Summary of RESPA Rules... 1 Summary of Changes... 2 Required Use... 2 Average Cost Pricing... 3 Calculating the Average Charge...

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2 Summary of RESPA Rules... 1 Summary of Changes... 2 Required Use... 2 Average Cost Pricing... 3 Calculating the Average Charge... 4 Good Faith Estimate... 5 Curing Tolerance Violations... 9 Lenders Disclosure of Payments to Brokers Good Faith Estimate Form Overview HUD-1 / HUD-1A Training Guide HUD Form Background Why the new HUD What new or different duties are imposed on the settlement provider How will the new HUD-1 affect title insurance agents Review of the HUD-1 Settlement Statement Changes Overview Page Page The New Page SoftPro Users GFE Process Flowchart Sample Good Faith Estimate Form Instructions for Completing the Good Faith Estimate Sample HUD-1 Form Sample HUD-1A Form Instructions for Completing the HUD-1 and HUD-1A Settlement Statements Questions and Answers Provided by ALTA... 69

3 The United States Department of Housing and Urban Development ( HUD ) published final rules regarding the Real Estate Settlement Procedures Act ( RESPA ) on November 17, (73 FR 68204) The new rules became effective on January 16, 2009 with respect to the following components: (1) the revised definition of required use; (2) the use of average charges; (3) the miscellaneous modifications regarding escrow accounts, servicing transfer notifications, and ESIGN. The new Good Faith Estimate including yield spread premium (YSP) disclosure and tolerances, and the HUD-1 Settlement Statement and related requirements will become effective on January 1, According to HUD, The changes made by this final rule are designed to protect consumers from unnecessarily high settlement costs by taking steps to: improve and standardize the Good Faith Estimate (GFE) form to make it easier to use for shopping among settlement service providers; ensure that page 1 of the GFE provides a clear summary of the loan terms and total settlement charges so that borrowers will be able to use the GFE to identify a particular loan product and comparison shop among loan originators; provide more accurate estimates of costs of settlement services shown on the GFE; improve disclosure of YSPs to help borrowers understand how YSPs can affect borrowers' settlement charges; facilitate comparison of the GFE and the HUD- 1/HUD-1A Settlement Statements; ensure that at settlement borrowers are aware of final costs as they relate to their particular mortgage loan and settlement transaction; clarify HUD-1 instructions; expressly state that RESPA permits the listing of an average charge on the HUD-1; and strengthen the prohibition against requiring the use of affiliated businesses. HUD has also indicated that it intends to seek legislative changes to RESPA that will complement the rules and provide HUD with enforcement mechanisms for some of the most important consumer disclosures and protections. If you are interested in reviewing the final rules, they can be found at HUD s website ( Significant changes in the final rules include the elimination of the concept of the GFE application and closing script, and HUD elected to reduce the GFE from four pages to three pages but expanded the HUD-1 from two pages to three pages. The final rules retained the concept of tolerances and the disclosure of YSP. The following is a summary of pertinent changes made by the final rules: 1

4 Summary of Changes Newly defined terms including application, changed circumstances, required use, and tolerance; A new Good Faith Estimate form along with new instructions for completing the form; New rules for the disclosure of broker compensation showing as a credit or charge for the specific interest rate chosen; New limitations (0% for specified services and 10% for other services) for amounts show on the HUD-1/HUD-1A compared to the GFE; Limitation on charging a fee for an appraisal, inspection, or other charges prior to providing the GFE; A new three page HUD-1 and two page HUD-1A along with new instructions for completing the forms; The new average cost pricing method of disclosing costs on the HUD-1/HUD-1A; Technical amendments to the escrow rules; New E-Sign applicability provision; New severability clause; and A revised Servicing Disclosure Statement and new timing rules for the form. Required Use Required use was redefined by the new rule and now means a situation in which a person s access to some distinct service, property, discount, rebate or other economic incentive, or the person s ability to avoid an economic disincentive or penalty, is contingent upon the person using or failing to use a referred provider of settlement services. In order to qualify for the affiliated business arrangement exemption under , a settlement provider may offer a combination of bona fide settlement services at a total price (net of the value of the associated discount, rebate, or other economic incentive) lower than the sum of the market price of the individual settlement services and will not be found to have required the use of the settlement service providers as long as: (1) the use of any such combination is optional to the purchaser; and (2) the lower price for the combination is not made up by higher costs elsewhere in the settlement process. 2

