BACKGROUND INFO
RESPA: Real Estate Settlement Procedures Act
RESPA is a federal law that helps protect consumers from unfair practices by settlement service providers during the home-buying and loan process.
GFE: Good Faith Estimate (newly revised definition: GFE means an estimate of settlement charges a borrower is likely to incur, as a dollar amount, and relate loan information, based upon common practice and experience in the locality of the mortgage property).
New RESPA regulations were published November 17, 2008 and were effective January 1, 2010. HUD is requiring that loan originators provide borrowers with a standard Good Faith Estimate that clearly discloses key loan terms and closing costs and that closing agents provide borrowers with a new HUD-1 settlement statement. *
The Purpose for the new RESPA Regulations **
- Allow borrowers to have more time to adequately to research loan products
- Allow buyers the ability to rely on the GFE issued by the Loan Originator as accurate within 10%
- Require buyers to be more involved in their loan process.
I LIKE the new GFE & HUD-1! The new documents are easier to read, the verbiage is easy to understand, the GFE includes instructions on how to use the tables & charts which will all help buyers/borrowers know exactly what type of loan they are getting. Hopefully this will alleviate the problem we’re experiencing now with home owner’s reporting that they had NO IDEA that they had an adjustable rate mortgage (ARM), or a balloon payment, or a pre-payment penalty, etc...Page 1 of the new GFE has a “Summary of your Loan” section which addresses these issues & more. Also, settlement charges can only increase within 10% (if provider is selected by the lender) and some charges can’t increase at all from the time the GFE is provided to settlement.
If you’re an experience buyer & have gone down the home loan road before you’ll notice that the new GFE is for settlement charges only and will no longer include some items such as: seller credits, down payment, total monthly payment including taxes & insurance, etc…Because these items are not shown on the GFE, you and the lender will have to rely on the loan application to show you the proposed payment and use the details of the transaction on the loan application to show credits and items paid out side of closing.
I had a conversation with a loan officer this morning and asked if he LIKED or DISLIKED the new GFE. His opinion was DISLIKE. One of his issues with the new GFE is that it doesn’t itemize/explain all of the settlement fees but merely clumps all the fees into one total. I was in a RESPA Reform class on Monday and the instructor explained this issue very simply to us, she said “think about when you go and buy a sweater from Macy’s, you look at the price tag and there is one price-the price for the sweater, right? The price tag doesn’t itemize the cost of the thread, fabric, labor, & shipping, you just know that if you want this product then it’s going to cost ___ amount of money.” I agree with what the instructor had to say-we don’t need to know how much the courier fees are (just an example), I just want to know what I’m going to be charged if I get a loan from you.
"Any change, even a change for the better, is always accompanied by drawback and discomforts” Arnold Bennet
Arnold said it! I think this change is for the better but the industry is going through some learning pains.
We have great Mortgage Lending partners-so don’t hesitate to ask us for a referral.
*www.hud.gov
**Power Training, Inc