RESPA Changes
RESPA Amendments Summary, 2009
Please note, the author of this blog post is Gordon Schlicke with edits and additions by Jillayne Schlicke
Copyright 2009
1. Effective Dates:
Mandatory use of the revised HUD-1 and 1A is effective the earlier of January 1, 2010, or whenever the revised GFE is first used for the loan transaction. Any settlement service provider who delivers the new GFE prior to January 1, 2010, will be subject to all of the requirements related to the new GFE, including compliance with the tolerance provisions and use of the required HUD-1 and 1A.
Here is the press release issued by HUD stating that HUD will exercise restraint (regarding taking enforcement actions) during the first 120 days of 2010 to give everyone time to adjust to using the new GFE, provided companies are making a good faith effort to comply.
2. New Mortgage Broker Definition. “…a person (not an employee of a lender) or entity that renders origination services and serves as an intermediary between a borrower and a lender in a transaction involving a federally related mortgage, including such a person or entity that closes the loan in its own name in a table funded transaction. An approved FHA loan correspondent is a mortgage broker for purposes of this part. Under the previous definition an employee and an exclusive agent of a lender were excluded from the definition. This removes the exclusion for an exclusive agent of a lender.
3. New Definition of “Origination Service. “…any service involved in the creation of a mortgage loan, including but not limited to the taking of the loan application, loan processing, and the underwriting and funding of the loan, and the processing and administrative services required to perform these functions.”
4. New Approach to Disclosing Mortgage Broker Compensation & Lender Fees. Both the GFE and HUD-1 contain three related consumer disclosures including any lender-paid compensation to the broker: “Our origination charge,” “Your credit or charge (points) for the specific interest rate chosen,” “Your adjusted origination charge.”
5. Our Origination Charge (#1, GFE page 2) includes all charges that loan originators will receive except for any points paid for the rate chosen.
Originators may not charge any additional fees for getting the loan.
The 0% tolerance applies to this charge.
Disclosed on block #1 page 2, GFE, and Line 801 of the HUD-1.
6. Download a PDF of the new GFE and read it here.
Here’s a link to the HUD RESPA page which also contains instructions for how to complete the new GFE.
Biggest changes: Everyone’s fees will go on line 1. For example, if you are a mortgage broker and routinely charge 1% mortgage broker fee and also an administration fee or a processing fee, now the total sum of these fees will go on line 1. The same rule applies for a banker: If the bank loan officer typically charges a 1% loan origination fee and an underwriting fee, the total sum of those fees will go on line 1.
Yield Spread Premium is now shown on line 2 and will always belong to the consumer (if you think about it, this really isn’t a change. We should have always been explaining the choices and uses for YSP. Since many LOs did not clearly, fairly, and honestly explain YSP to the consumer, the government is now making the decision for you to always make YSP the property of the consumer.) So YSP is not going away! instead, the consumer must agree to give you what’s left over (after using some of the YSP to pay for closing costs.) So for example, if you’d like to earn a 1% mortgage broker fee and a 1% YSP then broker LOs will quote a 2% fee on line 1 of the new GFE.
7. HUD Good Faith Estimate Tolerance Rule
Charges that cannot increase at settlement
Our origination charge
Your credit or charge (pts) for the specific interest rate chosen after you lock your interest rate.
Your adjusted origination charge after you lock your interest rate.
Charges that can increase up to 10% at settlement
Required services that we select
Title services and lender’s title insurance (if we select them or you use companies we identify)
Owner’s title insurance (if you use companies we identify)
Required services that you can shop for (if you use companies we identify)
Government recording charges
Charges that can change at settlement
Required services that you can shop for (if you do not use companies we identify)
Title services and lender’s title insurance (if you do not use companies we identify)
Owner’s title insurance (if you do not use companies we identify)
Initial deposit for your escrow account
Daily interest charges
Homeowner’s insurance
Violations/Penalties. Currently no statutory damages or penalties are available for violations. HUD plans to request that Congress revise RESPA to add damage and penalty provisions to various requirements. Originators can cure tolerance violations between GFE and HUD-1 by reimbursing the borrower any excess within 30 calendar days after settlement.
