Transcript Slide 1

“RESPA” Training
Understanding RESPA Reform
Desktop Underwriter is a registered trademark of Fannie Mae. Loan Prospector is a registered trademark of Freddie Mac. This presentation is a
summary and is not complete. This information is for mortgage professionals only and should not be distributed to or used by consumers or other
third-parties. Information is accurate as of the date shown below and is subject to change without notice. 7/14/2010
Topics of Discussion
•
Background
–
–
–
–
–
•
What is RESPA?
What are RESPA covered transactions?
GFE Triggers
What is an “Application” per RESPA
Business Day vs. Calendar Day
RESPA Reform
– Overview of RESPA Reform impact to GFE
– Impact to existing Policies / Procedures
•
Other Issues
FIRST MORTGAGE
BACKGROUND
What is RESPA?
What are RESPA covered Transactions?
GFE Trigger
What is an Application?
Business Day vs. Calendar Day
Background
 The Real Estate Settlement Procedures Act (RESPA) is a
consumer protection law that is designed to help
consumers be more knowledgeable when shopping for
settlement services (mortgages, title insurance, etc.) and
to eliminate kickbacks and referral fees that unnecessarily
increase the costs of some settlement services.
 HUD has been working on RESPA reform for several
years. After five months and 12,000 public comments on
the proposed reforms, the final RESPA rule was published
on November 17, 2008.
 Various RESPA FAQs available – appear to conflict with
other laws, such as TILA, in various respects.
 Implementation Date: January 1, 2010
RESPA Covered Transactions
RESPA Covered Transactions:
 RESPA only applies to federally related mortgage
loans placed on residential properties consisting
of 1-4 unit properties.
RESPA does NOT govern:
 Rental Properties / Investment Properties
 Cash Transactions
 Seller-financed transactions
 Other business-purpose transactions
FIRST MORTGAGE
GFE Trigger
What triggers the need to provide a GFE?
 The receipt of an application triggers the need for a loan
originator to provide a GFE.
 A loan originator must provide a GFE within 3 business days of
the receipt of an application.
Who is the Loan Originator?
 A “loan originator” is a Lender or a Mortgage Broker.
Loan Originators are:
 For Retail: First Mortgage Corporation
 For Wholesale: Broker or Broker Company
APPLICATION
What is an Application per “RESPA”?
What is an Application?

The RESPA definition:

“Application means the submission of a borrower’s financial
information in anticipation of a credit decision relating to a
federally related mortgage loan, which shall include the:
1.
2.
3.
4.
5.
6.
Borrower’s name
Borrower’s monthly income
Borrower’s social security number to obtain a
credit report
Property address
Estimate of the value of the property
Mortgage loan amount sought, AND

Any other information deemed necessary by the loan originator.

An application may either be in writing or electronically
submitted, including a written record of an oral application.”
FMC:

First Mortgage will follow the 6 required items above to trigger the GFE!
Delivery of the GFE
The “Initial GFE” distributed by any
loan originator in a transaction
becomes the binding GFE
 For Wholesale, the Broker is responsible for issuing
Initial GFE. Lenders will be accountable for mortgage
broker’s GFE
 For FMC, the brokers are issuing their own
GFE’s and we will only accept files that meets the
new RESPA requirements.
 Files that do not meet RESPA may be returned to
the broker.
Delivery of GFE
Delivery:

The revised rule states that a GFE may be provided by:
1. Hand delivery
2. Mail, or, if the consumer agrees, by
3. Fax
4. E-mail or
5. Other electronic means
Electronic Delivery:

With regard to electronic delivery, a HUD FAQ states that as
long as the consumer consents and the other specific
requirements for consumer disclosures under the Electronic
Signatures in Global and National Commerce Act (ESIGN) are
met, a GFE may be provided by e-mail, fax or other electronic
means.
FIRST MORTGAGE
Business Day vs. Calendar Day
Business Day = (General Business Day per MDIA):

Under RESPA, days in which a lender’s office’s are open to
the public for carrying on substantially all of it’s business
functions (i.e. for FMC this is all calendar days (M-F)
excluding Saturdays, Sundays and specific Federal legal
public holidays).
Calendar Day = (Specific Business Day per MDIA):

Same as rescission period which is Monday through
Saturday excluding Sundays and specified Federal legal
public holidays.