5 Under the new definition, both buyers and sellers can receive discounts. The modification of the rule, as applied to affiliated business arrangements, allows a settlement service provider to offer discounts and incentives to customers and to link those discounts to the consumer s use of the affiliated business. It should be noted that home builders are not settlement service providers for the purposes of RESPA. HUD was adamant in restricting the ability of builders to offer discounts and other incentives to encourage the use of the builder s affiliated companies. Recent Developments o On January 15, 2009 HUD elected to delay the effective date of the definition of required use from January 16, 2009 to April 16, 2009, due to a suit brought by the National Association of Home Builders (NAMB) and other. The NAMB claims the HUD s new definition is in violation of the law, contradicts prior HUD rules, fails to address comments opposing the proposed rule, lacks evidentiary support and will adversely affect homebuilders and consumers. o On March 10, 2009, HUD again delayed the effective date of the definition until July 16, (74 FR 10172) Additionally, HUD is soliciting comments on withdrawing the revised definition from the final rule. HUD stated that it will consider these comments before pursuing new rulemaking process on this definition. Since promulgating the rule on November 17, 2008, HUD has determined to reevaluate the scope and operation of the required use provision. New rulemaking would give HUD the opportunity to present for public consideration a new proposal based on HUD s reevaluation of the required use provision to help ensure better consumer protections. Average Charge Pricing In connection with the HUD-1 Settlement Statement, the rules provide that the amount stated in the HUD-1 for any itemized service cannot exceed the amount actually received by the settlement service provider for that service, unless the charge is an average charge. 3

6 o NOTE that HUD has again attempted to eliminate mark-ups of third party settlement service fees by incorporating its existing position under Section 8(b) of RESPA. An average charge may be used by any settlement service provider that obtains a third party service on behalf of the borrower or seller. Charges that vary based on the loan amount or property values are expressly excluded from average charge pricing. This includes items such as transfer taxes, interest charges, reserves or escrow, or any type of insurance, including mortgage insurance, title insurance, or hazard insurance. The average charge for a settlement service can be no more than the average amount paid for a settlement service by one settlement service provider to another on behalf of borrowers and sellers for a particular class of transactions. The total amounts paid by borrowers and sellers for a settlement service based on the use of average charge pricing may not exceed the total amounts paid to the providers of that service for the particular class of transaction. There are two components that you will be required to satisfy in order to use the average cost pricing model. In simple terms, the average charge collected on an individual transaction can not exceed the average amount paid to a third party and the total amount of the average cost collected on a class of transactions can not exceed the total amount paid to a third party for those services on the class of transactions. Any amount retained in excess of what is paid to the third party would constitute a markup and would result in a violation of Section 8(b) of RESPA. Calculating the Average Charge The settlement service provider using average charges must define the particular class of transactions for the purpose of calculating the average charge as to all transactions involving RESPA loans for: ο A period of time of not less than 30 days and not more than 6 months; ο A geographic area as determined by the provider; and ο A type of loan as determined by the provider. 4

7 If an average charge is used for transactions in a particular class, the same average charge must be used for every transaction within the class for which a GFE is provided. The documents used to calculate the average charge must be kept for a period of not less than 3 years. Good Faith Estimate The new three page GFE basically requires the loan originator to guarantee the fees disclosed, absent changed circumstances and subject to tolerances (as explained below), to the borrower for a minimum period of 10 days. The ability of the loan originator to change the fees is very restricted and they must provide a new GFE to the borrower in the event that they do change and the reason for the change must be documented. The new GFE will be a required form for all federally related mortgage loans beginning on January 1, Loan originators may elect to begin using this form at any time prior to that date and in the event that they do, the settlement company will be obligated to use the new HUD-1 or HUD-1A form at that time. A lender or mortgage broker (loan originator) must provide a GFE not later than three business days after receipt of an application for a federally related mortgage loan, or information sufficient to complete an application. For mortgage broker transactions, the lender is obligated to verify that the GFE has been provided. ο The definition of application was revised and now provides: Application means the submission of a borrower s financial information in anticipation of a credit decision relating to a federally related mortgage loan, which shall [at a minimum] include the borrower s name, the borrower s monthly income, the borrower s social security number to obtain a credit report, the property address, an estimate of the value of the property, the mortgage loan amount sought, and any other information deemed necessary by the loan originator. An application may either be in writing or electronically submitted, including a written record of an oral application. ο The definition was adopted in order to prevent originators from imposing overly burdensome documentation requirements as a condition of providing the GFE. HUD s expectation is that this will facilitate shopping on the part of the borrower. 5

8 Under the new rules, the loan originator is only allowed to charge the consumer a fee for the cost of a credit report and is not permitted to require, as a condition of providing a GFE that the applicant submit supplemental documentation to verify information provided. The loan originator may however require additional information to complete the application. The terms of the GFE (estimate of charges) for all settlement services must be available for at least 10 business days from when the GFE is provided. The terms can remain available for longer than 10 days if the loan originator so elects. The following charges shown on the GFE are not subject to this 10 day requirement: ο The interest rate ο The interest rate dependent charges including (1) The credit or charge for the interest rate chosen (2) The adjusted origination charges (3) The per diem interest. If the consumer does not express intent to continue with the application by the end of the 10 day period, the loan originator is not bound by the GFE. The new GFE is subject to a number of tolerances for the fees shown and is broken down into three categories. 6