8. Application means the submission of a borrower’s financial information in anticipation of a credit decision related to a federally related mortgage loan, which shall include
A specific property address
Borrower’s name
Social Security Number
Monthly income
Applicant’s best estimate of property value
Loan amount sought.
Receipt of the above information from a consumer triggers the GFE disclosure.
Remember, some state laws have tougher trigger rules for the early disclosures (GFE, TILA, Settlement Costs Booklet.)
9. Good Faith Estimates (GFE). On RESPA-related purchase and refinance transactions, a (GFE) must be delivered or placed in the mail not later than the third business day after the creditor receives the consumer’s written application.
When a Mortgage Broker receives an application and provides the GFE, the lender is not required to provide an additional GFE.
The lender or broker may not require, as a condition for issuing a GFE, that an applicant submit supplemental documentation to verify the information provided on the application.
Lenders may not impose a fee for preparing the GFE other than a fee limited to the cost of a credit report.
When a GFE is mailed, the applicant is deemed to receive the GFE three calendar days after mailing, exclusive of Sundays and legal public holidays.
Information an applicant provides before the issuance of a GFE may not later be used to establish “changed circumstances” that is an exception to the tolerance limits on fee changes unless the loan originator can demonstrate that the information changed, the information was inaccurate, or the loan originator did not rely on the information.
10. Loan Terms Availability. The estimate of all settlement service charges must be available for at least ten (10) business days except for:
The interest rate
Interest rate-dependent charges, which consist of: The credit or charge for the interest rate chosen; The adjusted origination charges, and; The per diem interest.
If the consumer does not express intent to continue with an application within 10 business days, or such longer time as may be specified by the originator, then the loan originator is no longer bound by the GFE.
The new rule does not address whether the loan originator can require that the intent be expressed in a certain manner, such as a written statement, within the 10 days.
HUD contemplates that if a GFE is issued before the rate is locked, a revised GFE would be issued once the rate is locked to show the revised information.
If the interest rate is locked, then the rate and rate-dependent charges may not change during the lock period, subject to changed circumstances and other exceptions.
The GFE binds the loan originator unless, based on changed circumstances or other exceptions, the loan originator provides a revised GFE within three business days of the applicable event, or the originator rejects the loan.
11. Changed Circumstances.
Acts of God, war, disaster or other emergency.
New borrower information not previously relied upon in providing the GFE.
Boundary disputes; flood insurance requirement; environmental problems.
Information about credit quality, loan amount, property value, etc. that changes or, in the course of loan processing, is found to be inaccurate after the GFE has been provided to the borrower.
12. Items Not Considered Changed Circumstances
The specific items listed in #1, Application are the minimum items that must be received by originators to provide a GFE and originators are presumed to have relied on such information when issuing a GFE, therefore, the items may not form the basis for a change in circumstance unless the information changes or is found to be inaccurate.
Market price fluctuations by themselves. For example: an appraiser raises its prices by $50 after the originator issue the GFE for the loan.
13. Managing Changed Circumstances
If changed circumstances result in higher costs that exceed allowable tolerances; result in the borrower not being eligible for the loan sought, or the borrower requests changes, to avoid being bound by the most recent GFE, then the originator must provide a revised GFE within three business days of receiving information sufficient to establish the changed circumstance.
When the settlement of a newly constructed home is anticipated to occur more than 60 days from the time a GFE is provided, the originator may provide the GFE with a clear and conspicuous disclosure stating that at any time up until 60 days prior to closing the originator may issue a revised GFE. Failure to provide such separate disclosure precludes the originator from issuing a new GFE under the new home exception.
14. Required Provider Disclosure is eliminated. Under the previous rule if the lender required the use of a particular provider for a settlement service, certain information regarding the provider had to be disclosed. There is an alternative method in the new rule.
15. Seller-Paid Fees. If a seller pays for a charge that was shown on the GFE, the charge must be listed in the borrower’s columns on page 2 of the HUD-1. The charge must then be offset by listing a credit to the borrower in the amount of the charge on one of the blank lines in lines 204 to 209 and the charge must be included as a seller charge on one of the blank lines in lines 506 to 509.
