HUD s New RESPA Rules for HUD-1: With Q & A

Transcription

1 HUD s New RESPA Rules for HUD-1: With Q & A Presented by: Paul McNutt, Jr. General Counsel Title Resources Guaranty Company The Secretary of HUD announced on Nov. 12, 2008, that effective on January 1, 2010, the loans that are regulated under RESPA will require a new three page HUD-1 to close. The new addition to the HUD-1 will have a comparison the title agent must prepare with the amounts on the lender s new required good faith estimate (GFE) that were given to the consumer. This is compared with the actual closing costs incurred in closing. Also, at the end of the normal buyer/seller sections of the HUD-1 there will be on page 3 of the revised HUD-1 a summary of loan terms that must be filled in by the title agent, with the terms of the loan supplied from the lender. 1

2 The purpose of this new HUD-1 form is to enable a customer to compare from their new lender required GFE, the actual costs incurred at closing. They may want to have this to compare before closing the transaction. So you need to be prepared to request the information from the lender necessary to fill out the comparison with their GFE. The real teeth of the new rules is that the lender will be required to give every borrower of a RESPA loan a GFE, and, certain of the costs stated in the lender GFE must be the same in the actual costs you show on the HUD-1. Some costs may vary no more than 10% from the lender s good faith estimate. And, some costs can vary an unlimited amount. A lender that selects the title company for closing must comply. 2

3 The lender must offer any borrower, whose actual costs in the group that must be no more than 10% over the GFE, a reduction of the costs by the amount necessary to have those costs not over 10% higher than the GFE. This adjustment of costs to the consumer must be done by the lender within 30 days after closing. It will be a lender requirement by HUD. It is not a title requirement for the loan to be insured. Therefore, the title agent must see that the numbers are presented exactly as shown on the lender instructions from their GFE, and show how much the amount each of the costs varies from the actual costs incurred, on the 3rd page comparison chart. The title closing agent will not make changes to the actual costs to bring any good faith estimates into compliance. Both because it is a lender required matter to make the adjustments to the actual amounts, and because any such adjustment by the title agent to induce business could be considered a violation of the federal RESPA anti kick-back rules. The changes to the HUD-1 after closing will be done at the office of the lender, who makes the adjustment with the borrower of their costs to be in compliance with their GFE. 3

4 Details about changes to the HUD- 1 Form for 1/1/2010 Page One The first page of the HUD-1 form is almost unchanged. The only addition is a telephone number for the settlement closing agent is now required. Be sure that is added in your form. 4

5 Page Two The second page of the HUD-1 changes to make it more closely align with the revised GFE form of the lender. This is needed to make the comparisons that will be required on the new Page 3 of the HUD-1. As to Sections 800/900/1000, these may be changed by lender s input to HUD before the new forms are effective, but will not be our concern. We will examine in detail the Sections 1100, 1200 and 1300 series. The principal change is the revision to Section 1100 series, Title Charges. 5

6 6

7 1100. Title Charges New Line 1101: Title Services and Lender s Title Insurance Total of all charges formerly itemized in the 1100 series: Lender s Title premium Document Preparation Escrow fees Disbursements to any third parties for title or attorneys regarding closing (Also, will be itemized outside the column later). Here you will include any tax service fees or e filing, down-load fees, etc. The total will be compared with a total from the lender on the GFE on Page 3 of the HUD-1. This will be in the Section for 10% tolerance Title Charges New requirements in HUD s instructions: Certain costs are to be shown in the column,(column meaning the list that will be included in the total shown at line 1400). Others are to be included outside the column (meaning in the lines of text). 7

8 1100. Title Charges Line 1102: Settlement or closing fee Anyone paid fees will be detailed here with text of name and amount, but not in the column Title Charges Line 1103: Owner s Title Policy NEW! This is shown as a borrower cost in column, even if the contract provides that the cost is to be paid by the Seller. The credit to buyer from seller is shown as a page 1 credit to borrower for this cost, if paid by seller. This will be compared with a total from the lender on the GFE on Page 3 of the HUD-1. This will be in the Section for 10% tolerance. 8