9 Charges that cannot increase at settlement 0 Tolerance Loan origination charges Borrower credit or charges (points) for the specific interest rate chosen (after lock in of the interest rate) Borrower adjusted origination charges (after lock in of the interest rate) Transfer taxes Charges that can increase up to 10% in total 10% Tolerance Required services that are select by the lender Title services and lender s title insurance (if the lender selects them or the borrower uses companies the lender identifies) Owner s title insurance (if the borrower use companies identified by the lender) Required services that borrowers can shop for (if the borrower use companies identified by the lender) Government recording charges Charges that can change at settlement No Tolerance Limit Required services that borrowers can shop for (if the borrower do not use companies identified by the lender) Title services and lender s title insurance (if the borrower do not use companies identified by the lender) Owner s title insurance (if borrower do not use companies identified by lender) Initial deposit for borrowers escrow account Daily interest charges Homeowner s insurance ο 0 Tolerance the charge for these items may not exceed the amounts included on the GFE: (1) The origination charge; (2) The credit or charge for the interest rate chosen while the borrower s interest rate is locked; (3) The adjusted origination charge (the sum of (1) & (2) above) while the borrower s interest rate is locked; and (4) Transfer taxes. (a) NOTE: HUD notes that transfer taxes should generally be known at the time the GFE is provided. In the event that the transfer tax rates or property price change after the GFE was issued, this would constitute a changed circumstance and would allow for the issuance of a revised GFE. ο 10% Tolerance the sum of the following items can not change by more than 10% from the amounts shown on the GFE: 7

10 (1) Lender required settlement services, where the lender selects the provider (i.e. tax services, appraisal, credit reports, flood certification, etc.); (2) Lender required settlement services, title services and required title insurance, and owner s title insurance, when the borrower uses a settlement service provider identified by the loan originator; and (3) Government recording charges. ο No Tolerance Limit there are no limitations on the amounts charged for, or changes to, all other settlement services included on the GFE depending on who the borrower selects. Changed Circumstances allow the loan originator to provide the borrower with a revised GFE when the change results in an increased cost for any settlement services which would cause the charges at settlement to exceed the tolerances for those charges. The revised GFE must be provided within 3 days of receiving information sufficient to establish the changed circumstances. ο Changed Circumstances is defined under the new rules and means: (1) Acts of God, war, disaster, or other emergency; (2) Information particular to a borrower or transaction that was relied on in providing the GFE that change or is found to be inaccurate after the GFE has been provided. This may include information about the credit quality of the borrower, the amount of the loan, the estimated value of the property, or any other information that was used in providing the GFE; (3) New information particular to the borrower or the transaction that was not relied on in providing the GFE; or (4) Other circumstances that are particular to the borrower or transaction including boundary disputes, the need for flood insurance or environmental problems. ο Changed Circumstances does not include: (1) The borrower s name, the borrower s monthly income, the property address, an estimate of the value of the property, the mortgage loan 8

11 amount sought, and any information contained in any credit report obtained by the loan originator prior to providing the GFE, unless the information changes or is found to be inaccurate after the GFE has been provided. (2) Market price fluctuations by themselves. i.e. A provider raises there price between the time the GFE is issued and the settlement. ο Borrower requested changes If a borrower requests changes to the loan that change the settlement charges or the terms of the loan, the loan originator must provide the borrower with a revised GFE within 3 business days or the loan originator will be bound by the original GFE. For example, changes from a 30 year to a 15 year or changes from a fixed rate to a variable rate. ο For new home purchases that are not anticipated to close within 60 days of the issuance of the GFE (typically construction loans), the lender can disclose to the borrower that the lender may issue a revised GFE at any time up to 60 days prior to closing. Failure to provide the disclosure precludes the lender from revising the GFE. ο If changed circumstances result in increased costs for any settlement service such that the charges at settlement would exceed the tolerances for those charges, the loan originator may provide a revised GFE to the borrower. NOTE: It is important to remember that none of the information collected by the originator can later become the basis for a changed circumstance unless the lender can demonstrate that the information was inaccurate or that the lender did not rely on the information in issuing the GFE. It is not clear how HUD will apply this definition but HUD has indicated that they will provide additional guidance on what constitutes a changed circumstance during the implementation period. Curing Tolerance Violations Under the final rules, a violation of the tolerance provisions constitutes a violation of section 5 of RESPA. If any charges at settlement exceed the applicable tolerances, a loan originator can cure the tolerance violation by reimbursing the borrower any amount by which the tolerance is 9

12 exceeded. The reimbursement can be made at settlement or within 30 calendar days after settlement. HUD expects that most violations will be identified at or before settlement when completing the revised HUD-1. Lenders Disclosure of Payments to Brokers (Yield Spread Premium) The difference between the interest rate at which the broker originates the loan and the market rate offered by the lender is known as the yield spread premium (YSP). The YSP is a form of compensation to the broker for his efforts in securing a mortgage loan for the borrower. In some cases the broker receives 100% of the YSP and other times the YSP is split between the broker and the mortgage lender. In all cases the full amount of the YSP must be disclosed on the HUD-1. In the case of loans originated by a broker, page 2, block 1 requires the inclusion of all charges to be paid by the borrower that are to be received by the broker and any other origination changes. Block 2 requires the disclosure of any change or credit to the borrower for the specific interest rate chosen. Any lender payment is then subtracted and any points are added to arrive at your adjusted origination charges. HUD determined that a complete disclosure of the payments to the mortgage broker as presented on page 2 of the revised form, especially when read in conjunction with the tradeoff table on page 3, is valuable to borrower understanding of: (1) the broker s total compensation; (2) how rate-based payments from lenders can help reduce borrowers upfront origination charges and settlement costs in brokered loans; and (3) how payments to reduce the interest rate and monthly charges increase upfront charges. Good Faith Estimate FORM OVERVIEW (copy attached for your reference) The GFE is broken down into the following main sections: ο Purpose this section advises the borrower what the GFE is intended to do and directs them to resources for additional information. ο Shopping for loans this area encourages the borrowers to shop for the best loan for them. ο Important Dates this provision explains to the borrower the amount of time the interest rate is good for, the date the estimated settlement costs are available 10

