumer to better comprehend the closing cost and interest rate scenarios for the mortgage loans they shop for.  Consumer groups as well as the mortgage industry are encouraged by these changes, requiring more transparency in the full disclosure of closing costs and interest rates to consumers. 

 

The sweeping changes offered by the Department of Housing and Urban Development (HUD) with regard to RESPA is an important beginning to improving consumer disclosures that will help consumers make better, informed choices when choosing a mortgage loan, a mortgage broker, and a mortgage lender.

 

For more information regarding the proposed changes, go to www.Hud.gov.

 

Mike Sikorski MBA GRI

Licensed Real Estate Broker

Licensed Mortgage Broker

Loss Mitigation Specialist

Florida Realty Network LLC

22079 Kimble Avenue

Port Charlotte, Florida 33952

Phone 941-206-6000

Mike@FloridaRealty.net