I am providing a presentation to a group of real estate professionals about upcoming changes to RESPA rules. Here are the presentation slides.
HUD made a huge announcement today regarding new RESPA rules surrounding the Good Faith Estimate and HUD-1 final settlement statement. I am amazed that this rule has not gotten more attention in the real estate community.
I blogged about these proposed changes back on November 2nd and pointed out the pro’s and con’s of the changes. Now that the rule has been finalized here are a few thoughts I’d like to share:
*The new GFE is now 3 pages and is standardized. This means that every lender, mortgage broker, or bank will offer consumers the same GFE format. This should prevent lenders from “hiding” fees/ changes. Here is a link to view the new 3 page GFE.
*The one issue I have with this new GFE is that there is no section where a consumer can view their estimated cash to close. This appears to be a huge oversight on the part of HUD.
*There is no section for the loan originator to include the company name or lender.
*There is no section on the 3 page GFE where a borrower’s total principal, interest, taxes, and insurance payment is shown (PITI) together.
*There are plenty of positive aspects of the new GFE including the requirement to offer consumers other options with higher closing costs and lower interest rates as well as lower closing costs and higher interest rates. This is a very important concept and one that often gets over looked by loan originators.
*Fortunately, the final rule did away with any sort of escrow officer script reading which would have made signings painful.
*Here is a link the new HUD-1 settlement statement. There are some confusing aspects of this new document as well.
*These new procedures will have a 12-month transition period. Lenders may start using the new GFE’s on January 1, 2009. They will be required to no later than January 1, 2010.
I am in the process of putting together a class for real estate professionals which I plan to offer for continuing education (assuming the principal broker will approve the content). Please shoot me an email if you’d like to attend.
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!