13 through, the number of days within which they must close the loan, and the time the borrower has to lock in the interest rate. ο Summary of your loan this section discloses of the key elements of the loan to the borrower and includes: (1) The initial loan amount (2) The loan term (3) The initial interest rate (4) The initial monthly payment for principal, interest and any mortgage insurance (5) Whether the balance can rise even if payments are made and the maximum possible loan balance (6) Whether the monthly payment can rise, and if so, the maximum amount it can reach (7) If there is a prepayment penalty, and if so, the amount (8) Whether the loan has a balloon payment, the amount of the balloon payment, and the due date. ο Escrow account information informs the borrower if the lender escrows for taxes and property related charges in addition to the monthly payment. ο Summary of the settlement charges including the adjusted origination charges and charges for all other settlement services. ο Understanding your estimated settlement charges this section of the GFE (Page 2) is broken down into two main categories including adjusted origination charges and charges for all other settlement services. (1) Adjusted origination charges include the origination charge for the loan and the disclosure of any yield spread premium (YSP). The loan originator discloses the charge or credit for the interest rate selected, if any, the amount of credit received which decreased the settlement costs, or the charge for the interest rate, which increased the settlement charges. 11

14 (2) All other settlement services include a disclosure of the nine categories of settlement costs typically associated with a residential mortgage. (a) Required services that the loan originator selects. Typically these services would include such things as the appraisal, credit reports, flood certification, etc. (b) Title services and lenders title insurance (a) Title services is now a defined term under RESPA and means any service involved in the provision of title insurance (lender s or owner s policy), including but not limited to: title examination and evaluation; preparation and issuance of a title commitment; clearance of underwriting objections; preparation and issuance of a title insurance policy or policies; and the processing and administrative services required to perform these functions. The term also includes the service of conducting a settlement. (c) Owner s title insurance (d) Required services that the borrower can shop for which may include things such as surveys, pest inspections, home inspections, home warranty, etc. (e) Government recording charges including charges necessary to record the loan and title documents. (f) Transfer taxes (g) Initial deposit for the escrow account including a disclosure of what the fees cover (h) Daily interest charges including an estimate of the total per diem or daily charges and a breakdown of the charge. (i) Homeowner s insurance disclosure for hazard and similar insurance such as flood insurance along with the estimated premium. 12

15 (j) A total of the nine categories of Other Settlement Services and a total of the estimated settlement charges. ο Instructions appear on page three of the GFE along with the following four items: (1) Understanding which charges can change at settlement (a) This section of the GFE advises the borrower of the tolerances that are now applied to the charges disclosed in the GFE including charges that can not increase, charges that can increase up to 10%, and charges that can change at settlement. (2) Tradeoff table (a) The tradeoff table is designed to allow a lender to advise a borrower of different loans that may be available. This section is optional for the loan originator. The table breaks down the initial loan amount, interest rate, monthly payment, difference between GFE monthly payment and optional loan payment, changes in the cost of the loan, and finally, the total estimated settlement charge for the different loans. (3) Shopping Chart this table allows the borrow to compare different loans for which they have received a GFE to the loan detailed in the GFE itself. (4) Disclosure regarding the sale of the loan in the future. One item to note on the new GFE. The instructions for the GFE specifically provide Where a loan originator permits a borrower to shop for third party settlement services, the loan originator must provide the borrower with a written list of settlement services providers at the time of the GFE, on a separate sheet of paper. 13

16 HUD-1/ HUD-1A TRAINING GUIDE HUD Form Background The statutes of the Real Estate Settlement Procedures Act (RESPA) require the uniform settlement statement (HUD-1) to be used as the standard real estate settlement form in all transactions in the United States which involve federally related mortgage loans. The HUD-1 is a form used by the settlement agent (also called the closing agent) to itemize all charges imposed upon a borrower and seller for a real estate transaction. It gives each party a complete list of their incoming and outgoing funds. What s the difference between HUD-1 and HUD-1A Settlement Statement? The HUD-1 form lists the charges for both buyer and seller. The HUD-1A form may be used for transactions which do not involve a seller. Why the new HUD-1? o The changes promote comparison of the HUD-1 and HUD-1A with the GFE, allowing the borrower to see any changes to the settlement charges or loan terms. o Terminology of the HUD-1 and HUD-1A conforms to the terminology of the GFE. In lieu of the Closing Script, HUD has added an additional page on the HUD-1/1A settlement statement that sets forth a comparison between the charges listed on the GFE and the charges listed on the HUD-1/1A, and summarizes the final loan terms of the borrower's loan. What new or different duties are imposed on the settlement provider? All attorneys, paralegals and settlement providers have the duty to understand and implement the full scope of the new changes to the HUD-1 form on or before January 1, Understand the categories of tolerances. o Note that the tolerance limits do not apply to individual charges but rather the total charges per section. For example, if your search fee costs more than 10% then it is not an automatic violation of the tolerance. For a violation to occur the total of the following items would have to change by more than 10% from the amounts shown on the GFE: Required services that the lender selects (i.e. appraisal, credit report, etc.; 14

