RESPA REFORM. J. Tom Minor Karen W. Ingle

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1 RESPA REFORM J. Tom Minor Karen W. Ingle

2 RESPA Reform Purpose of the RESPA reform Protect consumers from unnecessarily high settlement costs Improve and standardize the Good Faith Estimate Provide an easy means of comparison between the Good Faith Estimate and the HUD-1 closing statement

3 RESPA Timeline First Draft of the new regulation came out on March 14, 2008 A public comment period was granted until June 12, 2008 Final Version was issued November 17, 2008 Effective date: January 16, 2009 with full implementation required by January 1, 2010

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5 Improving the GFE Facilitate shopping by consumers by providing a standardized form to compare loan costs (Good Faith Estimate or GFE ) Loan originators can no longer require supplemental verification of application information in order to provide a GFE Loan originators can no longer charge up front fees except for the credit report

6 Other Up Front Fees AFTER a loan applicant both receives a GFE and indicates an intention to proceed with the loan covered by the GFE, the loan originator may collect fees beyond the cost of a credit report for origination-related services.

7 What will a lender require? A: A loan originator must issue a GFE no later than 3 business days after the loan originator receives an application or information sufficient to complete an application. (1) borrower s name, (2) borrower s monthly income; (3) borrower s social security number to obtain a credit report; (4) property address; (5) estimate of value of the property; (6) loan amount and (7) any other information deemed necessary by the loan originator.

8 Key Definitions APPLICATION means the submission of a borrower s financial information in anticipation of a credit decision relating to a federally related mortgage loan. LOAN ORIGINATOR means a lender or a mortgage broker

9 RESPA Violation Q: What happens if a GFE is not provided to a borrower within 3 days of application? A: In a transaction involving a federally related mortgage, the loan originator is required to provide a GFE to the borrower. Failure to provide a GFE as required is a violation of Section 5 of RESPA.

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11 What does the GFE tell the borrower?

12 Changed Circumstances (1) Acts of God, war, disaster, or other emergency; (2) Information particular to the borrower or transaction that was relied on in providing the GFE and that changes or is found to be inaccurate after the GFE has been provided (3) New information particular to the borrower or transaction that was not relied on in providing the GFE; (4) Other circumstances that are particular to the borrower or transaction, including boundary disputes, the need for flood insurance, or environmental problems.

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14 A is the total amount it costs the borrower to get the loan. This amount is the total of items 1 and 2 on Page 2. B is the total amount it costs the borrower to get from the loan originator to the closing table. This amount comes from items 3-11 on Page 2. A+B is the total amount the borrower will be paying to close the transaction (not accounting for any down payments or other credits).

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16 What items are included in Origination Charges? The total of all "origination services for all loan originators (lenders and mortgage brokers) must be contained in Block 1, Our origination charge on page 2 of the GFE, except for any charge for the specific interest rate chosen.

17 Key Definition ORIGINATION SERVICE: Any service involved in the creation of a loan, including but not limited to application, processing, underwriting and funding fees Processing and Administrative Services: include, but are not limited to, document delivery, document preparation, copying, wiring, preparing endorsements, document handling, and notarization.

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19 10 % Tolerances Block 3, Block 4, Block 5, Block 6, and Block 7 are subject to a 10% (aggregate) tolerance, where the loan originator requires the use of a particular provider or the borrower uses a provider selected or identified by the loan originator. Block 4, Block 5, or Block 6 are NOT subject to a 10% tolerance if the borrower selects a provider other than one identified by the loan originator and, at settlement, would not be included in the sum of the charges on which the 10 percent tolerance is based. 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.

20 Translation: HUD line 804: Appraisal HUD line 805: Credit Report HUD line 806: Tax Service Fee HUD line 807: Flood Cert HUD line 902: Mortgage Insurance

21 Key Definition Title service: 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 title commitment; clearance of underwriting objections; preparation and issuance of title policies; and the processing and administrative services required to perform these functions. The term also includes the service of conducting a settlement.

22 Owner s title insurance premiums are REQUIRED on all GFEs for purchases If the borrower typically would incur charges for title services and lender's and owner's title insurance, the GFE instructions make it clear that those charges are required to be listed regardless of whether, for example, the contract requires the seller to pay for the service. If there is a question about whether the borrower or seller is to pay for a particular settlement service, the charge for that service should be disclosed on the GFE. (from

23 Owner s Title Insurance Loan policy premiums will be quoted at the simultaneous discount rate on GFEs for purchases Since loan policies cost less than owner s policies, quotes will still be in tolerance if buyer chooses not to buy owner s policy

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27 Seller Paid Fees Even if certain fees are designated as Seller Fees in the contract, they are shown on the GFE Seller concessions are shown as a lump sum credit on the first page of the HUD-1

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29 Average Charges Average charges may be used by any settlement service provider that obtains a service from a third party on behalf of a borrower or seller PROVIDED that the total amounts received from the borrowers for that service for a particular class of transactions do not exceed the total amount paid to the providers of that service for that class of transactions