Note, this is the specific “business day” definition under
Regulation Z for TILA disclosures.
RESPA vs. MDIA
TOPIC
RESPA
MDIA
Business Days

Days in which a lender’s offices
are open to the public for carrying
on substantially all of its business
functions
 Same as Rescission Period
(Monday – Saturday excluding
Sundays and Federal Holidays
Initial
Disclosures

Handled by Loan Originator
(Lender or Broker) within 3
business days (General Business
days) of receipt of an application
 Handled by Lender (who is on
Note) within 3 “specific” business
days from receipt of a written
application (Oral applications
must be written down or it
doesn’t count.
Fee Collection

Fees beyond a credit report fee
may be imposed after a loan
applicant:
1. Receives a GFE, AND
2. Indicates an intention to
proceed with the loan
covered by the GFE
 Fees beyond a credit report fee
may be imposed 3 days after
mailing the initial TILA disclosures
unless lender can prove
disclosures were received earlier
or handled face-to-face
Responsible
Party

Loan Originator which can be the:
1. Lender for Retail loans, OR
2. Broker for Wholesale loans
 Creditor – Entity named on the
face of the Note (FMC)
Overview
Overview of RESPA Changes
Overview of RESPA Changes
Significant Changes
1. Standardized Good Faith Estimate (GFE)
2. Disclosing points and yield spread premiums
3. Create fee tolerances between GFE and
HUD-1
4. Changed Circumstances
5. Use of Average Charges
FIRST MORTGAGE
1. Standardized GFE

The new Standardized GFE discloses key loan terms
and closing costs.
 Potential consumers savings of up to $700 with
improved up front disclosures limiting the amount of
estimated charges a lender can charge the
applicant
 Empowers families to shop for appropriate loans
that meet their needs
 Compare fees between lenders
FIRST MORTGAGE
2. Disclosing Points & YSPs

We are now required to disclose points and yield spread
premiums which are those charges for getting the loan.
 For Retail – Disclosure of Rebate /YSP is not required

You disclose all origination fees, add any discount
points if applicable, to obtain the adjusted origination
charges
 For Wholesale - Brokers will disclose the Rebate/YSP
as a credit, and Discount Points as a charge

You will disclose all origination fees, subtract any
Rebate/YSP (or add any discount points), to obtain the
adjusted origination charges
FIRST MORTGAGE
3.
Fee Tolerances between
GFE & HUD-1

The new reform also creates fee tolerances between the GFE
and the HUD-1.

There are three categories for tolerances
1. 0% Tolerance
2. 10% Tolerance
3. No Restriction

Applicants are able to compare estimated costs on the GFE
with final costs on the HUD-1
 Each designated line on the HUD-1 will now reference a
relevant line on the GFE

Lenders can cure violations of tolerances by reimbursing the
applicant the amount by which the tolerance was exceeded.
 Reimbursement must be made at settlement, or within 30
days after settlement
FIRST MORTGAGE
GFE Tolerances
There are three categories for tolerances:
1.
0% Tolerance – no change (increase) permitted




2.
10% Tolerance – charges in total may not increase by more than 10%.
There is no limit on the amount a specific charge may increase except
for the overall cap



3.
Government transfer taxes
Origination charges (both Lender and/or Broker)
Credit or charge (points) for the interest rate chosen

Only when the rate is locked
Adjusted origination charges

Only when the rate is locked
Government recording charges
Charges for loan originator-required services when the originator selects the
specific provider
Charges for loan originator-required settlement services, title services,
required title insurance and owner’s title insurance, when the applicant uses
a provider identified by the originator
No Restriction – no limit on increases in charges
GFE Tolerance Exceptions


