New GFE/HUD-1 Mortgage Brokers Really Need to Know This Stuff

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1 United Wholesale Mortgage 2009 RESPA Webinar New GFE/HUD-1 Mortgage Brokers Really Need to Know This Stuff November 18, 2009 Phillip L. Schulman, Esq DC v.1

2 Background 1. RESPA reform has been going on since It is never without controversy, as proposed changes typically pit settlement service providers against each other 3. This was certainly the case in 2002 when HUD introduced a proposed rule calling for a guaranteed mortgage package 4. In 2004, the settlement service industry led the movement to have the rule withdrawn 2

3 Background (cont d) 5. In 2005, HUD conducted a series of roundtable discussions with industry representatives, trade associations, and consumer groups 6. Two and a half years later, HUD published its proposed RESPA rule on March 14, HUD received approximately 12,000 public comments in response to the proposed rule 7. HUD s timing for a new rule could not have been worse 8. But, HUD determined to get the rule out before end of Bush Administration 3

4 Today s Session 1. Familiarize Mortgage Brokers with these new rules 2. Discuss impact on the real estate industry 3. Identify the most complicated and troubling aspects of this rule 4. Help you respond to your clients questions and concerns 4

5 Main Components 1. New Good Faith Estimate 2. Controversial YSP Disclosure 3. Tolerance Limitations 4. New HUD-1 Settlement Statement 5. Average Charges 5

6 Good Faith Estimate Final Rule 1. Centerpiece of RESPA reform 2. Goal was greater clarity and transparency 3. Only HUD could simplify process by taking one page GFE and turning it into three pages 6

7 Good Faith Estimate Particulars 1. Must be provided to Borrower within 3 business days of application 2. Lender may not verify Borrower information prior to issuance of GFE 3. Quotes good for 10 business days, unless Changed Circumstances 4. Lender may not charge Borrower for preparation of the GFE 7

8 Good Faith Estimate Page 1 ABC Mortgage Broker 123 Maple Ave. Washington, DC (202) John Doe 123 Main St. Arlington, VA September 22, am 10/5/

9 Good Faith Estimate Page 1 295, X 1, X X X 1, X 9

10 Good Faith Estimate Page 1 1, X 1, , ,

11 Good Faith Estimate Yield Spread Premiums 1. What are YSPs? 2. Mortgage Brokers must disclose YSP 3. Mortgage Bankers do not disclose 4. Why Secondary market exception Brokers scream = not level playing field 11

12 Good Faith Estimate Hypotheticals Par interest rate = 6% Total origination fee = $1,500 3 Possibilities i. loan closes at par rate $1,500 origination fee ii. loan closes at 6.5% interest rate $1,500 origination fee to lender $2,000 YSP to mortgage broker iii. loan closes below par at 5.5% rate borrower charged $2,000 in discount points 12

13 Good Faith Estimate Page 2 1,500 X 6 0 1,500 13

14 Good Faith Estimate Page 2 3,500 X 2, ,000 1,500 14

15 Good Faith Estimate Page 2 1,500 X 2, ,000 3,500 15

16 Good Faith Estimate Litigation A. December 19, 2008 NAMB sues HUD 1. Seek permanent injunction 2. Claim rule is arbitrary and capricious violates APA unlevel playing field = lower fees B. July Court denies NAMB request for injunction 16

17 Good Faith Estimate Page 2 Appraisal/Credit Report Tax Service/Flood Certification Upfront Mortgage Insurance Premium $220 / $40 $54 / $12 $5, $5, $1, $ $ Survey Pest Inspection $250 $45 $50.00 $1,

18 Good Faith Estimate Page 2 X X $ /31/09 $39.00 $39.00 $ ABC Insurance $650 9, ,

19 Good Faith Estimate Page 3 TOLERANCES 1. Epicenter of the Rule 2. Way HUD holds lenders feet to fire 3. Guts of the whole shindig accuracy clarity encourage shopping 19

20 Good Faith Estimate Page 3 TOLERANCES = 3 BUCKETS A. Zero Tolerance B. 10% Tolerance C. No Tolerance 20

21 Good Faith Estimate Page 3 21

22 Good Faith Estimate Page 3 295, , ,

23 Good Faith Estimate Page 3 23

24 Good Faith Estimate So What? 1. What happens if lenders prices exceed Tolerances? 2. Can they kill ya? No penalties under the Act 30 day cure period contractual UDTP 24

25 TOP TAKEAWAYS REGARDING GOOD FAITH ESTIMATE 25

26 Good Faith Estimate Top Takeaways No. 1: Lender is bound by GFE provided by mortgage broker If lender accepts the GFE issued by the mortgage broker, the lender is subject to loan terms and settlement charges A zero tolerance applies Timely communication between the lender and mortgage broker is essential to assure compliance 26

27 Good Faith Estimate Top Takeaways (cont d) No. 2: Fees to be paid on behalf of the Borrower by the seller must be disclosed on GFE The Rule: 1. Charges typically paid for by the Borrower are always listed on the GFE, even if seller pays them 2. Charges always paid for by the Seller are never listed on the GFE 3. Except that title charges are always listed on the GFE no matter who pays for them 27

