As published in Scotsman Guide's Residential Edition, December 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. This article also was revised after print publication to clarify good-faith-estimate requirements.)
The U.S. Department of Housing and Urban Development (HUD) designed its update of the Real Estate Settlement Procedures Act (RESPA) to inform homebuyers of their options, help them shop for the lowest-cost mortgage and avoid harmful loan offers. According to HUD, the update also could save the average homeowner $700.
For the mortgage industry, however, the rules taking effect Jan. 1 have other implications.
The new RESPA regulations will affect the way brokers determine a good-faith estimate (GFE, sctsm.in/HUDGFE) because rough estimates are no longer acceptable. New regulations require that estimates, for the most part, not be higher or lower at the closing table. A GFE is now required for the borrower within three days of when the broker or lender receives a loan application or information necessary to complete the application.
As a result, most borrowers will receive multiple GFEs during the loan process. In addition, a HUD-1 settlement statement must be submitted to the borrower at least 24 hours before closing.
These new regulations potentially could delay closings if the correct paperwork is not prepared in advance. Thus, the time is now for mortgage professionals to start researching title companies and their settlement systems.
Here are four things to consider when analyzing a settlement partner.
1. Quote accuracy: To determine an accurate GFE, you must have a precise recorded account of all closing costs. The new regulation prohibits overages on certain closing-cost estimates to prohibit brokers and originators from rounding up their numbers to protect themselves from losing money from inaccurate quotes. A reputable settlement partner will want to give its customers the most-accurate quotes to please customers and to maintain a positive industry reputation.
2. Turnaround time: GFEs must be reissued if there is a change in the estimate. In addition to obtaining an accurate GFE, borrowers now must receive a new HUD-1 settlement statement that clearly compares their final and estimated costs. The HUD-1 must be available to the borrower at least 24 hours before the closing appointment. Ultimately, paperwork changes can lead to long delays. Choose a settlement partner that guarantees quick turnaround times for submitting updated numbers.
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