Final RESPA Reform

1
Final RESPA Reform
Overview of RESPA Reform

• Jonathan W. Cannon
• BuckleySandler LLP
• New Jersey Bankers Association
• Mortgage Bankers Association of New JerseyJoint
  Mortgage Lending ConferenceDecember 3, 2009

2
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

3
HUDs 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.

4
HUDs 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.

5
HUDs 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.

6
HUDs 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.

7
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
• Name
• Property address
• SSN to order credit report
• Gross monthly income
• Borrowers information on the house price or best
  estimate of the propertys 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.
• HUDs 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
• 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)

13
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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GFEPage 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 lenders title insurance
  (Block 4)
• Owners 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).

22
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)
• Homeowners insurance (premium at settlement)
  (Block 11)

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All Other Settlement Services
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All Other Settlement Services Contd.
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GFEPage 3Instructions
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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 originators 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 lenders
  title insurance and optional owners title
  insurance where the borrower is allowed to shop
  but still uses the provider identified on the
  originators 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)
• Escrow deposit
• Daily interest
• Homeowners 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
• 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

• 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 borrowers 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-1SettlementStatement
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HUD-1Page 2
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HUD-1Page 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
• jcannon_at_buckleysandler.com
• BuckleySandler LLP
• 1250 24th St. NW, Suite 700
• Washington, DC 20037
• 202.349.8063