16. P.O.C. Items The settlement agent must show the party making the payment outside of closing.
17. The Required Use Issue Background: Homebuilders conditioned the sale price on whether or not the consumer would use the builder’s own mortgage company. In some states lenders sued under various legal theories. The National Association of Homebuilders (NAHB) then brought suit to assert the right of its members to require the use of any affiliate. It is very difficult to obtain a ruling that restricts the owner of real estate from using sales incentives such as legitimate consumer discounts. Further, RESPA does not prevent a settlement service provider or anyone else from offering a discount for the use of an affiliate. HUD applauds the use of affiliated and preferred businesses if the costs of using these services are lower than the costs associated with similar services from other providers, a fact not lost on the NAHB. The issue was: Can a homebuilder tie a discount to the use of one of its affiliates.
The New Approach. The new final rule limits tying such a discount to the use of an affiliated settlement service provider. HUD narrowed the definition of required use: “Required use means a situation in which a person’s access to some distinct service, property, discount, rebate or other economic incentive, or the person’s ability to avoid an economic disincentive or penalty, is contingent upon the person using or failing to use a referred provider of settlement services. In order to qualify for the affiliated business arrangement exemption, a settlement service provider may offer a combination of bona fide settlement services at a total price (net of the value of the associated discount, rebate or other economic incentive) lower than the sum of the market prices of the individual settlement services and will not be found to have required the use of the settlement service providers as long as
The use of any such combination is optional to the purchaser; and
The lower price for the combination is not made up by higher costs elsewhere in the settlement process.
This definition may mean that a seller cannot require that an Owner’s Policy be issued by a particular title company, even if the seller pays for the policy, and may prohibit builder incentives entirely, including non-cash incentives.
Because of the controversial nature of this topic, lenders must monitor court decisions and additional changes in HUD rules to remain current. The department has a mixed record in clearly communicating changes to the industry.
18. Average Charge Pricing.. An average charge may be used (when preparing the GFE) by any settlement service provider that secures a service from a third party on behalf of the borrower or seller. A settlement service provider may define a class of transactions based on the period of time [no less than 30 days nor more than six months], type of loan, and geographic area. For example, a settlement service provider might calculate an average charge for all purchase money mortgages in the States of Georgia and South Carolina in a specified period of time. Alternatively, a settlement service provider could establish the class of transactions in which it would use a single average charge broadly, e.g., all transactions in engages in for a period of time, regardless of loan type or location.
The settlement service provider must recalculate the average charge at least every six months, and must use the same average charge for every transaction within the class. The average charge shall be no more than the average amount paid for a settlement service by one settlement service provider to another settlement service provider. The total amounts paid by borrowers and sellers based on an average charge may not exceed the total amounts paid to the providers of the service for the particular class of transactions.
An average charge may not be used if the charge is based on the loan amount or value of the land, such as transfer taxes, daily interest charges, reserves or escrow, and all insurance (e.g mortgage insurance, title insurance, and hazard insurance). The settlement service provider making use of an average charge must maintain all documents used to calculate the average charge for at least three years after any settlement with an average charge.
19. Volume Discounts. HUD will give “further consideration” to a change allowing negotiated and volume discounts provided they adequately protect consumers and provide adequate market flexibility and consideration to small business concerns. There was not anticipated date identified.
20. New Definition of Title Service. Any service involved in the provision of title insurance including but not limited to title examination, evaluation, preparation, policy issuance, processing and administrative services required tp perform those functions. The term also includes the services of conducting a settlement. Certain clarifications are needed in those states where Title Agents are used.
21. New Servicing Disclosure. The revised Servicing Disclosure Statement eliminates the need to deliver the Statement at the time of application in the case of a face-to-face interview; eliminates the requirement that each applicant sign an acknowledgment of receipt of the Statement and provides that the Statement does not have to be issued if the application is denied within three business days of receipt. It contains the following model provisions based on different situations:
We may assign, sell, or transfer the servicing of your loan while the loan is outstanding.
