Transcript Final RESPA Reform

Overview of
RESPA Reform
Jonathan W. Cannon
BuckleySandler LLP
Final RESPA Reform
New Jersey Bankers Association
Mortgage Bankers Association of New Jersey
Joint Mortgage Lending Conference
December 3, 2009
RESPA Final Rule
• New GFE with detailed loan terms and costs
• Settlement costs are grouped in categories
• New accuracy/consistency requirements between
GFE and revised HUD-1/1A
• Compliance required by January 1, 2010
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HUD’s Objectives
• The revised rules and forms are “designed to
protect consumers from unnecessarily high
settlement costs”
• HUD wishes to “ensure that at settlement
borrowers are aware of final costs as they relate
to their particular mortgage loan and settlement
transaction.”
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HUD’s Objectives
• Another goal: “limiting bait-and-switch methods
whereby the originator uses the GFE to draw in
a borrower and, after a significant application
fee is paid or burdensome documentation
demands are made, claims that a material change
has resulted in a more expensive loan offering.”
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HUD’s Updates to Rule
• On Nov. 13, HUD announced a 120-day period
of “restrained enforcement” for FHA-approved
originators who demonstrate a “good faith
effort” to implement the changes.
• HUD encourages others to follow its lead for
non-FHA originators and other settlement
service providers.
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HUD’s Updates to Rule
• HUD has issued 51 pages (so far) of FAQs
clarifying the provisions of the rule.
• Industry still requires more guidance on
compliance.
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Transition to New Forms
• All applications taken on or after Jan. 1, 2010:
– New GFE (new rules apply)
• Applications taken before Jan. 1, 2010 – have a choice:
– Can continue to use old GFE and old HUD-1 (current rules
apply)
– Can issue new GFE (with same terms and charges), then use
new HUD-1 (new rules apply)
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Final RESPA Rule — Application
“Application” consists of six items:
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Name
Property address
SSN to order credit report
Gross monthly income
Borrower’s information on the house price or best estimate of
the property’s value
• The amount of the loan sought
And any other information deemed necessary by the loan
originator.
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Final RESPA Rule — Application
• Loan originator cannot require the submission of
supplemental information to verify the six items as a
condition for providing the GFE.
• HUD’s goal in re-defining “application”: “minimize
delays in issuing GFEs” and “facilitate shopping by
borrowers.”
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GFE
Page 1
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Summary of your loan
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New GFE – Page 1
• Information about loan terms, not settlement costs:
–
–
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–
–
–
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Initial interest rate and the specific date it remains available
The specific date the estimate for settlement charges remains available
Rate lock period and when the applicant must lock prior to settlement
Initial loan amount
Loan term
Initial interest rate
Initial monthly amount owed for principal, interest and mortgage
insurance (but not taxes)
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New GFE – Page 1
More information on loan terms, not settlement costs:
– Whether the interest rate can rise, and the maximum
– Whether the loan balance can rise, and the maximum
– Whether the monthly payment (P, I, MI) can rise, and the
maximum
– Whether the loan has a prepayment penalty, and the
maximum
– Whether the loan has a balloon payment, and description
– Whether the loan has a monthly escrow payment for taxes
and other obligations and how much
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New GFE – Page 1
• New Summary Totals
– “A” - Your Adjusted Origination Charges
– “B” - Your Charges for All Other Settlement
Services
– “A + B” - Total Estimated Settlement Charges
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GFE
Page 2
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New GFE – Page 2
• “Your Adjusted Origination Charges” is comprised of
– “Our origination charge” (Block 1) and
– Your “Credit or Charge (points)” for the specific
interest rate chosen (Block 2)
• “Our origination charge” means all direct origination
charges by either the broker or the lender. The proposal
states that it should include charges “of all originators.”
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New GFE – Page 2
• Three choices for the “Credit or Charge” for the
specific interest rate chosen:
– The Credit or Charge is included in “Our origination
charge”
– You receive a credit of $XX for this interest rate
(this credit reduces your settlement charges)
– You pay a charge of $XX for this interest rate (this
charge (points) increases your settlement charges)
– A credit and a charge cannot be shown in the same
transaction
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New GFE: Recasting
Yield Spread Premiums
• All charges received by the broker and any other originator paid
by the borrower or lender are included in “Our Origination
Charge” in the “Your Adjusted Origination Charges” section on
page 2 of the GFE
• A YSP is shown as a credit for the specific interest rate chosen –
which reduces total origination charges
• Discount points (a “charge”) collected by the broker to be paid
to the lender would be netted against any YSP (“credit”) and
shown as net “credit” or “charge,” depending upon which is
larger
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Example
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GFE Components: Your Charges
For Other Settlement Services
Page 2 of the new GFE also discloses other settlement charges in
nine separate categories, as follows:
• “Required services that we select” (other than title) (Block 3):
• Title services and lender’s title insurance (Block 4)
• Owner’s title insurance (Block 5)
• “Required services that you can shop for” (Block 6)
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GFE Components: Your Charges
For Other Settlement Services
• If the loan originator permits the applicant to shop for any of the providers
of the settlement services in Blocks 3, 4, 5, or 6, the loan originator must
provide a written list, on a separate piece of paper, of the available service
providers.