There are three exceptions that permit a loan originator to
revise a GFE without regard to the tolerances:
1.
Changed Circumstances
2.
Borrower-requested changes
3.
Newly constructed homes
With a “changed circumstance” or “borrower-requested
change”, only the changes affected by the changed
circumstance or borrower-requested change may be
increased.
4. Changed Circumstances
Changed Circumstances include:

Acts of God, War, Disaster or other emergency

Information regarding the borrower or loan, relied on in providing
the GFE, that changes or is found to be inaccurate

Eg., credit quality, loan amount, estimated property value,
or other information

New information regarding the borrower or loan not relied upon
when the initial disclosure was provided
A Changed Circumstance does NOT include:

Any fluctuations in the market price

Any information obtained in the credit report prior to providing
the GFE unless the information is inaccurate

Oops, my bad… (Lender assumes risk – not the consumer)
Changed Circumstances cont’d…

The information collected by the Loan Originator as part of the
application cannot later become the basis for a changed
circumstance.

The Loan Originator may issue a revised GFE in the following
situations:

If you can demonstrate that there was a change in the particular
information provided, OR

That the information provided was inaccurate so if underwriting
and verification show the income relied upon in issuing the Good
Faith causes a change in the applicants eligibility for that loan
and those terms, then you are not bound by that Good Faith
Estimate OR

That the LO did not rely on that particular information in issuing
the GFE.
Changed Circumstances cont’d…

If an applicant requests changes to the mortgage loan that’s
identified in the GFE, and that request changes the settlement
charges or the terms of the loan, a new GFE must be provided
within 3 business days of the applicant’s request.


Some of those changes could be a change in the loan term
(includes loan amount changes), or maybe they have decided to go
from a fixed rate loan to an ARM loan (Program Change).
If an applicant has NOT LOCKED a particular rate, or if the rate
lock has EXPIRED, then all interest rate dependent charges
on the Good Faith are subject to change.

Charges that may change include:



The charge or credit for interest rate chosen
The adjusted origination charges
The per diem interest
Changed Circumstances cont’d…

Other circumstances for re-disclosure are:




Boundary disputes, or
Need for Flood Insurance, or
Environmental problems
In the case of new construction, the exception is available when
settlement is expected to occur more than 60 days after the GFE
is provided.

In such a situation, the loan originator may provide along with the
GFE a separate, clear and conspicuous disclosure stating that at any
time up until 60 calendar days before closing the originator may
issue a revised GFE.


Note: We have the “New Home Purchases Disclosure” form
used for new construction in FirstBase – Form #3100L
HUD FAQ: If a use and occupancy permit has been issued for the home
prior to issuance of the GFE, then the home is not considered to be under
construction and the transaction would not be a new home purchase for
purposes of the exception.
Changed Circumstances Form
FMC:


If there is a changed circumstance or borrower-requested
change, within 3 business days, either:
1.
Issue a revised GFE, revising only the applicable charges
2.
Deny the loan (if applicable)
If you should decide to issue a revised GFE in a permitted
situation

Document the reason that the new GFE was issued

Retain the documentation for no less than 3 years after
settlement
GFE disclosure cont’d…
How long the terms of the GFE are good for:

When a GFE is issued, the GFE terms must be available for at least 10
business days.
 The “interest rate” and “other settlement charges” dates are
independent of each other
Intent to Proceed

If within 10 business days, the consumer expresses an intent to proceed
with the loan covered by the GFE, the GFE is binding subject to both
tolerances on charge increases and exceptions

If applicant does not express intent to proceed with the application within
10 business days after GFE is provided, the GFE is considered expired
and the loan originator is no longer bound by the terms of the GFE.

Intent may be verbal or written.
o
If verbal, loan originator must document the conversation.
o
Written acknowledgement must specify means of intent.
GFE disclosure cont’d…
FMC:

FMC will follow the 10 day limit

Consumer’s Intent to Proceed:

A standard form is available INTENT TO PROCEED, to be
signed by the Loan Originator (including Broker),
documenting conversation with borrower on their intent to
proceed; whether it’s by phone, in person or by electronic
means

This form will be required in all loan files submitted to
underwriting
5. Use of Averaged Charges

Another feature of RESPA Reform was the use of “average
charges”.

