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Center / 2010 RESPA
Use the links below to navigate through THE 2010 RESPA
Forms
Introductory Information
In November 2008, HUD published its final rule amending Regulation X of the Real Estate Settlement Procedures Act ("RESPA"). The final rule includes significant changes to the Good Faith Estimate ("GFE") form and the HUD-1 Settlement Statement ("HUD-1"). This announcement includes various LUXURY MORTGAGE CORP requirements in response to the new rule and is not intended to serve as a comprehensive review of all the rule's provisions.
Resources - Links to Forms, FAQs, RESPA rule
The final RESPA rule along with the new GFE and HUD-1/1A forms and training guide can be accessed on HUD's website at http://www.hud.gov/offices/hsg/ramh/res/respa_hm.cfm . Since the rule was published, HUD has also provided additional guidance on the RESPA rule in the form of Frequently Asked Questions ("FAQs") that are also posted on the website accessible through the above link.
Implementation Dates
Although several aspects of the new RESPA rule already took effect, the new GFE and HUD-1 forms must be used for applications taken on or after January 1, 2010. The new GFE and HUD-1 forms may be used before that date. However, if a loan originator issues a GFE on the new form, then the settlement agent must use the new HUD-1 form and the tolerances and other requirements in the revised RESPA regulations would apply. LUXURY MORTGAGE CORP requires that the new forms be used on and after January 1, 2010.
Application
Under the new RESPA rule, the term "application" means the submission of a borrower's financial information in anticipation of a credit decision relating to a federally related mortgage loan, which must include all of the following: 1) the borrower's name, 2) the borrower's monthly income, 3) the borrower's social security number to obtain a credit report, 4) the property address, 5) an estimate of the value of the property, 6) the mortgage loan amount sought, and any other information deemed necessary by the loan originator.
GFE
The loan originator is required to issue the new GFE form no later than 3 business days after the loan originator receives an application or information sufficient to complete an application. The term "loan originator" means a lender or mortgage broker.
There is no requirement that the borrower sign the GFE.
No GFE disclosure is required if the application is withdrawn or denied within 3 business days of application.
Except for interest rate dependent charges, the loan originator is bound by the GFE for at least ten business days after the GFE is provided (or longer if so specified by the loan originator).
The loan originator may not charge any fee, except for a credit report fee, until after the applicant has received the GFE and indicates an intention to proceed with the loan request.
Fees paid outside of closing will no longer be designated as "POC" on the GFE. All fees typically paid by the borrower must be shown on the GFE as if paid by the borrower at closing.
All charges for settlement services must be placed in the appropriate categories on the GFE.
Changed Circumstances - Reissuance of GFE
Except for any permitted tolerances, loan originators must be accurate when disclosing initial settlement charges to the borrower on the GFE. A revised GFE may only be issued to a borrower prior to closing where there exists "changed circumstances" as defined in the final rule and as clarified by HUD in their FAQs.
Absent valid changed circumstances, the originator is bound by the amounts shown on the last disclosed GFE subject to any permitted tolerances.
Note:
Only charges or terms directly related to the changed circumstance may be changed.
The revised GFE must be issued within 3 business days of receiving information sufficient to establish the changed circumstance. The 3 business day requirement is triggered from the time of receipt by whichever loan originator, either the mortgage broker or the lender, receives the information first.
Documentation evidencing the changed circumstance must be kept in the loan file and retained for a period of not less than 3 years after settlement.*
The term "changed circumstances" means:
Acts of God, war, disaster, or other emergency;
Information particular to the borrower or transaction that was relied on in providing the GFE that changes or is found to be inaccurate after the GFE has been provided. This may include information about the credit quality of the borrower, the amount of the loan, the estimated value of the property, or any other information that was used in providing the GFE;
New information particular to the borrower or transaction that was not relied on in providing the GFE; or
Other circumstances that are particular to the borrower or transaction, including boundary disputes, the need for flood insurance or environmental problems.
"Changed circumstances" do not include:
The borrower's name, the borrower's monthly income, the property address, an estimate of the value of the property, the mortgage loan amount sought, and any information contained in any credit report obtained by the loan originator prior to providing the GFE, unless the information changes or is found to be inaccurate after the GFE has been provided; or
Market price fluctuations by themselves.
* On wholesale loans, to the extent that a "changed circumstance" exists and a revised GFE is to be issued to the consumer, LUXURY MORTGAGE CORP will require that the attached cover letter, completed with information regarding the changed circumstance, be provided to the consumer with the revised GFE and a copy of the letter and revised GFE be included in the loan file provided to LUXURY MORTGAGE CORP. In addition, supporting documentation about the changed circumstances must also be in the loan file.
Tolerance Limitations
HUD has created limitations which restrict the amount that settlement charges to borrowers can change between the Good Faith Estimate and the actual fees charged at settlement. These tolerance limitations are designed to help borrowers receive a more accurate GFE and to enable the borrower to easily compare the fees noted on the GFE with those on the HUD-1.
The tolerance limitations are divided into three categories:
Settlement charges that cannot increase: origination charges (including broker fees), borrower's credit or charge for specific interest rate chosen (after locking in the rate), and transfer taxes (0% Tolerance);
Settlement charges that can increase up to 10%: required services selected by the originator, title services and lender's title insurance (if selected by loan originator or borrower uses companies identified by loan originator), owner's title insurance (if borrower uses companies identified by loan originator), required services that the borrower shops for (if borrower uses companies identified by the loan originator), and government recording charges. (Up to 10% Tolerance)
Settlement charges that can increase without restriction: required services that borrower shops for, title services and lender's title insurance, and owner's title insurance (where the borrower does not use companies identified by the loan originator); initial deposit for escrow deposit, daily interest charges, and homeowner's insurance. (Unrestricted)
These tolerances are clearly described to the borrower on the third page of the GFE and carry over to page 3 of the HUD-1.
