Thank you to all who could make the webinar “New GFE/HUD-1, Mortgage Brokers Really Need to Know This Stuff", I have included the power point for you. If you did not get a chance to attend, I’ll forward the web address once available. Regards and thanks for all the great feedback!

1. United Wholesale Mortgage
2009 RESPA Webinar
New GFE/HUD-1
Mortgage Brokers Really Need to
Know This Stuff
November 18, 2009 Phillip L. Schulman, Esq.
phil.schulman@klgates.com
202-778-9027
DC-1381985 v.1

2. Background
1. RESPA reform has been going on since 1992
2. It is never without controversy, as proposed
changes typically pit settlement service
providers against each other
3. This was certainly the case in 2002 when HUD
introduced a proposed rule calling for a
guaranteed mortgage package
4. In 2004, the settlement service industry led the
movement to have the rule withdrawn
2

3. Background (cont’d)
5. In 2005, HUD conducted a series of roundtable
discussions with industry representatives, trade
associations, and consumer groups
6. Two and a half years later, HUD published its
proposed RESPA rule on March 14, 2008 - HUD
received approximately 12,000 public comments
in response to the proposed rule
7. HUD’s timing for a new rule could not have been
worse
8. But, HUD determined to get the rule out before
end of Bush Administration
3

4. Today’s Session
1. Familiarize Mortgage Brokers with these new
rules
2. Discuss impact on the real estate industry
3. Identify the most complicated and troubling
aspects of this rule
4. Help you respond to your clients’ questions
and concerns
4

5. Main Components
1. New Good Faith Estimate
2. Controversial YSP Disclosure
3. Tolerance Limitations
4. New HUD-1 Settlement Statement
5. Average Charges
5

6. Good Faith Estimate – Final Rule
1. Centerpiece of RESPA reform
2. Goal was greater clarity and transparency
3. Only HUD could simplify process by taking
one page GFE and turning it into three pages
6

7. Good Faith Estimate – Particulars
1. Must be provided to Borrower within 3 business
days of application
2. Lender may not verify Borrower information
prior to issuance of GFE
3. Quotes good for 10 business days, unless
“Changed Circumstances”
4. Lender may not charge Borrower for
preparation of the GFE
7

8. Good Faith Estimate – Page 1
ABC Mortgage Broker John Doe
123 Maple Ave. 123 Main St.
Washington, DC 20006 Arlington, VA 22201
(202) 555-5555
loan@abcmb.com September 22, 2009
9/23/09 @ 9 am
10/5/09
30
15
8

9. Good Faith Estimate – Page 1
295,000.00
30
5.0
1,725.00
X
X
X
X
1,318.00
X
9

10. Good Faith Estimate – Page 1
1,725.00
X
1,500.00
9,685.00
11,185.00
10

11. Good Faith Estimate – Yield Spread Premiums
1. What are YSPs?
2. Mortgage Brokers must disclose YSP
3. Mortgage Bankers do not disclose
4. Why
Secondary market exception
Brokers scream = not level playing field
11

12. Good Faith Estimate – Hypotheticals
Par interest rate = 6%
Total origination fee = $1,500
3 Possibilities
i. loan closes at par rate
$1,500 origination fee
ii. loan closes at 6.5% interest rate
$1,500 origination fee to lender
$2,000 YSP to mortgage broker
iii. loan closes below par at 5.5% rate
borrower charged $2,000 in discount points
12

13. Good Faith Estimate – Page 2
1,500
X 6 0
1,500
13

14. Good Faith Estimate – Page 2
3,500
X 2,000 6.5 -2,000
1,500
14

15. Good Faith Estimate – Page 2
1,500
X 2,000 5.5 2,000
3,500
15

16. Good Faith Estimate – Litigation
A. December 19, 2008 NAMB sues HUD
1. Seek permanent injunction
2. Claim rule is
arbitrary and capricious
violates APA
unlevel playing field = lower fees
B. July 2009
1. Court denies NAMB request for injunction
16

17. Good Faith Estimate – Page 2
$5,326.00
Appraisal/Credit Report $220 / $40
Tax Service/Flood Certification $54 / $12
Upfront Mortgage Insurance Premium $5,000.00
$1,000.00
$725.00
$295.00
Survey $250
Pest Inspection $45
$50.00
$1,200.00
17

