To help consumers more easily understand settlement costs and prevent big price discrepancies between the preliminary Good Faith Estimate and the HUD-1 settlement statement, the U.S. Department of Housing and Urban Development (HUD) has created stricter Real Estate Settlement Procedures Act (RESPA) regulations are scheduled to take effect by April, 2010. (The regulations originally were to take full effect on January 1, but HUD provided a four month respite for compliance to the industry.)
For a review of what RESPA is, see our prior blog post.
New RESPA Rules
The upcoming Real Estate Settlement Procedures Act (RESPA) Reform requirements aim to provide customers with the essential information and adequate time to understand their home purchase and refinance options. HUD is requiring that loan originators provide borrowers with a standardized Good Faith Estimate (GFE) which clearly discloses key loan terms and closing costs.
The loan industry, in an effort to dissuade consumers from shopping for a loan, created separate Good Faith Estimates for each company, so that consumers could not equally compare costs. With the new standardized GFE, consumers now will have a chance to compare “apples to apples” when looking at competitive loan products.
In a busy year of reforming the mortgage industry, there are new federal governmental regulations called the Mortgage Disclosure Improvement Act (MDIA) (see below) which went into effect in July of this year. To clarify why RESPA and MDIA are related, if a lender is out of compliance with the MDIA, they are subject to a RESPA violation. The new standardized GFE, the MDIA, and stricter RESPA laws will all assist consumers in understanding the complexities of the mortgage process.
While HUD requires the RESPA Reform regulations to take effect in 2010, many lenders have begun implementing the required changes early. We, at Glen Oaks Escrow, have experienced that interpretations of the RESPA Reform requirements vary from lender to lender and as a result have caused delays in closing. Below is information about the MDIA from an attorney that specializes in RESPA law to help clarify the new requirements which will assist in closing transactions on time.
Compliance with Mortgage Disclosure Improvement Act/RESPA Requirements:
1.The 3/7/3 Rule requires a seven business day waiting period once the initial disclosure is provided before closing a home loan (business days are everyday except Sundays and Holidays). This means that before a borrower can close on a transaction the borrower must receive the initial Good Faith Estimate (GFE) and initial Truth in Lending (TIL) statement disclosing the final Annual Percentage Rate (APR) seven days prior to closing.
2. If the final annual percentage rate is off by more than .125% for a fixed rate loan or .25% for an ARM loan, from the initial GFE disclosure, then the lender must re-disclose and wait yet another three business days before closing on the transaction. Note: If the rate fluctuates EITHER WAY, up or down, more than .125% on a fixed or .25% on an ARM, the re-disclosure takes effect.
3. Lenders are forbidden from collecting money for appraisals, loan applications, etc. prior to the delivery of the truth in lending statement. Lenders can only collect the credit report fees from the borrower at the time of prior delivery of the final TIL. No other fees are permitted to be collected at the time of the application. If the TIL is sent by mail, additional charges can occur after the 3rd business day after the borrower receives the TIL in the mail.
4. The following language must be clearly written on the initial and final TIL: “You are not required to complete this agreement merely because you have received these disclosures or signed a loan application.”
5. Any Lender or Settlement Service Provider found in violation of the new RESPA regulations will have 30 days after the close of escrow to correct any errors and compensate the consumer for any overage.
What do these new MDIA/RESPA regulations mean to a Realtor?
Plenty. These rules help the buyer make sure that their lender does not say one thing and then do another. Here is how Realtors can help their clients:
* Make sure to check the initial Good Faith Estimate and Truth In Lending form for a buyer and look for discrepancies in charges. The new rules were put in place to protect consumers from being low balled one figure by a loan officer only to find out at the closing table that the fees charged were much higher. The new MDIA rules will absolutely delay closings if these steps are not followed carefully.
* Buyers, sellers, and real estate professionals should not schedule a closing until the borrower has completed the seven day waiting period as required in the initial Truth In Lending statement.
* Contact your Escrow Officer for an Estimated Settlement Statement as soon as the Good Faith Estimate is available. Many lenders do not contact escrow for fees and/or recurring closing costs.
To learn more, go here for the new RESPA rule FAQ’s and here for the RESPA final rule.
Go here to learn more about the 120-day delay in the RESPA regulation enactment.
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