17 Title services and lender s title insurance, if the lender selects or borrower uses a provider identified by the lender; Owner s title insurance, if the borrower uses a provider identified by the lender; Required services that the borrower can shop for, if the borrower uses a provider identified by the lender; and Government regarding charges Obtain GFE prior to HUD preparation. o Prior to January 1, 2010 the lender may still use the new GFE. If the lender uses the new GFE prior to this date then the settlement agent must use the new HUD-1. All associated Rules, including tolerance restrictions will apply. Allowance of additional closing time to review the new page 3 of the HUD. Cure any inadvertent technical errors on the HUD within 30 days of closing. o Note, the new rule does not require a new printed HUD-1. However, it is a best practice to always have a new HUD-1 printed and signed to prove that the errors have been corrected. How will the new HUD-1 affect title insurance agents? THE SPLIT If a title insurance agent and a title insurance underwriter each receive a portion of the insurance premium then the settlement provider must show how much of the premium is distributed to each party. The title agent must disclose this split to the settlement provider and the amounts must be reflected on the HUD-1. This is a fairly significant change made by HUD and the rationale is that the breakdown will help consumers better understand their title charges. 15

18 REVIEW OF THE HUD-1 SETTLEMENT STATEMENT CHANGES Overview This section will cover all the changes to the HUD-1 Settlement Statement and how certain sections of the HUD-1 compare to the newly revised GFE. Some of the key changes to the revised HUD-1 are as follows: Major Changes - A majority of the changes to the HUD-1, other than the addition of the third page, appear on page 2. Many of the line items now include a cross reference to the corresponding line item of the GFE. This is intended to allow the borrower to easily compare the figures provided in the GFE with those that appear on the final HUD-1 settlement statement. New Third Page In place of the proposed closing script the HUD-1 was revised to include a new third page which includes a comparison of charges between those reflected on the GFE and the actual charges on the HUD-1 as well as disclosing key loan terms. Page 3 of the HUD-1 is comprised of four tables and includes the following two sections: Section 1 Comparison of Good Faith Estimate (GFE) and HUD-1 charges (a) The first table under this category is the comparison of the charges that cannot increase as disclosed by the GFE to the actual charge contained in the HUD-1. (b) Table 2 provides for a comparison of the charges that in total cannot increase by more than 10% from the GFE to the HUD-1. The bottom of the table requires the disclosure of the variance as well as the % change. (c) Table 3 shows the comparison of the charges that can change (borrower selected items) from the GFE to the HUD-1 Section 2 (2) The final table on page 3 of the HUD-1 is a reiteration of the loan terms summary table found on page 1 of the GFE as discussed above. Some of the line items in this table have been expanded from the GFE version to provide the borrower additional information such as the frequency and amount of interest rate changes. This table also includes a disclosure of the total monthly amount owed including escrow account payments and requires the lender to disclose if they will be escrowing for such items as property taxes and homeowner s insurance. The 16

19 information required to complete this section must be provided by the lender in a format that permits the settlement agent to simply enter the necessary information in the appropriate spaces, without the settlement agent having to refer to the loan documents themselves. Categorization of Fees Certain fees have been categorized or grouped together such as the Title Services and Lender s Title Insurance. The total for these fees are reflected as a charge to the Borrower in the Paid From Borrower s Funds at Settlement column and are itemized outside the Borrower s column in the lines following the charge. Seller Paid Fees If a Seller pays for a fee that was included on the GFE the charge must be listed in the Borrower s column on page 2 of the HUD-1 and then offset by listing a credit to the Borrower and a debit to the Seller in the amount of the charge on page 1 of the HUD. Note: The same will apply to any fees included on the GFE that are to be paid by Lender, Real Estate Agent, Settlement Service Provider, etc. New Line Items - Lines 1107 and 1108 are new. These line items require the disclosure of the title insurance commission split between that title underwriter and the title agent. Line 1107 is used to record the amount of the total title insurance premium, including endorsements, that is retained by the title agent. Line 1108 is used to record the amount of the total title insurance premium, including endorsements, that is retained by the title underwriter. Mortgage Broker Compensation Disclosure of the yield spread premium has changed and will now be reflected in the 800 section of the HUD-1 under Your Credit or Charge (points) For the Specific Interest Rate Shown. This fee may no longer be shown as a POC by Lender and must be included in the credit on line 802 of the HUD-1. Violations - The rules provide that a violation of any of the requirements for completing the HUD-1 shall be deemed to be a violation of section 4 of RESPA. The rules do however provide that a inadvertent or technical error in completing the HUD-1 shall not be a violation if a revised HUD-1 is provided to the borrower within 30 calendar days of the settlement. 17

