Written By: Jane Harford
In today’s blog we will see, how the changes to the RESPA laws have affected the GFE and the HUD1, we will quickly review the changes that have taken place so far and how these changes have affected the work flow, fees that can be charged and the timeframes required to maintain compliance.
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As you will remember from the previous blog posts, the purpose of the new forms is to have borrowers better understand and shop for mortgages. This will ultimately result in more stable more products, lower rates and lower settlement charges for borrowers.
Page #1 of the revised GFE gives greater detail of the loan terms, including the initial rate and monthly payment, details on rate and if principal balance can increase( showing the maximums) and if there is a balloon payment or prepayment penalty.
YSP to brokers is shown as part of the Loan Origination fee in Block A on page #2. The GFE also consolidates settlement charges into various categories in Block B to simplify disclosure of charges. Total estimated settlement charges carried from page #2 to bottom of page #1 become the closing costs for a particular loan that the borrower can compare to other GFE’s that the borrower may obtain.
There have also been major changes to the HUD 1 settlement statement. The itemized final settlement charges on page #2 reference the HUD 1 lines so that the borrower can track closing costs fees from one document to the other.
As an example, lines #801, #802, #803 and #1203 from the GFE move directly to the HUD1. These fees are not allowed to change from the GFE to the HUD1.
There is a new page #3 of the HUD1. Top portion of the page compares costs in each of the sections “cannot change”, “total cannot increase more than 10%” and the “can change” sections of the GFE. These fees are reviewed and borrowers can then determine if tolerances have been violated. The loan officer is required under the new RESPA rule to provide the info necessary to complete page #3 of the HUD 1 to the closing officer.
In order to keep the fees from the GFE the same when transitioning to the HUD! Loan officers are working very closely with title companies to ensure the compliance of these fees. Many title companies are offering new online services to loan officers to provide accurate and correct title/closing fees.
If a lender uses this system to prepare a GFE for a borrower and the title company winds up needing to adjust the fees after the initial costs are provided, the title company will pay the difference between initial quote and final HUD 1 costs. This covers sections #1100 and #1200 costs-title charges and government recording/transfer charges. This section does not allow for any tolerances from the GFE to the HUD1.
When the request for an initial GFE comes to the loan officer, they are now using title estimates that come from title company’s web sites. The title company’s staff must be able to provide the correct estimates based on the preliminary information provided by the loan officer at the beginning of the process. In most cases, the sensible thing to do is to overestimate the costs.
But, this then defeats the purpose of the new RESPA law. Loan officers/processors are providing a copy of their GFE when ordering the title work. This gives the title company a heads up as to what the borrower has already accepted in the way of fees.
When estimating these fees at a higher cost, the loan officer does take a risk in dealing with competition from other lenders. RESPA does not regulate lenders from underestimating fees and then re-stating them later. (Only if there are changed circumstances). It does seem that the new RESPA regulations place a greater emphasis on the settlement costs over the APR annual percentage rate, which was the comparison that was required by RESPA to be reviewed carefully in the past.
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These new changes do require that loan officers complete a very accurate GFE at the initial application. In the thought patterns that were used to make these historic changes to GFE regulations, there are two very basic things that are no longer considered when completing and reviewing a GFE. 1) With all origination costs appearing in a single box, this increases the amount that the borrower can consider deducting on his tax returns when filing 1040’s with the IRS. Previously, only origination fees could be deducted on Schedule A when borrowers filed their 1040’s.
The other issue is that the revised GFE does not provide for a borrower’s signature line on the form. It is often difficult to determine that the borrower has accepted these costs when no signature line on the form. When underwriting these files, an underwriter cannot determine if the borrowers have acknowledged the costs and total cash to close. No final cash to close figures appear on the new GFE. There is no spot on the form to show bottom line details of the cash to close, less any fees already paid by the borrower, seller/lender credits etc.
Many lenders feel that they must provide this documentation to their borrowers to show that they have provided full disclosure including the cash to close for the borrower’s edification. This has forced lenders to invent “cash to close worksheets”. Using these worksheets, the loan officer is then able to clearly document all costs to close by breaking out the closing costs, escrows, any credits provided by seller/lender and the bottom line figure of cash needed to close. This is the rest of the information that used to appear on the bottom of the old GFE form. For full disclosure, lenders feel that the borrowers do need to be provided all of this information.
Lastly, the 180 day leniency period recognized by HUD ends on 4/30/2010. Lenders may or may not recognize this leniency period based on their own underwriting/closing policies. It is important to determine what the lender’s policies are when processing/submitting a loan to the lender’s office. Each office/branch may interpret the policies a bit differently. For purposes of compliance and clarity, it recommended that you check these policies in advance when working with new clients. This will come in handy, especially when the cash to close is very tight. There may be changes in the overall loan package that will need to be revised upon approval of the loan. Upfront and open discussion will ensure a smooth process from the initial GFE being issued to the closing papers being signed by the buyers/sellers.
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As always, please be sure that your forms are signed and dated by all parties. The smallest details are often the ones that will hold up a smooth transition from loan application to loan closing.
About The Author
Jane Harford - As an NAMP® staff writer, Jane brings 30+ years of mortgage business experience in FHA, VA, LAPP and is also an FHA DE Underwriter. If you would like to become a writer for NAMP® , please email us at: contact@mortgageprocessor.org.