9 1100. Title Charges Line 1104: Lender s Title insurance The number is shown here but not in column Title Charges Line 1105: Lender s title policy limit $ This is the liability amount of the policy. The presumption is there is only one Lender s title policy. A second HUD-1 would be required for a split loan. How this is then totaled on the GFE for one lender doing a split loan is not known at this time, but should be answered by HUD before 1/1/

10 1100. Title Charges Line 1106: Owner s title policy limit $ This is the liability amount of the Owner s Title policy. Line 1107: Agent s portion of the total title insurance premium $ This is new and not in column, but a text amount of the part the agent retains Title Charges Line 1108: Underwriter s portion of the total title insurance premium $ This is new and not in column, but a text amount of the underwriters premium amount. Line 1109: Escrow Fee? Not shown, but used in Texas, so probably shown here, not in column as will be totaled with the other 1100 series on line

11 1100. Title Charges Line 1110 Attorney Fees? Not shown, but used in Texas, so probably shown here, not in column, as will be totaled with the other 1100 series on line

12 1200. Government Recording and Transfer Charges Section One Lines 1201, 1202 & 1206 First, the total amount in 1201 of the recording fees. This is in column. This total is also shown in the GFE on the 3rd page and compared in the 10% tolerance column with the amount estimated by the lender Government Recording and Transfer Charges Section One Lines 1201, 1202 & 1206 (cont.) Then, Line 1202 itemizes the total from 1201 by type of document recorded, not in column. The seller portion of these fees must appear in the Seller column and is not totaled in the 1201 total of the borrower but appears as a seller charge for releases. Also, if there are other Seller charges for recording, such as certified copies of probate, heirship affidavits, or divorce decrees, these are itemized on line

13 1200. Government Recording and Transfer Charges Section Two Lines 1203, 1204, & 1205 Second, the amount in 1203 Transfer taxes. This is in column and will be compared with the GFE as a Zero Tolerance item. Lines 1204 and 1205 detail these charges by the City/County and State not in column. As there are no such fees in Texas, this will all be left blank. For all other states, consult your transfer fees. 13

14 1300. Additional Settlement Charges Line 1301 Required services that you can shop for $. This total is all the costs related to such items as survey, pest inspection, radon inspection, or other similar inspections. It is in column. A comparison of the total is made with the GFE on page 3 of the HUD-1, in the unlimited tolerance section. The detailed parties and amounts are then shown on the following lines of 1302, and 1303 not in column if such charges exist Total Settlement Charges This remains the same as in the prior HUD-1. 14

15 Page 3 is new. It begins with the comparisons of each group between the GFE numbers and the HUD-1 actual costs. Then, at the bottom, there is a block for the loan terms. 15

16 Comparison of Good Faith Estimate (GFE) and HUD-1 Charges First Section: Charges That Cannot Increase Mostly 800 series lender fees, and the Line 1203 Transfer Taxes (That are not charged in Texas). You place the HUD-1 totals from page 2 in the far column, and the amount given you by the lender from their GFE in the near column. 16

17 Comparison of Good Faith Estimate (GFE) and HUD-1 Charges Second Section: Charges That in Total Cannot Increase More Than 10%. Here are all Title Charges from the 1100 series, and line 1201 Government recording charges of the borrower. You place all the HUD-1 totals of these from page 2 of the HUD-1 in the far column, the GFE totals from the lender in the near column. Then you enter totals of this section HUD-1 and GFE. 17

18 Comparison of Good Faith Estimate (GFE) and HUD-1 Charges Second Section: Charges That in Total Cannot Increase More Than 10%. (cont.) The final step is to show on the next line the increase (if any) between the GFE and the HUD-1 charges in this section, or the % increase. If the % is over 10% the lender is under a duty to refund this difference to the borrower within 30 days of funding the loan. 18