20 PAGE 1 Page 1 of the HUD-1 remains relatively unchanged. Some minor changes to note are as follows: Section B. Type of Loan Under Section B. Type of Loan check box no. 2 has changed from FmHA (Farmers Home Administration) to RHS (Rural Housing Service). Section H. Place of Settlement The phone number of the settlement agent will now be required in Section H Place of Settlement in addition to the name, address and zip code. 18

21 PAGE 2 You will notice significant changes on page 2 of the new HUD-1. Most notably are the categorization of certain fees and the relation of certain line items back to the GFE for comparison. Changes to Section 700. Total Real Estate Broker Fees Line 700. Total Real Estate Broker Fees - Line 700 no longer shows the commission calculation based on the sales price and percentage amount. Only the total amount of the commission is now reflected. Lines Lines 701 and 702 will still be used to show the commission split between the listing and selling agent. One change to note here is any part of the earnest money deposit being retained by the listing or selling agent to be apply towards the commission will be deducted from the total commission in Line 703 and a note will now be inserted in Line 704 indicating the amount the agent is retaining as a POC item. 19

22 Changes to Section 800. Items Payable in Connection with Loan Line 801. Our Origination Charge Line 801 will include all fees (i.e. origination fee, application fee, underwriting fee, etc.) received by the loan originator with the exception of any points charged for a specific interest rate. This figure will be shown outside the column and compares back to GFE #1 Our Origination Charge. Line 802. Your Credit or Charge (Points) For the Specific Interest Rate Chosen Line 802 is used to reflect any credit or charge for the specific interest rate chosen. This figure will be shown outside the column and compares back to GFE #2 Your Credit or Charge (Points) For the Specific Interest Rate Chosen. A credit on this line signifies that a mortgage broker is being compensated in the transaction (yield spread premium). A charge on this line denotes the presence of a discount point paid by the borrower to reduce the interest rate on the loan. o Mortgage Broker Compensation Table Funded - When a mortgage broker originates a loan in its own name, the amount shown on Line 802 will be the difference between the initial loan amount and the total payment to the mortgage broker from the lender. The total payment to the mortgage broker will be the sum of the 20

23 price paid for the loan by the lender and any other payments to the mortgage broker from the lender. Non-Table Funded - When a mortgage broker originates a loan in another entity s name, the amount shown on Line 802 will be the sum of all payments to the mortgage broker from the lender, including payments based on the loan amount or loan terms, and any flat rate payment. In both situations above, when the amount paid to the mortgage broker exceeds the initial loan amount, there is a credit to the borrower and a negative amount is entered. When the initial loan amount exceeds the amount paid to the mortgage broker, there is a charge to the borrower and a positive amount is entered. Line 803. Your Adjusted Origination Charge Line 803 will reflect the difference between Lines 801 and 802. The amount of the adjusted origination charge will show inside the column and compares back to GFE #A Your Adjusted Origination Charges. Lines Fees reflected on Lines 804 through 808 are shown inside the column and compare back to GFE #3 Required Services That We Select. Each provider must be identified by name and the amount will show either inside the column if the fee is being paid at closing or as a POC if the fee was paid outside of closing. 21

24 Changes to Section 900. Items Required by Lender to Be Paid in Advance Line 901. Daily Interest Charges The description for Line 901 has changed. Instead of saying Interest From it now says Daily Interest Charges From. The amount of interest charges is shown inside the column and compares back to GFE #10 Daily Interest Charges. Line 903. Homeowner s Insurance The description for Line 903 has changed. Instead of saying Hazard Insurance Premium it now says Homeowner s Insurance For. The amount of the homeowner s insurance premium is shown either inside the column if paid at closing or as a POC if paid outside of closing and compares back to GFE #11 Homeowner s Insurance. 22

25 Changes to Section Reserves Deposited with Lender Line Initial Deposit for Your Escrow Account Line 1001 will show the total initial escrow deposit collected at closing from Lines 1002 through This figure will show inside the column and compares back to GFE #9 Initial Deposit for Your Escrow Account. Lines The amounts for each escrow item (i.e. Homeowner s insurance, Mortgage insurance, Property taxes, Assessments, and the Aggregate Adjustment) are itemized on lines 1002 through These figures are shown outside the column and included in the total on Line

26 Changes to Section Title Charges Line Title Services and Lender s Title Insurance Line 1101 reflects the total Title Services and Lender s Title Insurance including title charges, settlement fees and lender s title insurance premium. The total of these fees is shown inside the column and compares back to GFE #4 Title Services and Lender s Title Insurance. Note: The definition of Title Services is any service involved in the provision of title insurance and includes but is not limited to the following: title examination and evaluation, preparation and issuance of the title commitment and policy, all administrative services and processing services required in performing these functions (i.e. document preparation and delivery, copying, wiring, notarizing). Legal charges include fees for attorneys representing the lender, seller, or borrower, and any attorney preparing title work. 24

