The Federal Department of Housing and Urban Development (HUD) announced changes to the Real Estate Settlement Procedures Act (RESPA) last fall, with 2 of the more noticeable changes going into effect on January 1st, 2010.
The changes were made in an effort to better inform and protect the consumer (borrower). I like what they tried to do; I’m not sure the end result is exactly what they were shooting for.
Good Faith Estimate
This form, issued by mortgage brokers and bankers at the time of application, has now been standardized, which should make it easier for consumers to compare various lenders’ charges side by side.
In addition, the GFE was divided into 3 sections:
Lender Charges – these are fees charged by the lender directly, and now must be EXACTLY THE SAME at the closing table as what was originally disclosed to the buyer. This assumes the lenders should know their own fee schedule. It also eliminates the old “bait and switch” tactics that some less-reputable lenders use. This is good for consumers – no question.
3rd Party Charges – these are fees that are charged by people or companies whom the lender works with but whom the lender doesn’t control, such as appraisers and title companies. These charges are now required to be within 10% of what was originally disclosed to the consumer. I like this, as lenders should be in a position to know what the charges will be, although they don’t have final control. Another win for the consumer!
Prepaid Charges – these are not charges by outside parties as much as expenses the homeowner will incur as he/she owns a home. Examples include homeowners insurance, property taxes, and mortgage interest. These fees will vary according to what day the loan closes, and as such are allowed to vary from the initial disclosure.
Overall the new GFE is a home run for consumers. The HUD-1 Settlement Statement (closing statement) is another story…
HUD-1 Settlement Statement (closing statement)
Good News is the HUD-1 now incorporates the new-standardized GFE, and is broken out into the same 3 sections. It shows very clearly what the initial disclosure was and what the actual charge is. Chalk up one more win for the consumers.
Bad News is the HUD-1 no longer breaks out each individual charge as its own line item. Many charges are grouped together at a summary level, such as “Settlement, Escrow, or Closing Fee.” The problem with this is it’s now impossible to see exactly which fees are being charges to the buyer and which to the seller.
Here is an example. I have a transaction where the buyer and seller are supposed to split the escrow fee, which is common in Arizona. The HUD-1 shows:
Line 1101, Title services and lender’s title insurance to Buyer: $1,298
Line 1102, Settlement, Escrow, or Closing Fee to Seller: $562.
Where exactly is the Escrow Fee the two parties are supposed to split? A little further digging, and a separate closing statement prepared by the title company, revealed the following:
- Buyer’s $1,209 on Line 1101 is made up of: $427 Escrow Fee, $100 e-doc fee, $671 Title insurance charge, $100 PUD Endorsement fee.
- Seller’s $562 on Line 1102 is made up of: $427 Escrow Fee, $100 tracking fee, $35 express mail fee.
Turns out both parties did actually share the Escrow Fee - $427 each. But you wouldn’t ever find it on the new form HUD released.
I hope the title companies are prepared to send over both closing forms on every transactions, because the new HUD form raises as many questions as it answers!
Good for the consumer, but far from being a home run…
Your giving his 2 cents Realtor,