As published in Scotsman Guide's Residential Edition, November 2009.
(Editor's note: On Nov. 13, the U.S. Department of Housing and Urban Development (HUD) announced it would "exercise restraint" in enforcing its new good-faith-estimate and HUD-1 rules through May 1. Info: sctsm.in/HUDrest.)
Mortgage brokers will wake up on Jan. 1 to a new world of regulation. That's the date on which all brokers must start using the U.S. Department of Housing and Urban Development's (HUD's) new good-faith estimate (GFE) and HUD-1 settlement statement.
One of the major impacts of the new Real Estate Settlement Procedures Act (RESPA) final rule is that loan originators must guarantee certain closing costs associated with loans. For some of these items, the final costs listed on GFEs won't be allowed to increase on HUD-1 settlement statements. For others, a 10-percent tolerance has been established.
Important Points on GFE ___________________________
Here are some key terms on the new good-faith estimate (GFE) and their descriptions:
• Important dates: This section indicates the date until which quoted rates and fees will be available.
• Summary of your loan: Located on Page 1 of the new GFE, this section addresses the loan's rate and terms, as well as any negative amortization, prepayment penalties, balloon payments and escrow requirements. It also addresses if the loan has a fixed or variable rate.
• Tradeoff table: If completed (not required), this shows the relationship between settlement charges and interest rates.
• Shopping chart: Borrowers can use this tool to compare different loan offers side-by-side.
More information about the Real Estate Settlement Procedures Act: sctsm.in/RESPAhome.
Additionally, the charges listed on GFEs will be binding on originators for 10 days.
Under the new RESPA rule, loan originators also will be on the hook for quoted fees -- including those related to rate pricing and some paid to third-party service-providers -- for at least 10 days.
The guarantees originators provide can't be revised, except for specified "changed circumstances." In other words, brokers must commit to prospects without reciprocation. The mandatory 10-day commitment does not, however, apply to the quoted interest rate.
Guaranteed costs falling under the zero-tolerance requirement include origination fees, any discount paid for locked-in rates and transfer taxes. These charges will be listed at settlement on the new HUD-1 settlement statement, allowing line-by-line comparison with the GFE.
There also will be a new term for origination fees -- "adjusted origination charges." These charges will be subject to the zero-tolerance requirement after borrowers lock in their interest rate. They must represent the net settlement amount after any reduction or increase resulting from lender premiums or borrower discounts.
The requirement to guarantee origination fees with no room for error is almost certain to cause problems. Many brokers likely will struggle to solidify mortgage pricing at the time GFEs are given.
Under the new rule, the origination charge will include all charges associated with the lender and the originator, except for true discount points. This includes current origination fees and any lender-paid premiums. It also includes the broker's and lender's per-loan charges, such as fees for processing, underwriting and administration.
Typically, per-loan charges have served to offset the basic administration costs of each loan. Under the new rule, however, these charges must be lumped into one fee.
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