Settlement Service Providers who now process 3rd Party
Settlement Services, may charge consumers, the average
charge of the settlement service, provided that the consumer
does not pay more than what the provider paid for the charge.

Settlement Service Provider must define a class of transactions.
They may define the classifications based on either a:




Period of time
A type of loan, and
Geographic area
The same average charge must be used for all loan transactions
within that classification, and they must recalculate the average
charge every 6 months
FIRST MORTGAGE
Averaged Charges cont’d…

3rd Party charges for services that are not based on property
value or loan amount may be estimated, charged and reported
using an average charge. Example services not limited to:
1. Appraisals
2. Credit Reports
3. Flood Certificates
4. Tax Service
5. Recording Documents
6. Etc.

Average charges may not be used for charges based on loan
amount or property value such as:
1. Transfer Taxes
2. Interest Charges
3. Escrow Reserves
4. All Insurances (including title insurance)
FIRST MORTGAGE
IMPACT TO EXISTING
POLICIES & PROCEDURES
GFE Specific Changes
Benefits of the “new” GFE
GFE Specific Changes

GFE is given to borrower within 3 business days of “application”

GFE triggers – minimum items needed to have an application



See the 6 trigger items under definition of “Application”
Loan originator is presumed to have received the 6 minimum
application items if GFE is issued. Loan Originator is bound by the
terms of the GFE even if later determined that any of the 6 items
was/were missing.
Cannot require supplemental documentation to verify information
before a GFE is given


To facilitate shopping for the applicant and for purposes of issuing a
GFE, the loan originator is prohibited and cannot
require supplemental documents to verify the 6 minimum application
requirements. For example, if at application, the applicant does not
present his/her paystubs, W2s or tax returns to support the
monthly income.
You can however, request the applicant to provide such information
after the GFE has been provided in order to complete your final
underwriting
GFE Specific Changes


Can only collect the credit report fee before GFE is given

You are NOT permitted to collect other fees such as the
appraisal fee, inspection fee, etc. as a condition of giving the
GFE

If the GFE is mailed, the consumer is deemed to receive the
GFE 3 calendar days after mailing, exclusive of Sundays
and Federal Holidays
HUD FAQ: A fee beyond a credit report fee may be imposed
after a loan applicant both receives a GFE, and indicates an
intention to proceed with the loan covered by the GFE.
***Compare with the MDIA fee restriction***
GFE Disclosures…
Who’s Responsible?

Who is responsible for issuing the “Initial” GFE?

The Loan Originator, is responsible for providing the initial
GFE within 3 business days of receipt of application

Retail – Loan Officer or Processor


Loan Officer or Processor prepares initial GFE in Calyx
Point or First Base using the respective branch fee
schedule
Wholesale – Broker




For Broker originated loan applications, either Broker or
Lender (A/E) provides the GFE, not later than 3 business
days after Broker receives the application
Can be prepared using Calyx Point if available or any
other LOS used by the Broker
Broker must use First Mortgage’s fee schedule
Initial GFE’s not in compliance with First Mortgage’s
requirements may be subject to rejection, or the difference
may be netted from any Originations/YSP’s
GFE Disclosures…
Who’s Responsible?

What happens when a loan is locked?

Once a loan is locked, a revised GFE must be issued by the
FMC Retail Branch, or Wholesale Branch (not the broker),
which will include the new interest rate and related costs

When the loan is locked by Secondary Marketing, a locked
GFE is automatically saved in the system and an e-mail gets
sent to the Processor and LO to print the re-disclosed GFE to
be sent to the borrower. Any and all changes must be made to
the Origination, Discount and YSP before Capital Markets
approves the lock. No changes should be made to these 3
items after the lock has been approved. If changes need to be
made to these 3 fields those changes must be made by
someone in the Capital Markets department.

Be sure to compare the “initial” GFE against the “revised” GFE
in order to verify whether a tolerance level has been exceeded,
and provide detailed itemization of the variances.
GFE disclosure cont’d…
Who is responsible for issuing the “revised” GFE?

