The New RESPA Rule

As many of you already know, HUD announced its long-awaited modifications to the RESPA rules.  In an attempt at much-needed brevity in the process of sifting through the new and complex rule, we are enclosing the highlights of the new reforms and encouraging each of you to further investigate the changes on your own.   

For more information, please visit the following website:  http://www.alta.org/respa/index.cfm 

The biggest changes to RESPA pertains to the new Good Faith Estimate (GFE) and HUD-1 Settlement Statement, each of which must be used as of January 1, 2010.  The regulations concerning those forms become effective the same day, including the concept of “tolerances” for the cost of items listed on the GFE.  However, other changes are already effective January 16, 2009.  This includes the ability to use average cost pricing for certain settlement services. 

The new GFE and HUD-1 forms have been changed to make them more comparable than they have been in the past.  It will be easier for consumers to find particular categories of costs on each form and to see how the actual amount charged differs, if at all, from what was estimated on the GFE.  In place of the much-maligned closing script concept, the HUD-1 will have a new third page which includes a chart comparing GFE disclosures with HUD-1 charges.  The chart is divided into three categories, with each category representing a different “tolerance” for pricing changes (from the GFE to the HUD-1) for the component costs found in each category. 

TOLERANCES 

1.                  Zero tolerance.  Charges that cannot increase include most of the lender charges for the loan itself and transfer taxes on deeds and mortgages/deeds of trust.   

2.                  Charges that, in total, cannot increase more than 10% include: 

a.       recording charges; 

b.      lender required settlement services where the lender selects the provider; and, 

c.       title services, title insurance and owner’s title insurance where the borrower uses a settlement service provider identified by the lender.   

3.                  The amount charged for all other services may change 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.

 Click here for Frequently Asked Questions.

Click here to review a Flowchart for the new GFE.

Click here to see the Good Faith Estimate form.

Click here to see the new HUD-1 form.

For more information on these important changes, please contact Rob Holman at (800) 344-7445.