We do not service mortgage loans of the type for which you applied. We intend to assign, sell, or transfer the servicing of your mortgage loan before the first payment is due.
The loan for which you have applied will be serviced at this financial institution and we do not intend to sell, transfer, or assign the servicing of the loan.
22. HUD-1 Settlement Statement Instructions
This material is for educational purposes only. Nothing herein is intended or should be construed as legal advice or legal opinion applicable to any set of facts or to any individual or entity’s general or specific circumstances. The course instructor is not an attorney.
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Questions
1) Will the new GFE help the industry, hurt the industry, or make no difference?
2) Will the new GFE help consumers, hurt consumers, or make no difference?
3) What are your company’s plans for complying with the new GFE?
Category: RESPA Changes
I think the new GFE will help the industry. It is going to force individuals to be honest and up front with their clients. In return hopefully there will be less complaints and disputes filed and trust restored. The new GFE should also protect those in the industry from individuals who claim they were deceived when in fact they were not. I think the only people who will not like it are those who make their business work by misleading their clients. To them I say, we would not need this change if it weren’t for you in the first place so deal with it and reap what you sow.
I also think it will help the consumers as well, now they will know up front what they are getting into.
I agree completly with Mila’s comments. We would not have had to make these changes if there were not loan originators that were misleading their clients, or borrowers that knew full well the loan they were getting, but wanted the house, and got way over their heads and when reality hit, they wanted to get out of their situation by claiming they were deceived. We have certainly seen abuse on both sides of this issue. I feel there is nothing wrong with trying to better clarify the costs and terms to the consumers to ensure everyone is informed. Our company is already preparing for the change and our compliance department is frantically trying to get the training info out to all originators so we are prepared for the changes in the coming year.
The new definitions and clarifications can only help the Industry
Now the GFE will be more clear and understandable to the client misunderstandings and mistakes should be less and every body including the industry benefits. Broker compensation and Lender fees, origination fees and disclosures all of this can only make the client feel more secure and and at ease and prevent down the road problems. This is more of the kind of regulation that is positive and an improvement but will only be effective if it is properly complied with.
I am in Georgia and need to attend a RESPA seminar in December of 2009. I can’t find anything open. Any suggestions/ideas?
Further clarification: I’m not really interested in webinars, unless it’s my only option.
Hi Mel,
I wish I had a contact for you in Georgia. If Georgia still has state-approved continuing education course providers, your best bet may be to contact your state’s regulator of mortgage brokers and consumer loan companies and ask for a list of their approved continuing ed providers. You may be able to find a local class that way. Your other option is to search through the NMLS’s list of NMLS approved course providers. It is possible that you’ll find someone doing a RESPA class live in Georgia this month or at least next month. Wish I could fly you up here to Seattle!
I 100% believe that the new GFE will help the industry. I believe that it will keep the brokers and lo’s honest as well as can be passed on to the borrower to educate them and keep them honest as well. I have had many borrows come to me and want some exotic loan or rules bent to get them into a potentially harmful situation to them. Borrowers are very educated now and many seem to have some wild ideas on how to get their loan through. This will keep everyone honest. We are currently getting information out to our lo’s to that they can be prepared.
I’ll join the chorus of those who support the new format. Ken is right.
Everyone has become more sophisticated and if the new GFE will bring light and un derstanding to complex financial transactions, then it’s good both for the industry and the consumer.
The New GFE will definitly assist the mortgage industry get back on their feet. The new rules hold the originators/lenders accountable during the redisclosing process. With the implanation of the New GFE the Consumer should have a clear understanding of fees and charges. This is an excellent way to educated the consumer and regain our trust. Integra Pacific’s policy is “Consider it Done, the Right Way” We will be compliant.
