Key Features of RESPA Reform

New style 3 page Good Faith Estimate (GFE):

• Must be provided to borrower within 3 days of receipt of a complete application.
• Must match HUD-1 at closing within certain tolerances.
• Except for “changed circumstances” GFE cannot change prior to closing.
• Changed circumstances – is defined as: (1) Acts of God, war, disaster, or other emergency; (2) Inaccurate information being relied upon, (3) New information particular to the borrower or transaction that was not relied upon; or (4) Other circumstances that are particular to the borrower or transaction, including boundary disputes, the need for flood insurance, or environmental problems.
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New style 3 page HUD-1 Settlement form:

• HUD-1 Settlement Statement must match GFE within certain tolerances.
• Lender must correct any intolerance within 30 days of closing.
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With limited exception fees quoted to a borrower on GFE cannot change prior to closing:

• Lender Fees and Points cannot change.
• Some settlement fees can change up top 10%.
• Fees for borrower chosen services may change.
• Escrows for taxes and insurance and per diem interest may change.
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Truth in Lending or Regulation “Z” Changes

• The lender may not collect any fees before the disclosure is provided, except for a reasonable fee for obtaining a credit report.
• The closing may not take place until expiration of a 7 day waiting period after the consumer receives the early disclosure.
• If the annual percentage rate (APR) changes by more than 0.125 (1/8th) of a percent, the lender must provide a corrected disclosure to the borrower and wait an additional 3 business days before closing the loan.
• A copy of the property appraisal must be delivered to the mortgage applicant at least three days prior to closing.

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These most recent FAQs offer additional guidance on the following issues:

• A loan originator can require the use of a particular provider of flood certification and tax service as long as that provider is not affiliated with the lender;
• Pages cannot be added to the GFE but it may be printed on legal size paper and the shading and margins can be changed;
• How to deal with the situation when an FHA approved loan correspondent closes a loan in its name that is not table funded by its sponsor;
• What items can change when a new GFE has been issued and the interest rate has not been locked;
• Clarification of some of the requirements when mortgage brokers and lenders interact;
• What items can change when a revised GFE is issued and the borrower has previously locked the interest rate;
• Lenders may not require a borrower to sign consents to verify employment, income or deposits prior to issuing a GFE;
• Verification documents can be requested after a GFE has been issued;
• Lender can indicate that although it has identified certain providers of settlement services these identifications do not constitute an endorsement;
• When a new GFE has been issued borrowers are not required to re-indicate an intent to proceed;
• An escrow waiver fee is a type of loan level price adjustment and may be part of the calculation of Block 2 on the GFE;
• The Y.S.P. payment cannot be shown on the HUD-1 as POC;
• If a lender requires a condominium certificate and questionnaire for loans on condos, that charge should be listed on Block 3;
• Charges that are part of the sales contract, but are not required by the lender, are not disclosed on the GFE;
• The fee paid by the seller for the preparation of deeds or closing charges should be disclosed in a blank line of the 1100 series in the seller’s column; and
• If an appraisal is subcontracted by Company A to Company B, then Company A’s name should be identified on Line 804.

An index of over 300 home builders, which shows the demand for new homes. The index runs from 0-100, so a rating of 50 would mean that demand for new homes was average.  Data used in the index is provided by the National Association of Home Builders (NAHB).

The index is not as comprehensive as formal housing reports like new home sales or MBA mortgage applications, the index is more like a supplemental indicator for predicting housing trends.

The NAHB Housing Market Index is used to provide general insight to where the housing market is heading. Because new home sales reflect ‘big ticket’ items that require construction and investment, the housing market is often considered an indicator of the direction of the economy as a whole. Growth in the housing market usually means subsequent spending, generating demand for goods and services and the employees who provide them.

The Washing Post, LA Times and other sources are reporting an increased account of the use of borrower loan “worksheets.” In an effort to avoid being bound by newly implemented RESPA (Real Estate Procedures Act) regulations governing real estate mortgage consumer Good Faith Estimates and Settlement Statements, some mortgage lenders have been providing potential borrowers with worksheets that estimate what their loan might cost. These “worksheets” are completely unregulated and were not at all anticipated under the recent RESPA reform.

The loan scenario-forms/worksheets have no requirement for accuracy and loan officers are not bound by any sort of disclosure. Ultimately, the lender still must provide a regulatory Good Faith Estimate and the Settlement Statement (HUD Form 1) must conform to it, but right now the average consumer is not aware of that fact. Once the loan shopper is “satisfied” with what was “disclosed” on the worksheet, and only days before closing, the consumer is presented with the obligatory GFE.

Loan officers and lenders claim the worksheets are necessary to remain competitive and that the new regulation is too strict to be a practical benefit to the consumer. The regulatory demand for 90% accuracy is overbearing say some mortgage professionals.

A HUD official said that they will continue to monitor the practice and update the reform accordingly.

In the mean time mortgage shoppers should be certain that they are working with experienced, trustworthy lenders and loan officers.  If you need the name of a local trustworthy loan officer – call me anytime and I will introduce you to one of my finest lender clients.

Reporting on all forms of payment, including cash, retail sales rose 3.6% from November 1 through December 24, according to a top credit reporter. Internet sales popped up 18%, consumer electronics rose 5.9% and jewelry sales climbed 5.6%. Major economists had anticipated overall retail sales to remain unchanged. They were mistaken.

Initial claims for unemployment benefits fell by 22,000 to 432,000 in the week ending December 26. It was the lowest pace since July 2008. Continuing claims for the week ending December 19 fell by 57,000 to 4.98 million, the lowest level since February 2009.

Freddie Mac reported Thursday that after four straight weeks of increases, 30-year fixed-mortgage rates dropped to an average of 5.09% this week, reducing real estate mortgage costs for home buyers.