Additional Disclosures
Below is a description of three new disclosures. The new RESPA rules require loan originators to provide the borrower with a written list of Settlement Service Providers. The Itemization of Fees and the Lender / Seller Paid Fees & Credits are not required by the new RESPA rule but are necessary additions based on the changes to the GFE and HUD-1. Itemization of Fees
Certain fees must be consolidated into a single block on the new GFE form and a single line on the new HUD-1. For example, the total of all charges assessed by loan originators on the transaction (including lenders and brokers), except any charge for the specific interest rate chosen, must be shown in Block 1, "our origination charge", on the GFE and in line 801 on the HUD-1. Since the individual fee detail will no longer be shown on the GFE and HUD-1, LUXURY MORTGAGE CORP will require clients to provide that detail on a separate form. This form is necessary in order to correctly re-calculate the APR and test compliance with Federal and state high cost restrictions. Attached is a sample form that clients may use for this purpose. Although use of this specific form is optional, loans will be suspended if an itemization of the individual fees comprising the totals shown on the GFE and HUD-1 is not provided. Note that an Itemization of Amount Financed will not satisfy this requirement entirely as that form only provides the detail on finance charges.
LUXURY MORTGAGE CORP fees can be accessed by clicking here. Settlement Service Provider List
For blocks 4, 5 & 6 of the new GFE, the loan originator must identify each third party settlement service required by the loan originator where the borrower is permitted to shop for and select the settlement service provider. The estimated charge to be paid to the provider of each service must also be disclosed.
Where a loan originator permits a borrower to shop for third party settlement services, the loan originator must provide the borrower with a written list of settlement services providers at the time the GFE is issued. This list must be provided on a separate sheet of paper. The list must include those services addressed in Blocks 4, 5 and 6 of the GFE and contain settlement service providers that are likely available to provide the settlement service in the borrower's locale.
HUD has not issued a model form for the written list of settlement service providers. Attached is a sample form that clients may use for this purpose. The content of the form will vary depending upon which services the borrower is permitted to shop for. If the borrower selects a provider identified on the list, the amount paid for that service would fall within the 10% tolerance for that category. If the borrower chooses a different provider, the amount paid for that service is not subject to any tolerance restriction. The loan file submitted to LUXURY MORTGAGE CORP must contain a separate settlement provider list form given to the consumer at the time of the GFE. Lender/Seller Paid Fees/Credits
All charges typically paid by the borrower must be disclosed on the GFE regardless of whether the charges will be paid for by the borrower, the seller, or other party. However, in order to promote comparability between the charges on the GFE and the charges on the HUD-1, if a loan originator pays for a charge that is included on the GFE, the charge will be listed in the borrower's column on Page 2 of the HUD-1. That charge must also be offset by listing a credit in that amount to the borrower on lines 204-209 on Page 1 of the HUD-1.
On a transaction in which the borrower requests a Lender Credit to be applied to closing costs in exchange for a higher interest rate, the credit must be reflected as a negative number in Block 2 on the GFE and on line 802 on the HUD-1. LUXURY MORTGAGE CORP will require clients to include the allocation of the credit on an addendum to the HUD-1.
This detail is necessary in order to correctly re-calculate the APR and test compliance with Federal and state high cost restrictions. Attached is a sample form that clients may use for this purpose. Although use of this specific form is optional, loans will be suspended if the detail on lender/broker and seller paid fees, as well as the allocation of the premium pricing credit, is not provided.
HUD-1 General
The HUD-1 form has been updated to reflect the new rule changes. The second page of the new HUD-1 parallels the way the fees are placed in the GFE by including the line number of the fee as it appears on the GFE on the HUD-1; this makes it easy for borrowers to compare the costs that appeared on their GFE with their actual closing costs and to identify any changes. The third page of the new HUD-1 presents a comparison of loan charges and key loan terms between the GFE and HUD-1. It is the loan originator's responsibility to communicate to the settlement agent all the information needed to complete the HUD-1.
HUD-1 Tolerance Cures
Page 3 of the new HUD-1 Settlement form categorizes the charges into: 1) those charges that cannot increase, 2) those charges that cannot increase more than 10%; and 3) those charges that can change. The HUD-1 will show whether the total fees in these categories differ from those on the GFE. It is permissible for charges to the borrower to decrease . If a settlement agent detects a tolerance violation in comparing the fees on the GFE with the final amounts on the HUD-1, the settlement agent does not need to stop the closing. However, the tolerance violation must be cured either at the closing or within 30 days of the closing; see LUXURY MORTGAGE CORP requirements below. The lender is responsible for making the reimbursement to the borrower, but either the lender or a third party authorized by the lender may send the reimbursement to the borrower. A revised HUD-1 must be completed by the settlement agent. On wholesale loans, in the event of any tolerance violation, the cure will be properly reflected on the HUD-1 and will be subject to prompt reimbursement by the Mortgage Broker at the time of closing. In the event the Mortgage Broker is receiving YSP on the loan the cure will be deducted from the YSP at the time of closing.
From time to time, Luxury Mortgage Corp alerts Clients to important legal issues. However, Clients should not rely upon Luxury Mortgage Corp to inform them of the legal requirements applicable to the origination of mortgage loans. Clients represent and warrant to Luxury Mortgage Corp that all loans brokered to Luxury Mortgage Corp are originated in accordance with state and federal law. This Compliance Alert is not intended and should not be construed as legal or business advice. Luxury Mortgage Corp is not responsible for updating this Compliance Announcement to reflect any changes in applicable laws.