27 Line Settlement or Closing Fee Line 1102 reflects the settlement or closing fee and is shown outside the column if included in total of Line Line Owner s Title Insurance The owner s title insurance premium is shown inside the column on Line 1103 and compares to GFE #5 Owner s Title Insurance. Line Lender s Title Insurance The lender s title insurance premium is shown outside the column on Line 1104 and is reflected in the total shown inside the column on Line Line 1107 and Agent and Underwriter s Portion of Total Title Insurance Premium Lines 1107 and 1108 have been added to disclose the agent/underwriter split of the title insurance premium. These figures are shown outside the column on Lines 1107 and Lines Lines 1109 through 1113 are used to reflect any title charges paid to third parties and should be identified by name and service provided. These figures are shown outside the column if included in Line 1101 Title Services and Lender s Title Insurance. Any charges not included in Line 1101 are listed inside the column. While line 1101 will show the bundled fee, HUD appears to still require the disclosure of fees paid to third parties in connection with the issuance of the title insurance to be itemized. For example, if the title company engages an abstractor to perform the title search, the name of the vendor and the associated fee should be separately itemized in the 1100 series. The fee would be shown outside the column. 25

28 Changes to Section Government Recording and Transfer Charges Line Government Recording Charges Line 1201 will reflect the total recording charges. This figure will be shown inside the column and compares to GFE #7 Government Recording Charges. Line Line 1202 is used to itemize each individual recording charge for the Deed, Mortgage/Deed of Trust, and/or Release. These figures are shown outside the column and reflected in the total on Line Line Transfer Taxes Line 1203 reflects the total of the local and state transfer taxes. This figure is shown inside the column and compares to GFE #8 Transfer Taxes. Lines 1204 and City/County tax/stamps and State tax/stamps Lines 1204 and 1205 are used to show the itemized local and state transfer taxes for the Deed and/or Mortgage/Deed of Trust. These figures are shown outside the column and reflected in the total on Line Lines 1206 and 1207 Lines 1206 and 1207 are used to reflect any additional itemized recording fees such as fees for recording an Assignment, Subordination, Power of Attorney, etc. These fees are shown outside the column and included in the total on Line

29 Changes to Section Additional Settlement charges Line Required Services That You Can Shop For Line 1301 reflects the total for the required services that you can shop for such as fees for survey, pest inspection or other similar inspections. This figure is shown inside the column and compares to GFE #6 Required Services That You Can Shop For. Lines Lines 1302 through 1305 reflect the itemized breakdown for any required services that you can shop for. These lines may also be used to reflect additional itemized settlement charges that are not included in a specific category, such as fees for home inspections, home warranties, etc. The amounts must be listed in either the borrower s or seller s column. 27

30 Other Notable Changes Seller Paid Closing Costs Generally, charges customarily paid by the seller will be included in the seller s column on page 2 of the HUD-1. The exception will be if the seller is paying for any charges that were included on the GFE. In this case the charges must be reflected in the borrower s column on page 2 of the HUD-1 and offset by a credit to the borrower in Section 200 and a debit to the seller in section 500 of the HUD-1. POC Items Under the new rule any items paid for outside of closing (POC) must show the party making the payment, for example POC: Borrower or POC:B 28

31 THE NEW PAGE 3 Section of Regulation X has been revised to provide that the loan originator must transmit to the settlement agent all information necessary to complete the HUD-1 including all of the information necessary to complete the loan terms section found on the new third page of the HUD-1. The Loan Terms section must be completed in accordance with the information and instructions provided by the loan originator. The information provided by the lender must be provided in a format that permits the settlement agent to simply enter the necessary information in the appropriate spaces, without the settlement agent having to refer to the loan document themselves. You will note that at the bottom of the third page, HUD has included a note to the borrower that if they have any questions about the Settlement Charges or Loan Terms listed on this form that they should contact the lender. The third page was added upon the elimination of the closing script from the final rule and is designed to do the following: Compare the charges listed on the GFE with the actual charges shown on the HUD-1 Identify tolerance compliance or violation Summarizes the terms of the loan Comparison of Good Faith Estimate (GFE) and HUD-1 Charges * 29

32 * Depending on whether the borrower uses a title insurance company identified by the lender will determine where this fee will be shown on the above comparison chart. If the borrower does use a company identified by the lender, the owner s title insurance premium will be reflected in the section entitled Charges That in Total Cannot Increase More than 10% as shown above. If the borrower does not use a company identified by the lender, the owner s title insurance premium will be reflected in the section entitled Charges That Can Change. The comparison chart is prepared using the information and amounts provided by the lender on the GFE and the actual charges reflected on the HUD-1. The comparison chart is made up of the following three sections: Charges That Cannot Increase Charges on the HUD-1 that cannot increase at closing include the following: o Our Origination Charge (HUD-1 Line 801; GFE #1) o Your Credit or Charge For Interest (HUD-1 Line 802; GFE #2) o Your Adjusted Origination Charges (HUD-1 Line 803; GFE #A) o Transfer Taxes ( HUD-1 Line 1203; GFE #8) Charges That in Total Cannot Increase More Than 10% - Charges on the HUD-1 that cannot increase more than a total of 10% at closing include the following: 30