18. Good Faith Estimate – Page 2
X X $400.00
$39.00
$39.00
1 10/31/09
$650.00
ABC Insurance $650
9,685.00
11,185.00
18

19. Good Faith Estimate – Page 3
TOLERANCES
1. Epicenter of the Rule
2. Way HUD holds lenders’ feet to fire
3. Guts of the whole shindig
accuracy
clarity
encourage shopping
19

20. Good Faith Estimate – Page 3
TOLERANCES = 3 BUCKETS
A. Zero Tolerance
B. 10% Tolerance
C. No Tolerance
20

21. Good Faith Estimate – Page 3
21

22. Good Faith Estimate – Page 3
295,000.00
5.0
1,725.00
11,185.00
22

23. Good Faith Estimate – Page 3
23

24. Good Faith Estimate – So What?
1. What happens if lenders’ prices exceed
Tolerances?
2. Can they kill ya?
No penalties under the Act
30 day cure period contractual
UDTP
24

25. TOP TAKEAWAYS REGARDING
GOOD FAITH ESTIMATE
25

26. Good Faith Estimate – Top Takeaways
No. 1: Lender is bound by GFE provided by
mortgage broker
If lender accepts the GFE issued by the
mortgage broker, the lender is subject to loan
terms and settlement charges
A zero tolerance applies
Timely communication between the lender and
mortgage broker is essential to assure
compliance
26

27. Good Faith Estimate – Top Takeaways (cont’d)
No. 2: Fees to be paid on behalf of the Borrower
by the seller must be disclosed on GFE
The Rule:
1. Charges “typically” paid for by the Borrower are
always listed on the GFE, even if seller pays them
2. Charges “always” paid for by the Seller are never
listed on the GFE
3. Except that title charges are always listed on the
GFE no matter who pays for them
27

28. Good Faith Estimate – Top Takeaways (cont’d)
No. 3: A written list of settlement service providers
must be provided to the consumer
1. When lender/mortgage broker permits Borrower to
shop for third party settlement services, consumer
must be provided with a list of providers on a
separate sheet of paper
2. At least one provider per service required
3. Because provider chosen from lender list places
transaction in the 10% tolerance bucket – expect
lenders to limit number of vendors appearing on
the list
28

29. Good Faith Estimate – Top Takeaways (cont’d)
No. 4: Origination charges lumped together on
GFE as a bundled fee
1. All origination charges for lenders and mortgage
brokers included in Block 1 of the GFE under
“Our origination charge”
2. Includes administrative fees, processing and
underwriting fees, doc prep fees, etc.
3. Includes mortgage broker’s YSP
4. May not be itemized separately
29

30. Good Faith Estimate – Top Takeaways (cont’d)
No. 5: Lender not stuck with estimates if
circumstances change
1. Changed circumstances
loan terms or conditions change
property value changes
borrower changes the deal
2. New GFE
within 3 business days of change
10 day shopping period starts over
borrower can waive
3. Issuance of new GFE optional
sometimes lender may choose to issue a new GFE
when?
30

31. HUD-1 Settlement Statement
1. Final settlement figures
2. HUD seeks simplicity but turns 2 page
Settlement Statement into 3
3. All settlement service providers critical of
proposed March 2008 HUD-1
31

32. HUD-1 Settlement Statement – HUD Listens
1. Realtors rewarded with synchronized HUD-1
that matches up with GFE
2. Title companies thrilled to see Closing Script
withdrawn, but still have to show premium split
between underwriter and agent
32

33. HUD-1 Settlement Statement – Page 1
Seller credit for transfer taxes 1,200.00 Seller credit for transfer taxes 1,200.00
33

34. HUD-1 Settlement Statement – Page 2
9,000 RE Broker #1
9,000 RE Broker #2
16,000.00
Earnest money deposit held by RE Broker #2 $2,000 P.O.C.
ABC Broker/XYZ Mortgage 3,500
-2,000
ABC Broker/XYZ Mortgage $1,500.00
Appraisal America $450.00
Credit Report Co. $40.00
Tax Service USA $76.00
Flood Certification, Inc. $12.00
10/8 10/31 39.00 $897.00
12 FHA $5,000.00
1 ABC Insurance $600.00
$512.00
1 50.00 50.00
1 130.00 130.00
3 166.00 498.00
166.00
34

