new HUD-1

Are You Ready For Some RESPA Reform? Part I, An Overview Of The New Regulations

by Rich Vetstein on November 17, 2009

in Closings, Condominium Law, Electronic Closings, Fannie Mae, FHA, HUD, Massachusetts Real Estate Law, RESPA, Title Insurance

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 (last updated 1.28.10) 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.

Please read my second post in this series, New RESPA Rules 2010: Disclosure of Settlement Services, Attorneys Fees and Title Insurance.

For all the posts in the RESPA series, click here.

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HUD Announces Delay In Enforcement Of New RESPA Rules For 120 Days

by Rich Vetstein on November 14, 2009

in Closings, HUD, Massachusetts Real Estate Law, Mortgages, RESPA, Title Insurance

For my entire series on the new 2010 RESPA rules, look to the right under “Spotlight On: RESPA Reform” or click here.

The U.S. Department of Housing and Urban Development (HUD) announced on Friday that it will not enforce for a 120 day period new, sweeping regulatory changes to the Real Estate Settlement Procedures Act (RESPA) set to go into effect January 1, 2010. The new regulations will still go into effect on January 1, 2010, but the board overseeing enforcement of these new rules will “exercise restraint in enforcing” them. HUD wants all lenders to make a good faith effort to comply with the new regulations beginning on January 1.

The major components of the new RESPA reform are the new and substantially revised HUD-1 Settlement Statement and Good Faith Estimate (GFE) of closing costs issued by lenders, settlement agents, and closing attorneys. HUD will require that lenders and mortgage brokers provide consumers with a newly revised Good Faith Estimate (GFE) that clearly discloses key loan terms and closing costs. Closing agents will also be required to provide borrowers a new HUD-1 Settlement Statement that clearly compares consumers’ final and estimated costs.

The new RESPA rule became effective on January 16, 2009, but provided a one-year transition period for the mortgage industry to incorporate these changes. HUD will continue to work with the mortgage industry during this period, including providing a comprehensive set of frequently asked questions (FAQs) on its website.

This is very good news for lenders and closing attorneys so they can take advantage of some well needed additional time to digest the new forms and procedures. I recently attended a seminar on the new RESPA changes, and they are quite a substantial change to the current GFE and HUD-1. Lenders must provide borrowers with a firm “origination charge” which must include all the various loan origination fees now separately itemized on the HUD-1 Settlement Statement, including points, appraisal, credit, and application fees, administrative, lender inspection, wire, and document preparation fees. This origination fee cannot increase. Lenders also have to provide borrowers with a “firm” quote for typical closings costs, including attorneys’ fees, title insurance and recording fees, and select up to 1 preferred provider for such services. The firm quote cannot increase by more than 10% at closing. If the lender allows, borrowers can use their own providers who will not be subject at all to the firm quote requirement. The new changes will require quite a bit of coordination between lenders and closing attorneys.

Most lenders who I have spoken to are not ready for these changes. The likely impact is that for the first 4 months of 2010, borrowers could see either the current or the revised GFE and HUD-1 form, depending on whether the lender/closing attorney has implemented the changes.

For a more comprehensive review of the new GFE and HUD-1, please read my posts, Are You Ready For Some RESPA Reform?  Part I, An Overview of the New Regulations, and New RESPA Rules 2010: Disclosure of Settlement Services, Attorneys Fees and Title Insurance.

As always, contact me, Richard Vetstein with any questions.

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