HUD FAQ: When a broker and lender are involved, the 3
business day-period begins to run when either the broker or
lender learns of the changed circumstance or borrowerrequested change.

Under the revised RESPA rule, a lender and a mortgage
broker each have the ability to issue a GFE.

If a broker provided a GFE, the lender is NOT required to
provide an additional GFE.

A lender is responsible to ascertain if a GFE was provided

The rule does not expressly address if a lender can issue it’s
own GFE after it accepts an application from a broker who
provided the consumer with a GFE.
GFE disclosure cont’d…

Also, HUD is not particularly clear in the FAQs on the issue.
Nevertheless, it appears that HUD views the revised GFE
requirement as follows:

If the lender accepts an application from a broker that issued a
GFE, the lender is bound by the GFE as if the lender had issued
the GFE

A consumer must receive a GFE within 3 business days of a
broker’s or lender’s receipt of an application.


As a result, brokers must coordinate with your lender so
that when a broker receives an application, either the
broker issues a GFE that is acceptable to one or more
lenders, or at least one lender issues a GFE, within 3
business day’s of the broker’s receipt of the application
Key is: Level of coordination between Lender & Broker that didn’t exist
in the past will need to happen to make this work.
GFE Sample Process Flowchart
FEE TEMPLATES


RETAIL:

Provide Operations Support sample of your various GFE’s for FHA,
VA, CHF ACCESS, Conventional, CalPERS, CalSTRS.

This will allow us to build accurate fee templates in Point and
FirstBase for each branch based on program and will ensure fees are
correct every time.
WHOLESALE:

Provide Operations Support sample of your various GFE’s for FHA,
VA, CHF ACCESS, Conventional, CalPERS, CalSTRS.

This will allow us to build accurate fee templates in Point and
FirstBase for each branch based on program and will ensure fees are
correct every time.

Brokers should work closely with their Account Executive to make
sure all fees are in place
SERVICE PROVIDERS

A “Provider of Services Disclosure” must list the ‘lender recommended
providers’ for those services that may be selected by the borrower.
Disclosure #1

For First Mortgage, we have a disclosure in FirstBase called “Affiliated
Business Disclosure” which describes the relationship between FMC and
other business entities (such as Hacienda Escrow or HSC Insurance) and
give the applicant an estimate of the provider’s charges. Disclosure #2

This will need to be included as part of our initial disclosures.

A very extensive list of Service Providers that have previously been input
are available in both Point and FirstBase.

For any new Service Providers, input their information in both systems in
order for them to populate the form correctly.

Lenders are responsible for fee requirements listed by their Loan Officers
or the Broker.
TIME FRAMES
3-Business Days
3-Calendar Days
10-Business Days
Important Time Frames

3 Business Days:


3 Calendar Days:


Loan Originator must provide a GFE within 3 business days
of the receipt of an application
If GFE is mailed, the consumer is deemed to receive the
GFE 3 calendar days after mailing
10 Business Days:

When a GFE is issued, the GFE terms must be available to
the consumer for at least 10 business days, except for:

Interest Rate

Interest Rate dependent charges

Related loan terms
“GFE” IMPLEMENTATION DATE
New GFE will apply to all loans for which
creditor receives an application on or after
January 1, 2010
FMC Training & Support

First Mortgage is committed to providing ongoing trainings on the
new RESPA Reform
1.
RESPA Overview Training / Completing the GFE DONE
2.
Completing the HUD-1 Settlement Statement DONE
3.
Point Training – You need Point Version 7.2 DONE
4.
FirstBase Training – FMC internal LOS system DONE
5.
FMC Process Training – DONE

HUD is seeking legislation to determine how to assess penalties for noncompliance so BE PREPARED!!!

Train your internal teams/staff on the new RESPA rules, GFE, and any new
software requirements

DOCUMENTATION is the key!
FIRST MORTGAGE
FIRST MORTGAGE
RETAIL TRAINING Q&A
WHOLESALE TRAINING Q&A
FIRST MORTGAGE
On behalf of First Mortgage,
thank you for joining today’s
training and we hope the
information provided will help
you build your business!