New for 2010! The Department of Housing and Urban Development (HUD) is rolling out a series of new changes surrounding RESPA, the Good Faith Estimate, and the HUD-1 settlement statement all borrowers receive at closing. Below is an outline of some of these changes.

RESPA Background
The Real Estate Settlement Procedures Act, also known as RESPA, was passed by Congress in 1974 to give borrowers a clear estimate of fees that would be incurred during the mortgage process. RESPA is overseen by HUD. The purpose is to simplify forms for borrowers so they know what costs they can anticipate when they’re purchasing or refinancing.

Definition of “Application”
Even though the application process will stay the same, the definition of the actual “application” will change. HUD is now defining the application as the time at which the mortgage originator obtains 6 key pieces of information from a potential borrower:

1. Borrower’s name
2. Borrower’s SSN
3. Borrower’s gross monthly income
4. Subject property address
5. Estimated subject property value
6. Amount of mortgage loan sought

Good Faith Estimate
The mortgage originator will be required to disclose a Good Faith Estimate within 3 business days of receiving this information – but the Good Faith Estimate itself become less of an “estimate” and more of a “binding forecast” – effectively requiring the lender to cover any overages in charges incurred between application and closing.

HUD-approved “Changed Circumstances”
In some cases, HUD won’t require lenders to cover changes in fees that occur because of previously-approved circumstances beyond a lender’s control. These include Acts of God, disaster, emergencies, or if initial information is found to be inaccurate. Other circumstantial events (such as a last-minute out of town business trip requiring a Power of Attorney and new documents) would also fall under this category.

Effective Dates
These new guidelines went into effect on January 1, 2010. New Good Faith Estimate and HUD Settlement Statements will be used at the closing table. If there are any overages not covered through HUD-approved changed circumstances, the lender can “cure” these fees within a 30-day cure period if they’re not able to rectify overages at the closing.

For more details, please listen to our most recent podcast regarding the new RESPA changes.

  • Arn Cenedella

    I spoke to my loan person today and she says the changes are a nightmare – making lenders repsonsible for third party fees is absurd.
    This is just another instance where the publicty seeking politicians try to show the common man that the pols care about them. The pols create laws that they do no underastand and have no idea on what the practical impacts will be on the consumer and business.

  • Ken Perlmutter

    As with all legislation, there’s some good and bad in new regulations. The intent was to provide an easy way for lenders to give consumers a clear and concise method of comparing the costs of loan alternatives.

    But issues arise, because states having varying fee structures and accepted practices. A standardized form makes sense for closings in California, but might not make sense in Illinois. It’s a good first attempt, but I believe there are some areas that still need tweaking. The mortgage industry will adjust, and as consumers (and we in the industry) become more familiar with the forms, it will become just another form for the borrower to review.

    My concern is that the politicians think this will lower costs for the consumer, yet the forms require a significant amount of additional work at closing — and I’m sure this will result in longer closings and higher fees at those closings.

  • SacRealEstate

    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.

  • Debbie

    You are correct in saying fees will only increase due to the changes and redoing the hud and GFE’s about 20 times on a transaction because the rules apply for the entire nation, in which each states closing costs are paid differently. In Southern California, sellers pay the owners policy, not the buyer, but we have to charge the buyer and then offset it by a credit. There are transfer fees that seller typically pays as well, but we charge buyer for disclosure purposes. How can a borrower read the new hud, when we don’t even break down the fees on the new hud. It lumps in all in loan fees, still does not specifically state the rebate is a rebate with the offset credit back. This is just costing the consumer more with all the updates escrow and lenders have to endure on their computer systems to comply with these regulations. It is also very hard for an escrow company to keep track of each lenders requirements, as they are all doing it differently. Some want Tax Service/Flood Cert in certain areas, while others in other areas. Then there are lenders who don’t charge the borrower, but take their fees from the broker in the transaction and don’t disclose that properly on the lender instructions to escrow. It is a complete mess and very challenging to some in this industry who don’t do their homework on disclosing correct fees for title, escrow, transfer fees, recording, and shopable items. Yes, they should do it, but have always relied on their escrow officer usually. So with that, Im just hoping it all goes away and we can just do a closing statement in lieu of HUD’s as that form is the easiest for the consumer to understand. ok done venting on this subject, just thought I’d shed some light on it from the escrow stand point.

  • Susie Loproto

    The pols are playing a game with the way fees are disclosed on this new GFE – I totally agree that reform is/was necessary but boy did they take a wrong turn – They say that this new GFE is saving the borrower’s around $800 a deal but that is just part of the game if we are required to include costs that the borrower is not required to pay per their contract we have over disclosed the actual fees they are paying so it looks like they are saving, but those were fees that they never had to pay anyway, so really what are they savings???? HUD needs to relook at the fees they are requiring us to disclose to really give the borrower a clear picture.

