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  • 1. RESPA Reform
  • 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.
  • 9. Trade Off Table
  • 10. Shopping Chart – This is a tool the client can use and complete
  • 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
  • 13. New HUD-1 Settlement Statement HUD-1 will no longer disclose percentage of commission paid
  • 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
  • 17. Questions?