Understanding The Good Faith Estimate, HUD-1 and Short Sales

Presented by: First Place Bank and NorthStar Title Services

Definitions of Terms   HUD  Standard form used to itemize services and fees charged to the borrower by the lender or broker TIL  A document provided by the Lender that is required by The Truth-in-Lending Act and is aimed at promoting the informed use of consumer credit by requiring disclosures about terms and costs

Terms (cont.)   Short Sale  A sale of real estate in which the proceeds from the sale fall short of the balance owed on a loan secured by the property sold FHA  FHA provides mortgage insurance on single-family, multifamily, manufactured homes and hospital loans made by FHA-approved lenders throughout the United States and its territories. While borrowers must meet certain requirements established by FHA to qualify for the insurance, lenders bear less risk because FHA will pay the lender if a homeowner defaults on his or her loan.

Terms (cont.)  Promissory Note  Written legal instrument signed by the borrower for the benefit of the mortgage lender  Mortgage  Conveyance of an interest in real property using a written instrument usually known as a mortgage deed that acts as security for the payment of a debt  The Note created the debt and the Mortgage secures payment of the debt

Terms (cont.)  Default  Nonpayment of the loan or failure to comply with circumstances thereby invoking the default clause in a mortgage  REO  Real Estate Owned – Foreclosed or pre-foreclosed properties taken back by a lender

Terms (cont.)  Loss Mitigation Department  A third party that works to negotiate mortgage terms for the homeowner that will prevent foreclosure  Hardship  Banks have guidelines as to what they consider a hardship and it varies from Bank to Bank – such as death, divorce, illness etc.

Terms (cont.)  Mortgagee  Lender that lends the money to an individual in order to purchase a piece of property  Mortgagor  Person pledging the real property because of the money he or she has borrowed to purchase the real property

Process of a Short Sale  Two scenarios as a realtor…  Reaction to finding out your seller is unable to make payments and if they are not in foreclosure yet they will be shortly  Full awareness of the fact that you represent a seller who is trying to get rid of the property and the debt associated with it

Short Sale  Seller is upside down and needs to get out from under and is looking to sell  Foreclosure  Foreclosure and Bankruptcy  Third party has approached seller and has a buyer interested  Broker may be involved and helping the new buyer

What does the Lender need?

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Loss Mitigation Department

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Third party (attorney) involved

What the title company CAN and CANNOT do  Request a payoff from the creditors;  Not allowed to negotiate but is allowed to inquire as long as they have the seller’s consent in writing and it must be sent to the creditors;  Sometimes it is a fine line between request and negotiate – must not cross

January 1, 2010

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New GFE

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New HUD-1

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New HUD-1A

(for all transactions in which the new GFE is used)

The Good Faith Estimate 

The GFE gives you an estimate of your settlement charges and loan terms if you are approved for this loan.

New GFE  Loan originator must provide the new (3 page) GFE to a potential borrower  Occurs within three (3) business days of application  No additional cost to buyer outside of credit report cost

New GFE Page 1  Includes  Important dates pertaining to the loan  Summary of loan terms  Disclosure of escrow account information  Summary level view of estimated settlement charges

New GFE Page 1  Dates:  Rate quote  Rate lock  Fees quote  Loan Amount  Term  Rate  Payment  Features  Escrows  Costs

New GFE Page 2  Looks at estimated settlement charges in detail  Loan origination fee  Points charged  Credits applied to charges  Overview of other settlement charges

New GFE Page 2    Origination Fees   Lender Fee Points/YSP 3 rd Party Loan Fees  Credit/Flood    Title Closing/Loan Policy Title Owner’s    Other Services Recording Fee Transfer Tax  Escrows  Interest/Advance Homeowner’s Insurance

New GFE Page 3  Introduces 3 groups of tolerances for fee variances between GFE and HUD-1 forms  Zero tolerance  10% tolerance  Unlimited variance

HUD Settlement Statement  Department of Housing and Urban Development Document  Process of detailing the receipts and disbursements of transaction  Escrow Officer has instructions of the transaction.

HUD-1 Page 1  First page unchanged  Show debit from the seller and credit to the buyer for amount paid on behalf of the buyer by the seller  Settlement agent’s phone number added

HUD-1 Page 2  Added information to align more closely to the GFE  RE Broker Commission  Lender Charges  Origination Fees  Third Party Fees  Prepaids  Escrows  Title Fees   All title costs Owner ’ s policy  Recording Fees  Other

HUD-1 Page 2  Lines 701 & 702 – Full Commission; dollar amount paid to each agent not percentage  Earnest monies on deposit retained by realtor  Line 703 – Commission Disbursed at closing  Line 704 – Other charges

New HUD-1 Page 3    Compares charges on the GFE to charges on the HUD-1 Breakdown into categories of tolerance   Charges that

cannot

change Charges that

cannot increase more than 10%

 Charges that

can change/increase

Note: “ If you have any questions about the settlement charges and loan terms listed on this form, please contact your lender.

”

HUD ISSUES  Are the amounts correct – especially in construction transactions  Do we have all of the amendments to the contract that may change the numbers  Prorated taxes for new construction  Escrow reserves in construction  Refinance – Right of Rescission