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Originators must finally address RESPA requirements.

The final RESPA rule was announced late last year but it's certain that many loan originators have been too busy generating business and dealing with various industry challenges to read the "fine print" of the long-awaited and controversial measure.

Following are key elements of the RESPA rule that will affect lenders and originators (based on HUD's summary and related information). Of course, originators must read the plan carefully (www.htid.gov) and consult with attorneys and others regarding any areas that are specific to their operations.

Background

According to HUD, it received almost 12,000 comment letters following the proposal of the new RESPA rule last year and subsequently made "considerable" modifications. For example, HUD originally proposed that settlement agents read a closing script at the closing table and that a copy be provided to borrowers. It ultimately discarded the script concept in favor of a new page on the HUD-1 Settlement Statement that enables consumers to compare their final loan terms and closing costs with those listed on their Good Faith Estimate.

In addition, many of those responding to the request for feedback said the proposed four-page GFE was too long. HUD shortened the GFE form to three pages, including an instructional page to help borrowers understand their loan offer.

In its announcement, HUD said it agreed with many others who suggested the new GFE allow consumers to compare their estimated closing costs with the actual costs included on their HUD-1 Settlement Statement. To facilitate comparison between the HUD-1 and the GFE, each designated line on the final HUD-1 will include a reference to the relevant line from the GFE. "Borrowers will now be able to easily compare their estimated and actual costs in very much the same manner as many of the commenter's suggested."

Good Faith Estimate

A critical element of the final rule is the revised Good Faith Estimate (GFE). HUD will now require mortgage lenders and brokers/originators to provide borrowers with an "easy-to-read standard" GFE that will answer the key questions they have when applying for a mortgage including:

* What's the term of the loan?

* Is the interest rate fixed or can it change?

* Is there a pre-payment penalty should the borrower choose to refinance at a later date?

* Is there a balloon payment?

* What are total closing costs? In addition, the GFE will consolidate closing costs into major categories to prevent "junk fees" and display total estimated settlement charges prominently on the first page so the consumer can compare loan offers. HUD will specify the closing costs that can and cannot change at settlement. If a fee changes, HUD will limit the amount it can change. (see Tolerances)

Loan originators will be required to provide borrowers their Good Faith Estimate three days after the loan originator's receipt of all necessary information. To facilitate shopping, loan originators won't be able to require verification of GFE information (tax returns etc.) until after the applicant makes the decision to proceed.

Tolerances

Originators must pay particular attention to the RESPA rule's updated Tolerances section, referring to the levels by which loan-related charges may increase from the GFE to settlement. Some charges may not increase (zero tolerance), while others may increase up to 10 percent or even change at settlement. In announcing the final rule, HUD explained that "Many lenders and groups representing lenders and other settlement service providers objected to the imposition of tolerances because of the difficulty of providing accurate estimates to prospective borrowers early in the application process. The opportunity to cure will permit loan originators to give an estimate of expected settlement charges in good faith, without subjecting them to harsh penalties if the estimate turns out to be lower than the actual charges at settlement."

YSP Disclosure

The final rule retained Yield Spread Premium disclosures from the original proposed rule. YSPs are treated as a "credit to the borrower" for closing costs.

HUD will require lender payments to mortgage brokers (Yield Spread Premiums) to be disclosed in a "more meaningful" way. "To ensure that HUD's new requirement will not create a consumer bias against brokers, the Department did rigorous consumer testing and found the new Good Faith Estimate helped consumers to select the lowest cost loan nine-out-of-10 times, regardless of whether the loan was originated by a lender or a broker," HUD stated.

Violations

A loan originator who violates the GFE requirements, which include the tolerance requirements, shall be deemed to have violated Section 5 of RESPA. However, "the final rule also provides a loan originator with the opportunity to cure any violation of the tolerance by reimbursing the borrower any amount by which the tolerances were exceeded." This reimbursement may be made at settlement or within 30 calendar days after settlement.

Timing

Most of the new RESPSA rule's requirements are effective as of January 16, 2009. The new, standardized GFE and revised HUD-1 will not be required until January 1, 2010. However, they may be used before then. If the new forms are used, all requirements of the rule must also be followed, such as tolerances and the agent/underwrite split disclosure.

-M.O.M.
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Publication:Mortgage Originator
Date:Mar 1, 2009
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