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Hot Off The Presses: New RESPA Rules

By: Myles, January 27th, 2009

HUD, (Housing and Urban Development), finally has reformed the RESPA Rules, in an effort to improve disclosure of key loan terms and closing costs paid by the consumer when they buy or refinance a property.

This final rule amends HUD’s regulations to further RESPA’s purposes by requiring more timely and effective disclosures related to mortgage settlement costs for federally related mortgage loans to consumers.  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 yield spread premiums (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.

While the final rule allows one year to implement the use of the new Good Faith Estimate and the new HUD-1 (settlement sheet), there are certain aspects of the final rule that did become effective January 16, 2009.

For all of the details on the Final RESPA Rules go to HUD, directly. In the interim, here is a summary of the final rule:

  • Good Faith Estimate — now it will be a three page document, including disclosure of yield spread premiums and the tolerance restriction. Effective date January 1, 2010.
  • HUD-1 (Settlement Sheet) - it will now also be a three page document. It will be redesigned to look like the Good Faith Estimate with cross references and a chart comparing charges in the Good Faith Estimate with the final charges appearing on the HUD-1.  Effective date January 1, 2010.
  • 30 Day Cure Period - loan originators may reimburse the borrower for tolerance violations within 30 days of settlement.  Effective date January 1, 2010.
  • Tolerance limitations on settlement charges - 10% price tolerances for certain services packaged by lenders.  Effective date January 1, 2010.
  • No Volume-Based Discounts- this eliminates explicit volume based discount language and reiterates HUD’s contention that all settlement service providers may negotiate discounts as long as they go to the consumer.
  • Use Of Average Charges - this is available to all settlement service providers with added flexibility for calculations.  Effective date January 16, 2009.
  • Revised Definition of Required Use - this is extended to both sellers and borrowers and allows legitimate consumer discounts.  Requires that discounts or incentives be given by the referred provider and not as an inducement by the referrer.  Effective date April 16, 2009.
  • Application Process - a one stage application process with greater flexibility on selecting underwriting criteria.  Effective date January 1, 2010.
  • Misc. - miscellaneous modifications regarding escrow accounts, servicing transfer notifications and the applicability of E-Sign.  Effective date January 16, 2009.

*Originally, the effective date was January 16, 2009, but HUD agreed to extend the effective date of the “required use” provision until April 16, 2009.

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