Final RESPA Rule

Written By: Joan Ewing, NAMP-CALP, FHA DE Underwriter

Hello All – Although it is a year away, it is not too soon to learn about the changes coming on the new HUD which will be effective January 1, 2010, the information contained herein was released on November 12, 2008; however, I am not sure how many persons are aware. The Good Faith Estimate (GFE) is finally going to become consumer friendly. Borrowers may begin to understand their charges for their loan in the very beginning of the process rather than being confused throughout the process.

For the first time ever, HUD will require mortgage lenders and brokers to provide borrowers with an easy-to-read standard Good Faith Estimate (GFE) – that will answer the key questions they have when applying for a mortgage. The questions most asked by borrowers – will now be clearly answered:

1. What is the term of the loan?
2. Is the interest rate fixed or will it change?
3. Is there a pre-payment penalty should the borrower choose to refinance at a later date?
4. Is there a balloon payment?
5. What are the total closing costs? And – how much money will I need at closing?

HUD estimates that by improving upfront disclosures on the GFE the
Consumer will save an average of $700 in total closing costs. The new GFE will be three pages, however all charges will be predominantly on the first page in major categories to prevent junk fees and total estimated charges so the consumer can easily compare offers. HUD will specify the closing costs that can and cannot change at closing. AND HUD will limit the amount that a fee may change.

To assist borrowers in comparing their Good Faith Estimate with their HUD-1 Settlement Statement, every line on the final HUD-1 will include a reference to the relevant line from the GFE. Borrowers will now be able to compare their estimated and actual costs.

A huge change – HUD will require payments made to mortgage brokers (Yield Spread Premiums) be disclosed in a more understanding way. It must be explained to the consumer these charges are directly related to the interest rate the borrower will pay. In order to not show a bias to brokers, HUD conducted studies with borrowers and many times the borrower chose the lower interest rate.

Loan originators will be required to give borrowers their Good Faith Estimate within 3 days of information received from borrower. The loan originators cannot wait until receipt of verification of tax returns, etc. is received or until the borrowers decides to proceed with the loan.

Even though the GFE process is going to be stricter – HUD will allow lenders and settlement companies to correct potential violations of RESPA’s new disclosure and tolerance requirements. Lenders and settlement companies will have 30 days from the date of closing to correct errors and repay consumers any overcharges.

I personally feel this will be a sweeping change to the way borrowers will be able to understand their GFE it will be interesting and I expect many more changes in light of what has happened in the mortgage market.

Until next time – keep processing. More Later.

About the Writer. As an active FHA DE Underwriter for the past 15 years, Joan Ewing is a proud NAMP Certified Ambassador Loan Processor (CALP). Joan brings years of FHA Government experience to her writings, letting her readers tap into her underwriting knowledge base. If you would like to become a writer for NAMP, please email us at: blog@mortgageprocessor.org.