  • Dean Capinegro

    These changes are so long overdue-I can not tell you how many times I have seen a borrower’s (not my clients) rate and fees change by the time they got to the table. Also, there is room for corrections if need be so the lender is not totally liable for any additional charges except when the lender quoted inaccurate fees that they can control! I have done dozens of closings with Suntrust Mortgage for years and the only time a GFE changed was for taxes, insurance, and other third party related changes which the lender is NOT responsible for. Simply put, there is no excuse for any lender changes once the Borrower signs and accepts the GFE- that’s all. A contract is a contract, just as it is when Buyers and Sellers enter into a Purchase and Sale Agreement and if lenders feel they can not tell the truth or a mortgage broker does not know their third party money lender’s costs, then they should not be in business anyways. Now, if we can only get some law regulating law firms from scamming borrowers on title insurance!

  • steve tanner

    on a change of circumstance how fast can one close after the changes 3 days? show me please

  • Ken Perlmutter

    Steve, thanks for the question. Following is a clarification of disclosure requirements:

    There is a lot of confusion in the industry about requirements of disclosures and the timing of their delivery. A new requirement of the MDIA (Mortgage Disclosure Improvement Act of 2008), which came with an enforcement date of July 30, 2009, requires initial disclosures with a GFE and TIL with APR to be provided within 3 days of application and before any fees can be collected with the exception of a credit report fee. Once the initial TIL with APR is disclosed a closing cannot take place for 7 days. If there is a material change in the APR causing an increase of more than .125 on a fixed rate loan or .25 on an arm, re-disclosure is required and another 3 day holding period is required before the closing can take place.

    A new GFE in 2010 was required to be provided for all applications dated after Jan 1, 2010. The GFE is a requirement of RESPA which is regulated by HUD, not the Federal Reserve which monitors and regulates the TIL.

    With the GFE 2010, disclosure is also required within 3 days of application. There is not any holding period after the disclosure of the GFE 2010 before closing; closing could take place the next day. If there is a changed circumstance on a loan, disclosure is again required within 3 days of the changed circumstance (application), but there is no holding period before closing can take place, it could take place the next day. The only reason why a closing would be delayed from a changed circumstance would be if the changes in fees were enough to trigger a MDIA re-disclosure requirement due to an increase in the APR of .125 on a fixed rate loan or .25 on an arm.

    I hope this helps. Thanks again.

  • Mike Mudry

    If a L/O had inaccurate information when he originally issued GFE relative to transfer taxes and he tells the borrower about it, can he then re-disclose? He wasn’t aware of the Mansion tax required in New York. When he found out about it, he informed the borrower and re-disclosed but this was not allowed because he never disclosed any transfer tax on the original GFE.

  • Off road lights

    Ken told me my loan person today and she says the changes are a nightmare – the lenders do repsonse of fees to third parties is absurd. This is just another example where politicians seeking publicty try to show the common man that cares about them Pols. The Pols create laws that make no underastand and have no idea what the practical impact will be on consumers and businesses. Arn I wonder if I can get information for this conference. It’ll be more helpful if you can give me more details or contacts.

  • Small outboard motors

    He is right to say fees will only increase due to the changes and redo the GFE HUD and about 20 times in a transaction, since the rules apply to the whole nation, in which each state closing costs are paid differently . In Southern California, sellers pay the owners of the policy, not the buyer, but we must charge the buyer and then offset by a credit. There are transfer fees that the seller usually pays well, but we charge the buyer for purposes of disclosure. How can a borrower to read the new HUD, when even break fees on the HUD again. It lumps all the loan rates, even without specifying the discount is a discount to offset the credit back. This is only costs consumers more with all updates escrow and lenders have to put in their computer systems to comply with these regulations. It is also very difficult for an escrow company to track each of the requirements of lenders, and they are doing differently. Some want to IRS / Floods in certain Cert This article gives the light in which we can observe the reality.I enjoyed every little bit of it and I have you bookmarked to check out new stuff you post.

  • Paul O’Mahoney

    What effects will these changes have on residential closings?

  • Lorna

    I am confused about this “change of circumstance” form that was laid to me at first was blank but then I asked my lender to fill it out and was surpised with the changes I asked what covers the amount instead of just explaining what the amount another explanation…all I asked is what covers that amount? We paid for the pest inspection, home inspection, excrow of $1000.00 …of course common sense the GFE will really go down. Everything was signed, they said it was submitted to the underwriter…and then keeps asking for more docs which they said USDA asked for it…now they said they want this doc to be signed ASAP. The form doesn’t have any company logo, its just plain copy paper that says “change of circumstance, date, and stated…I acknowledge a “change of Circumstance” on my loan due to:

    Rate from ____ to ________
    Loan amount changed from ________ to _________
    Other ___________

    Charges that have changed:

    Original New

    ________ ________

    What is the contract all about if this form will prevail…and what is this form for in the first place?

    Please someone who knows about this matter kindly enlighten my confused mind as am a first time home buyer.


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