Last week the rate averaged 5.1%; last year at this time the rate was 5.01%. The average 15-year fixed mortgage rate dipped 0.4% to 4.5%, and the average five-year adjustable-rate mortgage remained flat. The average one-year ARM edged down 0.03% to 4.31%.

The Federal Government now holds $909 billion of mortgage-backed securities. Since the beginning of 2009 it has purchased 73% of the mortgages that government-backed Fannie Mae, Freddie Mac and Ginnie Mae have turned into securities.

If mortgage rates spike up or the economy weakens, economist speculate, that the central bank might need to keep buying mortgage-backed-securities. However, with the economy improving and the mortgage market already heavily dependent on government, officials are eager to leave the business of purchasing MBS’s.

After expiration of the current, extended, home buyer tax credit the U.S. real estate market may be left to stand on its own. That will be the true test of the recovery.

As the industry approaches the deadline for applying the new Good Faith Estimate and HUD-1 Settlement Statement forms, HUD has made good on its promise to provide a revised Settlement Cost Booklet that lenders and brokers will be required to provide to consumers within three days of applying for a real estate mortgage loan. The new 49-page booklet has 13 sections, including careful explanations to the borrower for what each one of the line item represents on the new HUD-1 and GFE forms. Click here to see the HUD’s new Settlement Cost Booklet.

National Association of Realtors® reports a big gain in existing-home sales for October and attributes the gain to the first-time buyer credit.  Single-family, townhouses and condos accounted for nearly 6.10 million units sold.

The first-time buyer credit program was due to expire on November 30, 2009 and many home buyers pushed to find suitable properties and close in time to take advantage of the credit.  This push likely skewed the numbers for October and will certainly impact the numbers for November.  The heavily anticipated extension of the first-time home buyer credit came in mid November, by that time many of the real estate closings being pushed had been scheduled to meet the deadline.

With the push over for now I expect a measurable decline through December and early next year. That may be the bad news, but the good news that we are due to experience another push as the extended deadline draws closer in early spring 2010.  As always, I am guardedly optimistic.

After December 31, 2009 you will see a new Settlement Statement at the closing table.  The US Department of Housing and Development (HUD) has for sometime been working to revise the Real Estate Settlement Procedures Act (RESPA).  The new revisions were just recently finalized.  Part of the revision requires that mortgage originators (lenders) provide potential borrowers with a new form Good Faith Estimate (GFE) and that final settlement figures be provided on a new form Settlement Statement (Form HUD-1).

Loan charges and settlement fees will be clearer on revised version of the GFE form that is now required to be provided to borrowers within three days of their mortgage application. Charges on the form will fall into three categories:

• Fees that cannot increase from the initial estimates to final closing.
• Fee estimates that may increase by as much as 10 percent in total from the initial estimates.
• Fees that can increase without limit, mainly because the lender has no control over them or because they are difficult to predict weeks in advance.

Charges in the zero-increase category include lender and broker mortgage origination, processing and underwriting fees and costs.  Also in this category are lender or broker loan discount charges or “points” based on the interest rate quoted to the borrower.

Charges in the 10 percent category include services required by the lender but where the lender chooses the service provider, such as appraisals, lender’s title insurance and settlement services where the borrower chooses a provider on a list approved by the lender, owner’s title insurance when the borrower chooses a insurer on the lender’s approved list, and state and local recording fees.

Though any one of these items can increase more than 10 percent from the initial estimate to closing, the combined total of all the fees in this category cannot increase by more than 10 percent. 

Charges that can increase without limit include lender-required services when the borrower chooses a title insurance agent, escrow or other settlement company that is not on the lender’s list, the cost of homeowners insurance, per diem interest charges on the loan, and the amount of the initial deposit by the borrower into a pre-paid escrow account.

If any of the fees in the zero-increase change or in the 10% category change by more than 10% the lender is obligated to re-disclose those changes to the borrower and the closing cannot occur before 3 days of that re-disclosure.

The intent of the new good-faith estimate is to encourage borrowers to shop for a lender to work with. The form includes space for comparing up to four competing lender estimates on interest rates, rate locks, prepayment penalties or mortgage insurance, and other terms.

The cost estimates from each competitor are required to remain available for 10 business days.  Interest rates can change unless locked by the lender and borrower.

The new standard settlement statement, the HUD-1 is unlike the settlement statements in use today, the revised HUD-1 refers directly to the final GFE to allow borrowers to compare what they were quoted by the lender with their figures at closing. The final page of the new HUD-1 itemizes the three categories of fees from the GFE and compares them line-by-line with the actual fees at closing.   The new HUD-1 also requires disclosure of the fee splits of title insurance premiums between the title insurance underwriter and the title insurance agent, who is often the settlement agent.

The Real Estate Settlement Procedures Act (RESPA) is a consumer protection statute, first passed in 1974. The Act covers loans secured with a mortgage placed on a one-to-four family residential property. This includes most every congenital residential real estate mortgage.  The purposes of the act is to help consumers become better shoppers for settlement services and to eliminate kickbacks and referral fees that unnecessarily increase the costs of certain settlement services.

Consumers can find more information about the Real Estate Settlement Procedures Act on the HUD website

See the new GFE here

See the new HUD-1 here

If you have questions about the new GFE, HUD-1 or revised RESA requirements please contact me.

Legislators today voted to extend the $8,000.00 first time home buyer credit. Many say that the credit is responsible for the spike in the local real estate market while others criticize it as not being  enough of an effort to stimulate the economy.

The President is expected to sign the extension making the credit available to first time home buyers through June 2010. The program has also been expanded to benefit certain home owners who will be buying again within the credit period. Income caps have also been increased along with the purchase price cap. You can read more about the specifics of the extension here.