RESPA Reform Coming Soon

The Department of Housing and Urban Development (HUD) has passed new regulations amending Regulation X, the regulations that

implement the Real Estate Settlement Procedures Act (RESPA).

On January 1, 2010, HUD will require that lenders and mortgage brokers provide borrowers with a new standard Good Faith

Estimate (GFE) that clearly discloses key loan terms and closing costs. Closing agents will also be required to provide

borrowers a new HUD-1 Settlement Statement that clearly compares the borrower’s final and estimated costs.

Main Components of RESPA Reform:

> Re-defines an “Application” for 3-day disclosure purposes

• Must contain at least the following 8 items, and borrower must indicate intent to apply:

– Name

– Gross Monthly income (if applicable)

– Social Security Number

– Property Address

– Estimate of property value

– Loan amount being sought

– Interest Rate

– Product Type

> Prohibits collection of fees (except for credit report) prior to borrower’s receipt of GFE

• GFE must be issued within 3-business days of an application as defined above

> New standardized Good Faith Estimate (GFE) form

• Allows borrower to easily compare GFEs from various lenders when shopping for a loan

• Will be three (3) pages and include rate/lock information in addition to fees

> HUD Mandated Tolerance Limitations on Fees/Charges (varies according to three classes of fees/charges)

• Unless there is a valid “Changed Circumstance” (list to be published at a later date), lenders/brokers are prohibited

from exceeding certain fee tolerances from most recent GFE to settlement

• Zero Tolerance—certain charges cannot increase at settlement

• 10% Tolerance—the total of charges in this class can increase up to 10% at settlement

• No Tolerance Limitation—certain charges can increase at settlement

> Amends yield spread premium disclosure requirements

• The new GFE section, “Your Adjusted Origination Charges”, must disclose all lender and broker fees/credits,

including yield spread premium (YSP)

> New HUD-1 Settlement Statement

• Revised to be comparable with the new GFE

• Added page that compares HUD-1 to the GFE

• Highlights key loan terms