REAL Exclusive Magazine

RESPA/Regulation X Changes

Information Courtesy Of C. J. Coury

The U.S. Department of Housing and Urban Development (HUD) has announced significant revisions to the lending requirements under RESPA/Regulation X. These changes impact the Good Faith Estimate (GFE) and HUD Settlement Statements (HUD-1 and HUD-1A) and will be effective with new first mortgage applications taken on or after January 1, 2010. These important regulatory changes will place new requirements on lenders to ensure that borrowers are better positioned to understand their mortgage transaction. Following is an overview of the four key changes associated with the new Regulation X requirements.

1. Good Faith Estimate (GFE) and HUD Settlement Statement (HUD-1) Forms
Redesigned and with substantial changes, the GFE and HUD-1 forms will standardize how fees are disclosed – making it easier for borrowers to compare offers between lenders. The GFE and HUD-1 will also be aligned to provide even greater transparency for borrowers when comparing settlement charges at closing. Specific enhancements include:

• All lenders will be required to disclose fees in the same manner
• Loan feature information has been added to the forms
• All lender fees will be combined and shown as a single amount (fees paid by lenders, property sellers or builders and fees paid outside of closing will be included in the total settlement charges)
• A reconciliation of the GFE to the HUD-1 will be required

2. Settlement Service Provider List
Lenders will be required to provide the borrower with a Settlement Service Provider List that includes settlement service provider names. This pertains to any settlement service where the service is required but the borrower can select a provider – for example: title, pest and septic inspections.  In addition:

• The list must include service providers available in the local market
• If the borrower selects a service provider from the list, the lender will be subject to certain fee tolerances (see #4 below for a list of fee tolerances) for the charges associated with that provider
• If the borrower selects a service provider not on the list, the settlement service is not subject to the tolerance.

3. Re-Disclosure Restrictions
Lenders will be bound to fees disclosed on the initial GFE, except in certain situations where there are “changed circumstances” associated with a loan.

• Changed Circumstances:

− If a changed circumstance occurs, only those fees affected by the changed circumstance may change
− If the estimates within the GFE are inaccurate but no change circumstance occurs, the lender is bound to the amounts shown on the last disclosed GFE
− If a changed circumstance occurs, the lender must re-disclose within three business days after receipt of the information regarding the changed circumstance. or the ability to re-disclose (and change a fee) is lost
− Lenders must retain documentation relating to the changed circumstance and fee change, if re-disclosed, for three years

• The definition of “changed circumstances” include the following:
− Acts of God, war or disaster
− Changes or inaccuracies in information relating to the borrower or the transaction that was relied upon in providing the GFE
− Changes to the loan amount or estimated value of the property
− New information regarding the borrower or transaction not relied upon when the initial disclosure was provided
− A lock event (locking the rate or expiration of the lock) or a change in the deal structure requested by the borrower

4. Fee Tolerances
In an effort to improve the accuracy of the settlement charge information provided to borrowers, new restrictions will be placed on lenders regarding how and when fees disclosed on the GFE may change. Tolerances on changes to settlement charges between the final GFE and HUD-1 will be defined in three categories:

1. Charges that cannot increase at settlement:

− Origination charges
− Discount or premium points for a specific interest rate selected
− Adjusted origination charges (after the interest rate is locked)
− Transfer taxes

2. Charges that cannot increase in the aggregate by more than 10% at settlement:

− Required settlement services that the lender selects, such as appraisal services
− Title services and lender’s title insurance (if selected by lender or if the borrower uses a company identified on the Settlement Services Provider List)
− Owner’s title insurance (if the borrower uses a company identified on the Settlement Services Provider List identified).
− Required settlement services (such as  Pest Inspections) that the borrower selects from the Settlement Services Provider List
− Government recording charges

3. Charges that can increase at settlement:

− Required settlement services  that the borrower can  select, if the borrower selects a service provider not listed on the Settlement Services Provider List
− Title services and lender’s title insurance, if the borrower selects a service provider not listed on the Settlement Services Provider List
− Owner’s title insurance , if the borrower selects a service provider not listed on the Settlement Services Provider List
− Initial deposit for borrower escrow account
− Daily interest charges
− Homeowner’s insurance

Note: For 1 and 2 above, these fees will not be subject to the tolerances should a changed circumstance occur that directly impacts the fee and a revised GFE is provided within the three business day time period after receipt of the information regarding the changed circumstance.

C. J. Coury is a Senior Vice President with Bank of America and oversees their residential mortgage division serving Sarasota, Manatee and Charlotte Counties. Prior to joining Bank of America in 1995, C. J. was President of Mortgage Brokers of America in Birmingham, MI for 7 years. He has been an active mortgage finance professional since 1983. C. J. may be reached at (941) 952-2888 or by email at charles.j.coury@bankofamerica.com.