35. HUD-1 Settlement Statement – Page 2
ABC Title $2,110.00
ABC Title $125.00
ABC Title/Underwriter $900.00
ABC Title/Underwriter 175.00
295,000
300,000
860.00
215.00
$55.00
25.00 30.00 15.00 $15.00
$1,200.00 $1,200.00
600.00 600.00
600.00 600.00
$270.00
Survey to XYZ Survey Co. 225.00
Pest Inspection to Bug-B-Gone 45.00
Home Warranty to Home Warranty USA $300.00
$13,922.00 $17,340.00
35

36. HUD-1 Settlement Statement – Page 3
$3,500.00 $3,500.00
$-2,000.00 $-2,000.00
$1,500.00 $1,500.00
$1,200.00 $1,200.00
$50.00 $55.00
Appraisal 804 $220.00 $450.00
Credit Report 805 $40.00 $40.00
Tax Service Fee 806 $54.00 $76.00
Flood Certification 807 $12.00 $12.00
Upfront Mortgage Insurance 902 $5,000.00 $5,000.00
Title Services – Lender’s Insurance 1101 $1,000.00 $2,110.00
Owner’s Title Insurance 1103 $725.00 $900.00
$7,101.00 $8,643.00
$1,542.00 21.7
$400.00 $512.00
39.00 $39.00 $897.00
$650.00 $600.00
Survey 1302 $250.00 $225.00
Pest Inspection 1303 $45.00 $45.00
36

37. HUD-1 Settlement Statement – Page 3
295,000.00
30
5
1,725.00
1,318.00
346.00
2,071.00
37

38. MORE TOP TAKEAWAYS
HUD-1 SETTLEMENT STATEMENT
38

39. HUD-1 – Top Takeaways
No. 6: If Seller or Realtor pays Borrower Charge
1. Remember, this applies to Seller payment
of charges “typically” paid for by Borrower
2. Shows up as a credit to Borrower on page
1 of HUD-1 Settlement Statement
Line 206 to Borrower
Line 506 from Seller
39

40. HUD-1 – Top Takeaways (cont’d)
No. 7: Real estate commission percentages no
longer disclosed
1. Percentages used to compute the sales
commission removed from new HUD-1
2. Total amount of commission to each real estate
broker or agent appears as Lines 701 and 702
(with amount of commission disbursed at
settlement appearing inside the columns on
Line 703)
3. New disclosure helps avoid Busby concerns
40

41. HUD-1 – Top Takeaways (cont’d)
No. 8: “Title services” fee also bundled
1. Again, title service fees bundled on Line 1101
of HUD-1
2. Includes title insurance, settlement costs,
surveys, title examination fees, commitment
fees, etc.
3. However, fees paid to third parties included in
Line 1101 bundle must be itemized outside the
columns in the 1100 series
41

42. HUD-1 – Top Takeaways (cont’d)
No. 9: Lenders must provide settlement agents
with information to complete the HUD-1
1. No way settlement agent could complete page
3 of HUD-1 without Lender’s assistance
2. Page 3 will be of particular interest to your
customers as it discloses whether Lender
exceeded the tolerances
42

43. Average Charges
1. What’s that all about?
2. Settlement service providers getting killed by class
action lawsuits
3. March 2008 rule allowed only lenders to use
average charges
4. Final rule permits all settlement service providers
opportunities to use average charges
43

44. MORE TOP TAKEAWAYS
AVERAGE CHARGES
44

45. Average Charges – Top Takeaways
No. 10: Settlement service providers not
permitted to make a profit on average
charges
1. What to do if average charge turns out to be
higher than actual charges?
Consumers do not get a refund
Overage credited to next average charge
period
45

46. Effective Dates
1. New GFE and HUD-1 forms go into effect
January 1, 2010
2. Average charges went into effect
January 16, 2009
46

47. Conclusion
1. HUD did a decent job of providing more
transparency and clarity to settlement process
likely to encourage greater consumer shopping
2. Despite MBA and other financial institutions’
attempts to get HUD or Congress to scrap the
rule, HUD is committed to the January 1, 2010
effective date
3. Lots of changes – Expect the unexpected
47