28 Good Faith Estimate Top Takeaways (cont d) No. 3: A written list of settlement service providers must be provided to the consumer 1. When lender/mortgage broker permits Borrower to shop for third party settlement services, consumer must be provided with a list of providers on a separate sheet of paper 2. At least one provider per service required 3. Because provider chosen from lender list places transaction in the 10% tolerance bucket expect lenders to limit number of vendors appearing on the list 28

29 Good Faith Estimate Top Takeaways (cont d) No. 4: Origination charges lumped together on GFE as a bundled fee 1. All origination charges for lenders and mortgage brokers included in Block 1 of the GFE under Our origination charge 2. Includes administrative fees, processing and underwriting fees, doc prep fees, etc. 3. Includes mortgage broker s YSP 4. May not be itemized separately 29

30 Good Faith Estimate Top Takeaways (cont d) No. 5: Lender not stuck with estimates if circumstances change 1. Changed circumstances loan terms or conditions change property value changes borrower changes the deal 2. New GFE within 3 business days of change 10 day shopping period starts over borrower can waive 3. Issuance of new GFE optional sometimes lender may choose to issue a new GFE when? 30

31 HUD-1 Settlement Statement 1. Final settlement figures 2. HUD seeks simplicity but turns 2 page Settlement Statement into 3 3. All settlement service providers critical of proposed March 2008 HUD-1 31

32 HUD-1 Settlement Statement HUD Listens 1. Realtors rewarded with synchronized HUD-1 that matches up with GFE 2. Title companies thrilled to see Closing Script withdrawn, but still have to show premium split between underwriter and agent 32

33 HUD-1 Settlement Statement Page 1 Seller credit for transfer taxes 1, Seller credit for transfer taxes 1,

34 HUD-1 Settlement Statement Page 2 9,000 RE Broker #1 9,000 RE Broker #2 Earnest money deposit held by RE Broker #2 $2,000 P.O.C. 16, ABC Broker/XYZ Mortgage 3,500-2,000 ABC Broker/XYZ Mortgage Appraisal America Credit Report Co. Tax Service USA Flood Certification, Inc. $1, $ $40.00 $76.00 $ /8 10/ FHA 1 ABC Insurance $ $5, $ $

35 HUD-1 Settlement Statement Page 2 ABC Title ABC Title ABC Title/Underwriter ABC Title/Underwriter 295, , $2, $ $ $55.00 $1, $15.00 $1, Survey to XYZ Survey Co. Pest Inspection to Bug-B-Gone Home Warranty to Home Warranty USA $ $ $13, $17,

36 HUD-1 Settlement Statement Page 3 $3, $-2, $1, $1, $3, $-2, $1, $1, Appraisal Credit Report Tax Service Fee Flood Certification Upfront Mortgage Insurance Title Services Lender s Insurance Owner s Title Insurance $50.00 $ $40.00 $54.00 $12.00 $5, $1, $ $55.00 $ $40.00 $76.00 $12.00 $5, $2, $ $7, $1, $8, $ $ Survey Pest Inspection $39.00 $ $ $45.00 $ $ $ $

37 HUD-1 Settlement Statement Page 3 295, , , ,

38 MORE TOP TAKEAWAYS HUD-1 SETTLEMENT STATEMENT 38

39 HUD-1 Top Takeaways No. 6: If Seller or Realtor pays Borrower Charge 1. Remember, this applies to Seller payment of charges typically paid for by Borrower 2. Shows up as a credit to Borrower on page 1 of HUD-1 Settlement Statement Line 206 to Borrower Line 506 from Seller 39

40 HUD-1 Top Takeaways (cont d) No. 7: Real estate commission percentages no longer disclosed 1. Percentages used to compute the sales commission removed from new HUD-1 2. Total amount of commission to each real estate broker or agent appears as Lines 701 and 702 (with amount of commission disbursed at settlement appearing inside the columns on Line 703) 3. New disclosure helps avoid Busby concerns 40

41 HUD-1 Top Takeaways (cont d) No. 8: Title services fee also bundled 1. Again, title service fees bundled on Line 1101 of HUD-1 2. Includes title insurance, settlement costs, surveys, title examination fees, commitment fees, etc. 3. However, fees paid to third parties included in Line 1101 bundle must be itemized outside the columns in the 1100 series 41

42 HUD-1 Top Takeaways (cont d) No. 9: Lenders must provide settlement agents with information to complete the HUD-1 1. No way settlement agent could complete page 3 of HUD-1 without Lender s assistance 2. Page 3 will be of particular interest to your customers as it discloses whether Lender exceeded the tolerances 42

43 Average Charges 1. What s that all about? 2. Settlement service providers getting killed by class action lawsuits 3. March 2008 rule allowed only lenders to use average charges 4. Final rule permits all settlement service providers opportunities to use average charges 43

44 MORE TOP TAKEAWAYS AVERAGE CHARGES 44

45 Average Charges Top Takeaways No. 10: Settlement service providers not permitted to make a profit on average charges 1. What to do if average charge turns out to be higher than actual charges? Consumers do not get a refund Overage credited to next average charge period 45

46 Effective Dates 1. New GFE and HUD-1 forms go into effect January 1, Average charges went into effect January 16,

47 Conclusion 1. HUD did a decent job of providing more transparency and clarity to settlement process likely to encourage greater consumer shopping 2. Despite MBA and other financial institutions attempts to get HUD or Congress to scrap the rule, HUD is committed to the January 1, 2010 effective date 3. Lots of changes Expect the unexpected 47

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