33 o Required Services That We (the lender) Select This may include such fees as the appraisal fee, credit report fee, tax service fee and/or flood certification fee (HUD-1 Lines ; GFE #3) o Title Services and Lender s Title Insurance (if provider selected or identified by the lender - HUD-1 Line 1101; GFE #4) o Owner s Title Insurance (if provider selected or identified by the lender - HUD-1 Line 1103; GFE #5) o Required Services That You Can Shop For (if provider identified by lender HUD-1 Line 1301; GFE #6) o Government Recording Charges (HUD-1 Line 1101; GFE #4) Charges That Can Change at Settlement Charges on the HUD-1 that do not have a tolerance limit and can change at closing include: o Required Services That You Can Shop For (if provider not identified by lender) o Title Services and Lender s Title Insurance (if provider not identified by lender) o Owner s Title Insurance (if provider not identified by lender) o Initial Deposit For Your Escrow Account (HUD-1 Line 1001; GFE #9) o Daily Interest Charges (HUD-1 Line 901; GFE #10) o Homeowner s Insurance (HUD-1 Line 903; GFE #11) 31

34 Loan Terms This section provides a summarization of the loan terms. The settlement agent only needs to enter the necessary information in the appropriate spaces using the information provided by the lender and included in the GFE. 32

35 SoftPro Users As a result of the RESPA changes, SoftPro is currently rewriting its software to comply with the new rule. Currently SoftPro is anticipating a release date sometime this summer for the update. PLEASE NOTE THAT YOU WILL NEED TO BE A SUBSCRIBER TO SOFTPRO S ANNUAL MAINTENANCE SERVICE IN ORDER TO OBTAIN THE UPDATE. During this transition time, SoftPro has created an interim HUD-1 which can be used in situations where the lender is already using the new GFE. The interim HUD-1 is available for download to current annual maintenance service subscribes by going to The download consists of two overlay files and prompts that will modify the existing HUD-1 fields to comply with the new rule. Upon applying the overlay file you will notice that certain fields will no longer be available for use and will contain the wording Do Not Use This Line. These lines have been blocked to warn the user that these fields should not be used when preparing the interim HUD-1. A couple of additional changes SoftPro will be incorporating into the new software are as follows: Sections D. and E. RESPA instructions indicate that the names and current mailing addresses and zip codes for each Borrower and Seller must be complete. The new software will allow for this requirement by printing the address for each party involved in the transaction. Section G. Whether using the property address or brief legal description in the Property Location section, the zip code of the property should be given. SoftPro will make the zip code a required field in the Property Location screen. 33

36 GFE Process Flowchart Borrower visits a loan originator (1) Borrower's name, Social Security number, loan amount, estimated property value, monthly income, & any other information originator deems necessary. Gives originator information (1) Originator pulls credit from one bureau Originator denies loan application No GFE is issued GFE is delivered to Borrower Originator underwrites loan Changed circumstance New GFE is delivered to Borrower Borrower is approved Originator transmits information to settlement agent, including information for page 3 Settlement agent prepares HUD-1 Tolerances are met based on GFE OR Tolerances are not met Originator may cure tolerance violation immediately or within 30 days 34

37 OMB Approval No Good Faith Estimate (GFE) Name of Originator Originator Address Borrower Property Address Originator Phone Number Originator Date of GFE Purpose Shopping for your loan Important dates Summary of your loan Escrow account information This GFE gives you an estimate of your settlement charges and loan terms if you are approved for this loan. For more information, see HUD s Special Information Booklet on settlement charges, your Truth-in-Lending Disclosures, and other consumer information at If you decide you would like to proceed with this loan, contact us. Only you can shop for the best loan for you. Compare this GFE with other loan offers, so you can find the best loan. Use the shopping chart on page 3 to compare all the offers you receive. 1. The interest rate for this GFE is available through. After this time, the interest rate, some of your loan Origination Charges, and the monthly payment shown below can change until you lock your interest rate. 2. This estimate for all other settlement charges is available through. 3. After you lock your interest rate, you must go to settlement within days (your rate lock period) to receive the locked interest rate. 4. You must lock the interest rate at least days before settlement. Your initial loan amount is Your loan term is Your initial interest rate is Your initial monthly amount owed for principal, interest, and any mortgage insurance is Can your interest rate rise? Even if you make payments on time, can your loan balance rise? Even if you make payments on time, can your monthly amount owed for principal, interest, and any mortgage insurance rise? Does your loan have a prepayment penalty? Does your loan have a balloon payment? $ years % $ per month c No c Yes, it can rise to a maximum of %. The first change will be in. c No c Yes, it can rise to a maximum of $ c No c Yes, the first increase can be in and the monthly amount owed can rise to $. The maximum it can ever rise to is $. c No c Yes, your maximum prepayment penalty is $. c No c Yes, you have a balloon payment of $ due in years. Some lenders require an escrow account to hold funds for paying property taxes or other propertyrelated charges in addition to your monthly amount owed of $. Do we require you to have an escrow account for your loan? c No, you do not have an escrow account. You must pay these charges directly when due. c Yes, you have an escrow account. It may or may not cover all of these charges. Ask us. Summary of your settlement charges A B A Your Adjusted Origination Charges (See page 2.) $ Your Charges for All Other Settlement Services (See page 2.) $ + B Total Estimated Settlement Charges $ 35 Good Faith Estimate (HUD-GFE) 1