RESPA reform has been in the works for sometime now. I sat through an excellent continuing education class last week put on by the one and only Ken Perry of Broker Knowledge Group.
In the class he briefed us on the proposed changes to the good faith estimate (GFE), HUD-1 final settlement statement (click link to see example), and closing script procedures (click link to see example) that are likely to become a final rule sometime next week. According to Ken the new rule will take effect next year. Participants will have 12 months to transition their business to be in compliance.
These are BIG changes and I plan to put together a class for real estate professionals on the subject. Here are some notes I took regarding the new GFE (click this link to view a copy of the new GFE). You’ll find that most of these are criticisms:
*No where on the GFE does it show total payments including principal, interest, real estate taxes, & home insurance.
*On page 1 there is a box to check whether or not the loan has an escrow feature for real estate taxes or home insurance BUT it DOES NOT have a space to indicate the amount of the monthly escrow collection.
*HUD is essentially making yield spread premium pricing more transparent. On page 2 section A, mortgage brokers will now have to charge the borrower their origination fee AND yield spread premium pricing and explain to them that the lender will credit them the yield spread premium.
*On page 2 section B HUD gives the lender room to itemize only 3 charges in the #3 & #5 sections (these sections are used to disclose estimated costs of third party providers). The problem with this is that typically there are more than three charges to disclose.
*At the bottom of page 3 the lender will need to provide each borrower two options beside the main option which is being disclosed. The first option will need to show a loan with lower costs but a higher interest rate. The second option will need to show a lower interest rate but higher costs.
*At the top of the fourth page the lender is to disclose the ANNUAL costs of the borrower’s real estate taxes and homeowner’s insurance (as well as HOA/ flood insurance if applicable). None of my clients are ever that concerned about the annual cost. They tend to be more anxious to know the monthly cost.
*Lastly (but not leastly), NO WHERE ON THE NEW GFE IS THERE SPACE FOR US TO ESTIMATE OUR CLIENTS TOTAL CASH COMMITMENT AT CLOSING. ARE YOU KIDDING ME? THIS IS A HUGE OVERSIGHT ON THE PART OF HUD!