Get Ready--New RESPA Rules Are Coming!

Attention real estate professionals: No more surprises at the closing table. The new Good Faith Estimate (GFE) of settlement charges and the new HUD1 Settlement Statement will be in effect on January 1, 2010. (www.hud.gov/respa) The new procedures and forms stem from a ruling published January of this year. The changes are in direct response to complaints and confusions shared by borrowers.

HUD pushed for the change due to a measured belief that many borrowers have ended up in default because they did not understand their loan. Under the existing rules, settlement charges vary widely between mortgage providers, borrowers rarely see reduced settlement charges on high interest loans, and in-turn, many borrowers who pay points at settlement often do not benefit from lower interest rates. In efforts to preserve homeownership, HUD wants borrowers to be given time and information to shop for loan that best meets their needs and affordability.

The NEW rules and standardized forms will make for lower settlement charges, lower interest rates, and better mortgage products. So, say ‘hello’ to buying incentive from another direction.

Not that I believe that the RESPA rules were the cause of the collapse in housing. The cause is clearly the government itself through the actions of the Federal Reserve, Fannie, Freddie and the FHA that got us in this mess in the first place.

But enough of that—here are some key changes:

Apples to Oranges. Shopping lenders by the GFE: The new Good Faith Estimate will better alert borrowers to the cost differences between their choice to pay upfront settlement charges or to accept a different interest rate. There will be a more thorough disclosure of loan terms including possible increases in interest rates or balances and pre-payment penalties. The over-all structure will give borrowers a simple shopping list to compare lenders from the start.
No Surprises: Once a GFE is provided to a borrower, there will clearly be three categories with restrictions to changes. Some items will not be allowed to change prior to closing, some will be restricted to no more than 10% difference and will be from a laundry list the seller can change, and some will be mutable only because they are not within the controls of the loan originator or borrower.
The HUD1 Make-Over: 1) Borrowers will be able to clearly match-up charges on page 2 to the line items disclosed on the GFE. 2) A new page 3 will contain the “restricted” category items so that a borrower can see if there were any violations. 3) A summary of the final loan terms and monthly escrow will be enumerated on page 3 and the loan originator will be required to complete it.

For further details in your efforts to inform your buyers – go to the HUD.gov’s NEW RESPA Rules Frequently Asked Questions.

By Donna Tashjian