The new GFE should help the industry because it will make the originator explain all of their fees. The only way it will hurt is when there is a variance by more than .125% and or 10%because the disclosure period to borrowers start over and if they are are at a deadline for closing it will delay closing. Some lenders system will not even overide the redisclosure period to allow them to draw docs, so I suppose there will be some angry agents. I also think it will be harder for originators to compete because if their companies require them to charge admin fees, underwriting fees, processing fees, etc and it is lumped in with their fees I think consumers are going to think they are charging way too much no matter what the LO explains to them. It was easier for them to explain when it was broken out. For the consumer, I think it will be better for them because a lot of shops will no longer be able to charge junk fees.
Our company plans really do not have to change a whole lot other than using the new GFE form. We do not have processing fees, admin fees, etc. We keep it plain and simple. We either only charge an origination fee or use the YSP which we explain to the consumer. I feel that the YSP is the consumers and they should use it how they want to use it. I have never considered it as extra income from the lender to line my pockets. It is fully explained to the consumer that if the ysp pays the origination fee then this is what their rate is and if they want to pay the origination fee then this is what their rate is. It will be really easy just to show the ysp as a credit to the borrower.
The new GFE will only help, LO’s that are trying to hide fees might not like some of the changes, but I feel most LO’s will not see this as a problem. Charge your clients for your service and make it clear to them.
RESPA Changes:
I believe it is a day late and a dollar short. It should help the industry save face with the American people but honestly if lenders, bankers, brokers, LO’s had just been upfront in the first place it would not have had to come to this. I have funded many loans in my career, never has a client of mine not been fully informed of all the transactions details. It will help the uneducated consumers. For those who are educated and already read the details it will make it that much easier to see. We will be in compliance with the new GFE.
I agree with everyone. The new GFE changes will only help and is long overdue. This will clear up all fees and make it easier for our customer to understand. The GFE in Reverse Mortgage is pretty simple for our customers to understand. A few changes but for the good.
This GFE is more like an APR disclosure which is intended to help consumers compare mortgage costs but winds up being more difficult to understand for the simple fact that it does not even tell a consumer what their monthly payment is for P and I, taxes, insurance and MI. It also does not tell a borrower if their payment is interest only or how long it is fixed for.
Ideally, the ARM disclosure, GFE and APR should have been pulled into one comprehensive loan disclosure that both HUD and the Federal Reserve have approved.
The problem with banking regulation is the patchwork of laws and agencies promulgating this stuff. This is an oppourtunity lost for more clear consumer disclosure and for cleaning up this patchwork of diclosures.
In some ways it will level the playing field by forcing everyone to play by the same rules when offering a client a quote. I do not like having to lump together all fees the particular way they prescribe because I think admin fees (especially for net branches,) and processing fees (how many of us use processors?) are legitimate and should be allowed to be listed seperately to make it easier to understand why we are charging those fees. If your total costs are higher, you are going to lose to your competition so I don’t think delineating the various parts that make up the total fees should be disallowed.
I definitely do not like the idea of having to cover the difference in cost if total charges are much higher than quoted because there are some legitimate reasons beyond the brokers control as to why costs become higher over the course of a transaction. While they did a good job of addressing much of those potential causes, I’m sure luck or fate will find something they didn’t think of (or that we forgot,) that we will end up eating the difference on. I know that time will help clear up a lot of the in’s and out’s of the new RESPA but it is a lot to take in all right now before they’ve even gone into effect.
The ultimate benefactor is clearly the client so they did a good job of working to protect their best interests by making sure everything is up front, fully disclosed, and that it can’t change on them after they agree to it so I’m for it even though I’m not looking forward having to comply with it without fully understanding all of it. Good luck to us all learning the new ropes, watch out for rope burn!
I think it is about time. I think that all fees need to be disclosed up front. Hopefully it will make it easier for the borrower to compare fees and make a more informed choice. I think it will be good for the industry (and cause growing pains for some) as well as the consumer. Yes, I will be GFE compliant.
I like the concept of the new GFE and I do think it will put the right knowledge in the hands of consumers. What I’m concerned with is the nature of being able to compete. Since this is a universally required part of lending I wonder if the consumer will get the benefit of open disclosure and variety of product? or just several versions of the same scenario with different company names? This is a good start but we need to make sure that the relationship nature of our industry is not taken away since that value cannot be added to the GFE.
