Settlement rules set to change effective January 2010

Settlement rules set to change Jan. 1
By Michele Lerner SPECIAL TO THE WASHINGTON TIMES

Future homebuyers may not be aware of the major changes in the Real Estate Settlement Procedures Act (RESPA) rules that go into effect on Jan. 1, but industry professionals have been preparing for months for the new Good Faith Estimate (GFE) and HUD-1 forms. A GFE is a form provided to loan applicants that includes a summary of the loan terms and an estimate of anticipated closing costs. The HUD-1 form is the statement provided to both buyers and sellers at settlement with detailed information about the required payments from both sides of a transaction.

Lenders have three days after a borrower completes a loan application to provide a written GFE. Borrowers have 10 days to review the form and compare forms from other lenders or shop around for services such as a title company or title insurance. The GFE is tied to a loan application for a specific property under contract, although borrowers can ask for a general estimate of closing costs when they request a loan preapproval before shopping for a home.

The changes to the two forms are intended to make loan features and closing costs "clearer" to buyers, demonstrate the ability of consumers to shop for loans and some services, and make sure estimates of the cash needed at closing are more accurate.

The key elements of the new forms are that they hold lenders accountable for their closing-cost estimates and encourage consumers to compare fees and services from multiple providers. Consumers typically work with the title company, pest inspectors and homeowners insurance companies recommended by their Realtor or lender rather than compare rates for these services.

"In the past, the GFE was just a list of likely fees, a true estimate with no requirement of accountability for the lender," says Holly Spencer Bunting, an associate who practices in the areas of mortgage banking and consumer finance with K&L Gates LLP in the District. "That is substantially changing, with the biggest difference being that lenders are now accountable for the fees borrowers need to pay at settlement."

The Department of Housing and Urban Development (HUD) created the new RESPA rules in an attempt to answer consumer complaints about closing costs and create a better understanding of mortgage loan terms.

"The new RESPA rules will have a tremendous impact on the way consumers pick their service providers when they buy a home," said Todd Ewing, president of Federal Title & Escrow Co. in the District. "The impetus for the change was consumer complaints about surprises at the closing table."

Ms. Bunting says HUD officials have said consumers sometimes expect to pay $5,000 at closing and then have to pay as much as $8,000 because the GFEs are so wrong.

The fees paid at settlement are now divided into three "tolerance buckets," which refer to whether the fees can change from the GFE and how much they can change.

"The first bucket has no tolerance for errors, so if anything changes at the settlement table, it must be 'cured,' or paid for by the lender," says Barbara Roubo, vice president and mortgage branch manager for Chevy Chase Bank in Reston.



Source: Washington Times