19 Comparison of Good Faith Estimate (GFE) and HUD-1 Charges Third Section: Charges That Can Change These include items the borrower controls, such as line 903 homeowner s Insurance, and that depend on the date of the month you close, such as line 90l, the Daily interest charges. They also include the Initial Deposit for your escrow account from line

20 Loan Terms The terms of the loan required to be disclosed on this section are obtained from the lender. The official statement from HUD is: the loan originator shall transmit sufficient information to the closing agent to allow the closing agent to prepare the HUD-1/A, including the new last page. Questions 20

21 Will we use a HUD-1 after 1/1/2010 on any other type of transactions? Definitely not. The new form would be both confusing and unnecessary to any other customer transaction, such as a cash sale, or a commercial transaction. Note also that the new revised HUD-1A form can be used for borrower only transactions. So while you as a title agent are having your computer system reprogrammed to use the new HUD-1 and the new HUD-1A by the beginning of 2010, you will also need a normal closing statement system installed to be used on all other types of transactions that does not have a 3rd page comparison. It is also possible that you may wish to have your system adapt to using a 2 page HUD-1 or HUD-1A for non-hud insured transactions. How can we prepare for this change? You will need to be careful to train on how to review the new HUD-1 with clients, on every loan required to provide the comparison with the new good faith estimate. Be aware that only certain line items will be required to have the comparison of 10% difference, and even that is only as to the total of the section. Not every line item. Where you discover a difference that makes the adjustment by the lender necessary before closing, you should contact the lender and decide how the difference will be handled. It may be changed in the closing, under HUD s guidelines, with a lender credit to borrower possible at closing. Hopefully, this will be rare. 21

22 What if there is a difference between the GFE and the final HUD? Answers from HUD: (T)he rule provides that an inadvertent or technical error in completing the HUD-1/A shall not be deemed a violation of section 4 of RESPA, if a revised HUD-1/A is provided to the borrower and/or seller within 30 calendar days of settlement. This opportunity to cure errors on the HUD-1/A is consistent with HUD s longstanding policy permitting settlement agents to provide revised HUD-1/A settlement statements where errors are discovered after settlement. What if there is a difference between the GFE and the final HUD? Answers from HUD: (cont.) (T)he final rule also provides a loan originator with an opportunity to cure any violation of the tolerance by reimbursing the borrower any amount by which the tolerances were exceeded. This reimbursement bay be made at settlement or within 30 calendar days after settlement. HUD will deem a payment to have been provided in a timely fashion if it is placed in the mail by the loan originator within 30 calendar days after settlement. 22

23 Do we have to re-close if changes are made due to of either errors or reimbursement? HUD states that no signature is required on the HUD-1/A under their regulations, so you may change and resend the lender and parties the corrected HUD-1/A as far as they are regulating the matter. If the lender is required to make a refund you would not be required to handle that money, but could amend the HUD-1/A for all parties when that refund has been made, if requested by the lender. You would need to document the change with a detailed transmittal letter to the parties for your file. How these changes will be handled in your office will be an escrow decision for each agent to adopt before 1/1/2010. Will this new HUD-1/A process be used on all HUD regulated loans? The comparison of costs and requirement of refunds for the 10% tolerance requirements only apply if the lender has directed the business, either by placing the order directly, or having an approved list of title providers. If you are not sure as to whether you are having the lender direct the transaction, or whether you are on their approved provider list, check with the lender before closing beginning January 1,

24 When will changes in the HUD-1/A be required? The implementation is required for all closings that are made January 1, 2010 or later, but many lenders may require use of the new form sooner to be certain they have the process in place if a closing in December were moved to January for any reason. Your computer systems should be enhanced to allow either method before January 1, 2010, so that if you have a closing that holds over into 2010 you also are ready. HUD s Top 21 Questions & Answers on RESPA 2010 Changes as of 11/17/