The new GFE will put the right knowledge in the hands of consumers. What I’m concerned with is the nature of being able to compete. Since this is a universally required part of lending I wonder if the consumer will get the benefit of open disclosure and variety of product? or just several versions of the same scenario with different company names? This is a good start but we need to make sure that the relationship nature of our industry is not taken away since that value cannot be added to the GFE.
I think the new GFE has the ability to help the industry so long as the LO understand it. The new GFE will probably confuse the consumer just as much as the old one, so nothing will change. Unless of course we spend the time educating the consumer so that they can read and understand the GFE.
The GFE is correct and just in time. It accomplishes one major item. It shows and states full disclosure up front.
GFE’s have in my opinion, is a tool used by indusrty that is very difficult to read by anyone other than a mortgage professional. It feels that new GFE goes a long way in leveling the field for the consumer. All the fees are right in the consumers face. Now full disclosure is in effect.
Our company will abide by the revised HUD-1 and GFE. Training has been on going weekly for over a month. Change is not always good. But in this case I like it. I feel the new GFE will benefit the client immediately.
It tells the client the most important part. Where is my money going. I takes away the intimidation aspect of all the line items associated with the old GFE.
Thank HUD for the 120 day learning curve!!
The new GFE has full disclosure of fees and the mortgage professional should have no trouble explaining it to the customer. This was long overdue overhauling of the GFE and very beneficial to the customer.
I do think this is in the best interest of the consumer and industry. It will weed out those not willing or able to do the work necessary to hand in a well researched/ documented file. Underwriters will love the more perfected approach. I do feel it will be harder for me if put in a competitive position of being shopped. I have had to charge higher admin, underwriting etc. fees as part of my previous Broker’s overhead, etc. and I did not have any control over that but only control over my own fee to compete for the business. Also, I am a perfectionist so this is in the same camp.
I think the new GFE is a benefit to everyone. I hope it can restore the trust that has been lost by some very unethical lenders. I am glad that the customer will be able to see very clearly what is being charged etc, I also agree that this will help when a customer claims they were not informed, it will all be there in black and white.
I love this blog! I think it is a great resource on Mortgage News. I came to this blog searching for respa changes and I have to thank you for the information- it really answered my question.
I have no problem with the new GFE and I’ve never had a problem explaining any fees associated with any of the loans I’ve originated in my five years experience of the mortgage industry. I’ve never had a problem letting my clients know what type of product they were getting into and the consequences of such a product. But to say that this will help the banking world or protect our consumers….is simply crazy. This will only create more delays in the funding or closing of residential loan packages. Why should the originator be responsible for a lock expiring and the cost for the extension? What will happen; is the orginator will simply take the loan elsewhere which will create chaos, confusion and more delays.
Respa change that has taken effect on 1-1-2010, with my 35 years of lending experience, when I first professionally observed the changes that are reqired , I said if I didn’t have the experience I wouldn’t know what was required over the past 40 years, with that being said, the fees are the same origination,YSP, appraisal title and other sundries fees that could apply. You never undersale a mortgage cost yuou always opt to offer the customer their options, so here is what upsets me the most , the profession needs to minimize the fees allowed to be charged by a LO. What yes most jerks only want the highhest rate of return on 3-5 deals a month, all wholesale lenders should verify what production numbers they close and look at the average fee being charged, if they earn %k ok times3=$15K month, why my doctor friend of over 45 years earns $250,000 a a family physican why should some jerk marke the same with very litle effort, it’s like pigs (jerks) get fat and hogs (clients) get slaughtered theyruin our profession, over disclose RESPA is easy just follow the guidelines and accept change.
Definitely, it will help consumer greatly and make sure those greedy LO or brokers to cheat innocent people. It also will increase consumer’s confidence of buying, actually will help the industry and therefore, help us a great deal.
[...] fee, processing fee, and so forth, and take some or all of those extra fees as income. In Jan of 2010 changes in the federal law RESPA requires all compensation that inures to the benefit of the loan [...]