2. Principles of RESPA Reform
(According to HUD)
Help consumers shop for the best loan
Shopping leads to greater competition and
lower prices
Key final terms of the loan disclosed to the
borrower at closing
Preserve a competitive market for all
settlement service providers
3. Why the Change?
RESPA changes are designed to educate customers more
about proposed loan terms. The new GFE contains more
direct statements to clearly identify loan characteristics such
as…
•If rates can increase (ARM)
•If balance can increase despite if payments are made on time
(Negative Amortization)
•If there is a prepayment penalty
GFE’s will now be binding documents with respect to fees.
Lenders will be accountable for certain variances if there is an
increase between the GFE and final HUD-1 for certain fees.
4. Why the Change?
The new HUD-1 gives a comparison of final fees compared to
GFE fees originally disclosed to ensure the lender is in
compliance and that fees have not increased beyond designated
thresholds.
Depending on which fee, and the amount of the increase
compared to the GFE, lenders may be required to reimburse
and/or credit money to the borrower.
This is a change in philosophy. Lenders can no longer stand
behind the statement “it’s an estimate” when questioned about
increases to charges from the original GFE compared to
settlement.
5. What the New GFE Does Not Do
Does not show Cash required to close
Does not show PITI
Does not show Lender or Seller Credits
Does not show Tax Prorations
Cannot include Buyer/Broker Commission
Cash to Close Worksheet will be given by
PHH.
6. The New GFE
Effective for all applications taken after January 1st
Must be provided no later than 3 business days after application
Application is defined as the submission of the following 6 pieces of information:
Borrower’s Name
Borrower’s Social Security Number
Borrower’s Monthly Income
Subject Property Address
Estimate of Value of Property
Estimate of Loan Amount
Must be accepted by consumer within 10 days or null and void
Acceptance is defined by the customer’s signature within the 10-day timeframe.
No appraisal fees can be collected until after GFE is accepted
Origination charge includes ALL fees collected by Mortgage Company
7. The Three Categories of Fees
Zero Tolerance
10% Tolerance
No Tolerance Limit
Changed Circumstances – There are various provisions regarding changed circumstances that allows the
lender to reissue a Good Faith Estimate without penalty. (See next slide)
8. Changed Circumstances
There are various provisions regarding changed circumstances (indicated below), however, the
definition of changed circumstances is:
Acts of God, war, disaster or other emergency
Information particular to the borrower or transaction relied on in providing the GFE is found to be
inaccurate or changes after the GFE was provided, including information about the credit quality, the
amount of the loan, the estimated value, or other information used to provide the GFE
New information regarding the borrower or transaction that was not relied upon for issuing the GFE
Other circumstances, including boundary disputes, the need for flood insurance or environmental
problems
NOTE:
None of the information collected by the loan originator prior to issuing the GFE may later become
the basis for a “changed circumstance” upon which a loan originator may offer a revised GFE, unless
the loan originator can demonstrate that there was a change in the particular information or that it
was inaccurate, or that the loan originator did not rely on that particular information in issuing the
GFE. In addition, the loan originator is presumed to have relied on the borrower’s name, the
borrower’s monthly income, the property address, an estimate of the value of the property, the
mortgage loan amount sought, and any information contained in any credit report obtained by the
loan originator before providing the GFE. The loan originator cannot base a revision of the GFE on
this information, unless it changed or is later found to be inaccurate.
If there is a Change in Circumstances, the LO has 3 days to reissue a revised GFE.
The revised GFE must only reflect the affected loan terms and settlement charges
from the Changed Circumstance.
11. New HUD-1
Settlement Statement
Revised to compare with the GFE
Categorized to eliminate the disclosure of
every itemized charge related to the
origination of the loan and issuance of title
insurance
HUD-1 will no longer disclose percentage of
commission paid
Third page was added to the HUD-1 to
highlight key terms of the loan and to
compare it to the GFE
12. New HUD-1
Settlement Statement
Categorized to eliminate the disclosure of every
itemized charge related to the origination of the
loan and issuance of title insurance
Burnet Title
Lawyers Title
14. Page Three of New HUD-1
Comparison Chart
Example of settlement charge changes that do not exceed 10%
0.84%
15. Page Three of New HUD-1
Comparison Chart
Example of settlement charges that exceed the 10% tolerance
$1667.25 x 3.03% = $50.52 refund to Borrower
Lender may cure tolerance violation immediately or within 30 days.
The Settlement Agent would then reissue a new HUD-1 to reflect any
changes.
16. New HUD-1
Settlement Statement
Seller paid Buyer closing costs
Third Party paid Buyer closing costs
1st and 2nd Mortgages separate GFE’s
separate HUD’s (not applicable to HELOC’s)
Cash, Contract for Deed, Assumption
More time spent at the closing
