http://www.hud.gov/offices/hsg/ramh/res/respa_hm.cfm
For the first time in more than 30 years, the U.S. Department of Housing and Urban Development has issued long-anticipated mortgage reforms that will help consumers to shop for the lowest cost mortgage and avoid costly and potentially harmful loan offers. HUD will require, for the first time ever, that lenders and mortgage brokers provide consumers with a standard Good Faith Estimate (GFE) that clearly discloses key loan terms and closing costs. HUD estimates its new regulation will save consumers nearly $700 at the closing table.
Highlights include:
1. Only fee allowed to be collected for upfront is a reasonable credit report fee (so no more application fees should be charged, but be aware of fees starting to be charged after application and before the approval though).
2. The appraisal fee, or any other associated fees, cannot be collected for until the 4th business day after the borrower receives disclosures.
3. A loan cannot close until 3 business days after the redisclosure of the final TIL (Truth-In-Lending Statement) to the borrower (this does not affect refinances of owner occupied homes since there is already a 3 day right to cancel/rescind before the loan funds, but on purchase transactions this would make a "rush closing" that had some last second changes be very hard to accomplish).
4. If the APR on the TIL statement increases by more than .125% from the original TIL statement, the borrower must be redisclosed with a new TIL statement.
You can also read the Federal Reserve's PR piece on it at http://www.federalreserve.gov/newsevents/press/bcreg/20090508a.htm
What is the purpose of the new rule?
Simplify and improve the process of obtaining home mortgages and reduce settlement costs for consumers- Improve the GFE to make it more user friendly
- Facilitate shopping
- Prevent unexpected charges at settlement
What is the problem within mortgage transactions today?- Borrowers are provided estimate settlement cost information on a GFE only after paying a significant fee to the originator, which somewhat prevents shopping
- Estimates are not reliable and final charges at settlement include additional surprise fees
Under this proposal, can the originator continue to operate as they do today using the GFE?
NO – one of two disclosure methods must be used- GFE (new)
- Guaranteed Mortgage Package
NEW GFE- The GFE must be delivered 3 days after application and valid for a min. of 30 days from when the document is delivered or mailed to the borrower.
How does this new regulation change the way that fees are disclosed?
- Under current rules, mortgage broker compensation is disclosed on the GFE while all indirect payments, including YSP are disclosed separately as “POC”. The new regulation will require that in all loans, any payments based on “above par” interest rate be reported as a lender payment to the borrower.
- The rule prohibits the broker from exceeding the charges stated on the GFE for their own services, lender services, third party services, and government charges. A particular tolerance (in aggregate) will be established for shoppable lender required (“services we select”) appraisal, credit (third party services), borrower selected title and insurance, and reserves/ escrows.
- Changed Circumstances are permitted to exceed tolerances
- Emergencies
- New information
- Flood insurance
- Environmental problems
- Boundary disputes
- Changed or inaccurate information (loan product, home value, credit quality, loan amount, income, floating interest rate) – but does not include market price fluctuations.
- What are the GFE ZERO tolerances?
- LO’s origination charge
- Charge or credit for the specific interest rate chosen (after the rate is locked)
- Adjusted origination charges (after the rate is locked)
- Government transfer taxes
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