by Peg Ritenour
Vice President
Legal Services and Administration
REALTORS will soon begin to notice a change to the forms lenders provide to borrowers applying for a mortgage and closing on the purchase of property. That is because on Jan. 1, 2010 new RESPA rules go into effect that will require the use of a new standardized Good Faith Estimate and new HUD-1 Settlement Statement. These new forms were part of a rule designed to improve the disclosure of settlement costs to borrowers and to promote comparison shopping.
The new Good Faith Estimate form contains three pages and must be provided by the loan originator within three days of receiving a loan application. The Good Faith Estimate provides a summary of the key terms of the loan and an estimate of the settlement charges. Settlement charges are divided into three categories depending on whether the charge could increase at settlement or not. Some charges cannot increase, some can increase by 10 percent and other charges can increase without restriction. The first page of the Good Faith Estimate contains a total of the estimated settlement charges to allow the borrower to shop for the best loan terms at the lowest cost.
The new HUD-1 Settlement Statement also contains three pages. Charges listed on the HUD-1 provide a reference to the relevant line for that charge on the Good Faith Estimate. The third page provides a side by side comparison of the Good Faith Estimate charges and the HUD-1 charges. It also provides a summary of the borrower’s loan terms. HUD added a third page to the HUD-1 and eliminated the controversial closing script that was required in the proposed rule.
The final rule allows lenders to correct violations of RESPA’s new disclosure and cost tolerance requirements. Lenders will have 30 days from the date of closing to correct violations and repay the borrower any overcharges.
REALTORS are encouraged to familiarize themselves with these new forms.
In the past several months HUD has been addressing numerous questions posed by lenders concerning the use of these new forms. Although these industry groups lobbied HUD to delay the effective date of the new rule, HUD declined to do so. It did, however, announce that it will “exercise restraint” in enforcing the new regulations for the first four months of 2010 against FHA approved lenders who are making a good faith effort to comply with RESPA’s new requirements. HUD is asking other federal and state enforcement agencies to do the same for non-FHA originators.