• Affiliates may be included on the list; inclusion constitutes a referral.
• List must be provided even when GFE is redisclosed and a new third-party
service for which the consumer may shop is added.
• If a list is provided and the consumer chooses a service provider not
identified or selected by the loan originator, then there is no tolerance
restriction on that fee (or those fees).
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GFE Components: Your Charges
For Other Settlement Services
Page 2 of the new GFE also discloses other settlement charges in nine separate
categories, as follows:
• Government Recording (Block 7)
• Transfer taxes (Block 8)
• Initial deposit for your escrow account (categories for taxes and insurance) at
settlement (Block 9)
• Daily interest charges (Block 10)
• Homeowner’s insurance (premium at settlement) (Block 11)
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All Other Settlement Services
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All Other Settlement Services Cont’d.
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GFE
Page 3
Instructions
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GFE Tolerances
Page 3 of GFE highlights charges with restricted
tolerances:
• Charges with zero tolerance (must not increase at
settlement):
– the loan originator’s origination charge;
– the charge or credit for the specific interest rate chosen (after
the rate is locked);
– the adjusted origination charges (after the rate is locked);
– government transfer taxes.
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GFE Tolerances
Page 3 of GFE highlights charges with restricted tolerances:
• Charges with 10% tolerance (in aggregate must not increase
more than 10%):
– lender-required and selected services, i.e., “Services we select” (appraisal,
credit report, etc.);
– lender-required services, including lender’s title insurance and optional
owner’s title insurance where the borrower is allowed to shop but still
uses the provider identified on the originator’s list;
– government recording charges.
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GFE Tolerances
Page 3 of GFE highlights charges with restricted tolerances
• Charges with no tolerance restriction (may increase without
limit):
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–
–
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Escrow deposit;
Daily interest;
Homeowner’s insurance;
Any fees charged by a settlement service provider chosen by the
consumer, only if the loan originator provided a written list, on a
separate piece of paper, of service providers, and the chosen provider
was not on the list (or otherwise identified by the loan originator).
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GFE Tolerances
• Opportunity to “cure” exceeded tolerance by
reimbursing borrower excessive amount within
thirty calendar days after settlement
• “Cure” may also take place at settlement table by
listing excess charge as P.O.C. by lender.
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GFE Loan Comparison Chart
• Page 3 of the new GFE provides a rate/cost “tradeoff table”
showing the subject loan amount and rate requested compared
with alternative loans with the same loan amount and terms, but
showing (i) a loan with a lower interest rate; and (ii) a loan with
lower settlement charges
• This chart must also show changes in the monthly payments for
the loans. For ARM loans, the initial rate only may be shown.
• Completing columns two and three of the tradeoff table is
optional
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Tradeoff table
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Shopping Chart
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Timing for Delivery/
GFE Terms Available
• Lender or mortgage broker must provide GFE to applicant within three
business days after receipt of “application”
• GFE terms must be available for at least ten business days from GFE
delivery, except for:
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interest rate (determined by loan originator)
loan terms tied to the interest rate
charge or credit for the specific rate chosen
adjusted origination charges
per diem interest
• After ten days, if the borrower does not indicate an intention to proceed,
none of the terms on the GFE remain binding.
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Underwriting and GFE Revisions
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Revised GFE (with increased fees) may be provided based on “changed
circumstances”
•
“Changed circumstances” means the following:
– Acts of God, war, disaster, or other emergency;
– Information particular to the borrower or transaction that was relied on in providing the
GFE and that changes or is found to be inaccurate after the GFE has been provided
(e.g., credit quality of the borrower, loan amount, estimated property value, 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” does not include market price fluctuations
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Underwriting and GFE Revisions
• Revised GFE may be provided based on “borrower-requested
changes” to the loan resulting in changes to settlement costs
or loan terms.
• If revised GFE is to be provided for any reason, it must be
provided within three days of receipt of information
sufficient to establish the change, or of the borrower’s request.
• If a revised GFE is issued based on “changed circumstances”
or “borrower-requested changes,” the basis for the revised
GFE must be documented and retained for at least three years
after settlement.
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Timing for Delivery/
GFE Terms Available
• For new home purchases in which settlement is
anticipated more than 60 days from the time a GFE is
provided
– a revised GFE may be issued at any time up until 60 days
prior to closing (unless “changed circumstances”)
• Originators must separately disclose this possibility
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HUD-1
Settlement
Statement
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HUD-1
Page 2
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HUD-1
Page 3
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HUD – 1/1A Itemization
• HUD-1/1A has been modified to allow comparison of
charges on the GFE
• The HUD-1/1A lines in Section L refer to the
corresponding block numbers on the GFE
• Terminology in the HUD-1/1A has been modified to
be more consistent with GFE terminology
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Comparison Chart
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Questions & Answers
Jonathan W. Cannon
[email protected]
BuckleySandler LLP
1250 24th St. NW, Suite 700
Washington, DC 20037
202.349.8063
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