30 Average Charges The settlement service provider may define a class of transactions based on the period of time, type of loan and geographic area Must recalculate the average charge at least every 6 months Average charges must be used all or nothing

31 Average Charges CANNOT be used for any services in which the charge is based on the loan amount or property value Records backing up the average charge must be kept for at least 3 years

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33 The New HUD-1 Designed to provide comparability to the new GFE so consumers can compare apples to apples at the closing table Several changes in terminology and form to achieve that Since closing costs are buyers fees, there is no shifting of fees from buyer s side to seller s side on Page 2 of the HUD-1 Instead, any seller concessions will show as a lump sum credit on Page 1 of the HUD-1

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35 Deposit retained from earnest money by broker is POC The percentage used to compute the sales commission has been removed from the HUD-1 to better reflect current practices in the real estate industry. The total amount of the commission to each real estate broker or agent must be shown on Lines 701 and 702. The amount of the commissions disbursed at settlement must be shown inside the columns on Line 703.

36 Lines 801 and 802 come straight from the GFE lines 1 and 2 and are shown in the margin Line 803 is the total of lines 801 and 802 and should match Box A of the GFE Lines are for fees charged by 3 rd party services required by the lender in order to underwrite or process the loan.

37 These items are the same ones we are used to seeing except now each one references a matching line item from the GFE

38 Line 1001 is the total escrow payment Lines are the breakdown of each escrowed item Lines will be shown in the margin

39 Lines 1101 and 1103 now have matching items on the GFE 1101: Lump sum title services and lender s title policy 1103: Owner s title policy Lines 1102 and 1104 are the two amounts that total the amount shown on Line 1101 Lines 1105 thru 1108 are informational lines about the title insurance policies

40 Lines 1201 and 1203 have matching lines from the GFE Lines 1202, 1204 and 1205 will only show in the margin as a breakdown of the aggregate fees on 1201 and 1203

41 Line 1301 is the total fee for other required services such as pest inspection or survey Lines will break down those charges in the margin Line 1400 is the total of all the charges for lines and will carry over to page 1

42 Surveys The location of the survey fee on the HUD-1 is determined as follows: (a) 800s: if the loan originator required a survey as a condition of the loan and selected the settlement service (b) 1300s: if the loan originator required a survey as a condition of the loan and the borrower selected the settlement service provider OR if the borrower elected to obtain a survey that was neither required by the loan originator nor required to issue title insurance (c) 1100s: if a survey was required to issue title insurance policy

43 Survey Tolerances (a) 10%: if the loan originator required a survey as a condition of the loan and the originator selected the settlement service (b) 10%: if the loan originator required a survey as a condition of the loan and the borrower selected the settlement service provider from a list provided by the lender (c) Not sure: if a survey was required to issue title insurance policy probably changed circumstances allowing for revised GFE and then 10% tolerance (d) Full tolerance: if the borrower elected to obtain a survey that was neither required by the loan originator nor required to issue title insurance

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46 Page 3? What s that all about?

47 Matches sections of the HUD-1 to sections of the GFE Page 3 of GFE Items that cannot change at closing Page 3 of HUD-1

48 Items with a 10% tolerance at closing Page 3 of GFE Page 3 of HUD-1

49 Items that can change (significantly) at closing Page 3 of GFE Page 3 of HUD-1

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51 Truth in Lending On May 19, 2009 Regulation Z was amended to implement changes to the Truth in Lending Act (TILA) made by the Mortgage Disclosure Improvement Act of 2008 (MDIA). The initial Truth-In-Lending (TIL) Disclosure must be delivered no later than the third business day after receiving an application for a loan.

52 What is the 10 day rule MDIA requires that the initial TIL be delivered or placed in the mail no later than the 7th business day before consummation. The seven (7) PRECISE business day waiting period begins when the lender delivers the initial TIL Disclosure or places it in the mail.

53 Tolerance TILA requires that the borrower receive new disclosures (Corrective TIL) at least three (3) PRECISE business days before closing if the APR at closing will exceed by more than.125% (1/8%) the APR in the most recent TIL provided to the consumer (either the initial TIL or a more recent TIL).

54 Redisclosure If at consummation (signing of loan documents), the annual percentage rate (APR) will exceed by the applicable tolerance the APR in the most recently provided TIL Disclosure, the consumer must receive re-disclosure of all changed terms at least three (3) business days before consummation of the loan.

55 Second Mortgages When the borrower is using a second loan to help finance the purchase of a home each loan must have a separate GFE and a separate HUD-1. The principal amount of the second loan must be listed outside the borrower s column with a brief explanation on Line of the HUD-1

56 RESPA FAQ Or Google RESPA FAQ

57 Minor, Bell & Neal Battlefield Title Agency, Inc. 745 College Drive, Suite B Dalton, GA Battlefield Crossing Ct. Ringgold, GA Tom Minor Direct Dial: Karen Ingle Direct Dial:

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