25 Seller-paid items 1. Q: What if at closing the seller is paying for a settlement service that was listed on the GFE, such as the Owner s title insurance policy? How is that shown on the HUD-1? A: If the seller is paying for a service that was on the GFE, such as Owner s title insurance, the charge remains in the borrower s column on the HUD-1. A credit from the seller to the borrower to offset the charge should be listed on the first page of the HUD-1 in Lines and Lines respectively. HUD Series 2. Q: When the borrower is using a second loan to help finance the purchase of a home, may both loans go on one HUD-1? A: No, 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 for the primary loan. If the net proceeds of the second loan are less than the principal amount, the net proceeds may be listed on the same line in the borrower s column Second Loan (principal balance $30,000)$29,

26 HUD Series 3. Q: Where do I put the percentage of commission to the real estate agents on the HUD- 1? A: 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. HUD Series 4. Q: May a real estate agent rebate a portion of the agent s commission to the borrower? If so, how should the rebate be listed on the HUD-1? A: Yes, real estate agents may rebate a portion of the agent s commission to the borrower in a real estate transaction. The rebate must be listed as a credit on page 1 of the HUD-1 in Lines , and the name of the party giving the credit must be identified. Real estate agent or broker commission rebates to borrowers do not violate Section 8 of RESPA as long as no part of the commission rebate is tied to a referral of business. 26

27 HUD Series 5. Q: If an attorney prepares loan documents for a lender, where does that charge go on the HUD-1? A: Loan document preparation done on behalf of the loan originator is a processing and administrative service in the origination of a loan and is included in the charge on Line 801 of the HUD-1, and may not be separately itemized. See 24 CFR (b)(1) HUD Series 6. Q: Where is the charge for flood insurance shown on the HUD-1? What if the borrower pays it prior to settlement? A: Flood insurance should be disclosed on Line 904 of the HUD-1 with the charge in the borrower s column. If the borrower pays the insurance prior to closing, the item should be shown on Line 904 of the HUD-1 noted as Paid Outside of Closing or P.O.C. with the charge to the left of the column. 27

28 HUD Series 7. Q: What are title services? A: The term title services includes: 1. Any service involved in the provision of title insurance, including but not limited to: Title examination and evaluation Preparation and issuance of commitment Clearance of underwriting objections Preparation and issuance of policies All processing and administrative services required to perform these functions (e.g. document delivery, preparation and copying, wiring, endorsements, and notary); and 2. The service of conducting a settlement. HUD Series 8. Q: Where should the settlement agent list the commitment fee, wire fee and other miscellaneous title fees on the HUD-1? A: The commitment fee, wire fee, and other miscellaneous fees are included as processing and administrative fees that are part of the definition of title services. All of these types of fees must be included in the charges shown on Line 1101 of the HUD-1, and are not to be itemized separately. 28

29 HUD Series 9. Q: Are document preparation fees included in title services or would they appear as separate line item charges in the borrower s column? A: Document preparation fees are part of administrative or processing fees which are included in the charge in Line 1101 of the HUD-1 and may not be separately itemized. HUD Series 10. Q: Are delivery fees included in title services and therefore included in the Line 1101 of the HUD-1? A: Yes, delivery fees are included in the definition of title services and are included in the charge shown in Line 1101 of the HUD-1. 29

30 HUD Series 11. Q: Are notary fees included in title services and therefore included in Line 1101 of the HUD-1? A: Yes, notary fees are included in the definition of title services and are included in the charge shown in Line 1101 of the HUD-1. HUD Series 12. Q: How is the premium recorded on the HUD- 1if the borrower purchases an enhanced owner s title insurance policy, rather than a basic policy? A: Regardless of whether the borrower chooses to purchase a basic or an enhanced owner s title insurance policy, the premium must be listed in the borrower s column of Line

31 HUD Series 13. Q: If the title agent conducts the settlement, should the charge for conducting the settlement be included in Line 1101 of the HUD-1 with the itemized charge listed outside the column on Line 1102? A: Yes, the charge for conducting the settlement must be included in the total on Line If the charge is paid to a third party, the charge must be itemized outside of the columns on Line HUD Series 14. Q: If the settlement agent hires or pays a third party to facilitate electronic filing, where would that charge be shown on the HUD-1? A: If the settlement agent hires or pays a third party to facilitate electronic filing and the third party is not a governmental entity, the service to facilitate electronic filing is considered an administrative or processing fee included in the charge for title services in Line 1101 on the HUD-1. 31

32 HUD Series 15. Q:If State law requires further itemization of title services or title insurance related fees such as a commitment fee or fees for endorsements to a title policy, how should these fees be listed on the HUD-1? A: If state law requires further itemization of title service or title insurance related fees than required under RESPA, those fees may be itemized on blank lines in the 1100 series on the HUD-1 with the charge listed outside the borrower s column. Endorsements to a title insurance policy may also be listed in Lines 1103 and 1104 as applicable, with the charge listed outside the borrower s column. HUD Series 16. Q: If there are additional governmental recording fees, such as a power of attorney or road maintenance agreement, are they included in Line 1201 of the HUD-1 or can they be charged separately? A: Line 1201 is used to record the total government recording charges. Additional items the lender requires to be recorded, other than those already enumerated in Line 1202, must be itemized on Line The charges for these additional items must be stated outside the column. 32

33 HUD Series 17. Q: If it is required by state or local law for a seller to pay a portion of the total charge for transfer taxes, on what line should the seller s charge be listed on the HUD- 1? A: If it is required by state law for a seller to pay a portion of the total charge for transfer taxes and therefore not on the GFE, the seller s charge should be listed as a charge in the seller s column in Lines 1204 and 1205 on the HUD-1, and the total charges for transfer taxes should be itemized to the left of those columns, as indicated in the following example: 33

34 HUD Series 18. Q: What charges are shown on Line 1301 of the HUD-1? A: Line 1301 is the total of all charges for third party settlement services that the loan originator required but for which the borrower was permitted to select the service provider. The charge on Line 1301 is shown in the borrower s column. All charges included in the total amount on Line 1301 must be separately itemized outside of the columns in Lines 1302 and subsequent lines, identifying the type of service, the name of the provider, and the amount of the charge. HUD Series 19. Q: Where should the charge for the Homeowners Association (HOA) transfer fee be disclosed on the GFE and HUD-1? A: The charge for the HOA transfer fee, unless it is a service required by the loan originator, need not be disclosed on the GFE. The charge for the HOA transfer fee may be shown on a blank line in the 1300 series on the HUD-1. 34

35 20. Q: If a settlement agent revises a HUD-1 to cure a technical error or to reflect a tolerance cure, may the settlement agent mark the HUD-1 as Amended to distinguish from the original HUD-1? A: Yes. If a settlement agent revises a HUD-1 to cure a technical error or to reflect a tolerance cure, the settlement agent may mark the HUD-1 as Amended to distinguish it from the original HUD Q: May a credit for a tolerance cure be listed on page 1 of the HUD-1? A: The cure for a potential tolerance violation may be listed as a credit to the borrower on page 1 of the HUD-1 with a description of the service(s) the credit is applied to. If the tolerance cure is applied to the overall tolerance category Charges That in Total Cannot Increase More Than 10%, the tolerance cure credit may be listed as a lump sum amount on a blank line in Lines with a description of the tolerance category cure. The comparison chart on page 3 of the HUD-1 should reflect the credit given for that service to cure the potential tolerance violation in the appropriate tolerance category. 35

36 This example illustrates a $180 tolerance cure for the 10% tolerance category: 36