“RESPA” TrainingUnderstanding RESPA Reform

Desktop Underwriter is a registered trademark of Fannie Mae. Loan Prospector is a registered trademark of Freddie Mac. This presentation is a summary and is not complete. This information is for mortgage professionals only and should not be distributed to or used by consumers or other third-parties. Information is accurate as of the date shown below and is subject to change without notice. 7/14/2010

• Background– What is RESPA?– What are RESPA covered transactions?– GFE Triggers– What is an “Application” per RESPA– Business Day vs. Calendar Day

• RESPA Reform– Overview of RESPA Reform impact to GFE– Impact to existing Policies / Procedures

• Other Issues

Topics of Discussion

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BACKGROUNDWhat is RESPA?

What are RESPA covered Transactions?GFE Trigger

What is an Application?Business Day vs. Calendar Day

Background

The Real Estate Settlement Procedures Act (RESPA) is a consumer protection law that is designed to help consumers be more knowledgeable when shopping for settlement services (mortgages, title insurance, etc.) and to eliminate kickbacks and referral fees that unnecessarily increase the costs of some settlement services.

HUD has been working on RESPA reform for several years. After five months and 12,000 public comments on the proposed reforms, the final RESPA rule was published on November 17, 2008.

Various RESPA FAQs available – appear to conflict with other laws, such as TILA, in various respects.

Implementation Date: January 1, 2010January 1, 2010

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RESPA Covered Transactions

RESPA Covered Transactions:

RESPA only applies to federally related mortgage loans placed on residential properties consisting of 1-4 unit properties.

RESPA does NOT govern: Rental Properties / Investment Properties Cash Transactions Seller-financed transactions Other business-purpose transactions

GFE Trigger

What triggers the need to provide a GFE?

The receipt of an application triggers the need for a loan originator to provide a GFE.

A loan originator must provide a GFE within 3 business days of the receipt of an application.

Who is the Loan Originator?

A “loan originator” is a Lender or a Mortgage Broker.

Loan Originators are:

For Retail: First Mortgage Corporation For Wholesale: Broker or Broker Company

APPLICATION

What is an Application per “RESPA”?

What is an Application?

The RESPA definition:

“Application means the submission of a borrower’s financial information in anticipation of a credit decision relating to a federally related mortgage loan, which shall include the:

1. Borrower’s name 2. Borrower’s monthly income3. Borrower’s social security number to obtain a

credit report4. Property address5. Estimate of the value of the property6. Mortgage loan amount sought, AND

Any other information deemed necessary by the loan originator.

An application may either be in writing or electronically submitted, including a written record of an oral application.”

FMC: First Mortgage will follow the 6 required items above to trigger the GFE!

Delivery of the GFE

The “Initial GFE” distributed by any loan originator in a transaction becomes the binding GFE

For Wholesale, the Broker is responsible for issuing Initial GFE. Lenders will be accountable for mortgage broker’s GFE

For FMC, the brokers are issuing their own GFE’s and we will only accept files that meets the new RESPA requirements.

Files that do not meet RESPA may be returned to the broker.

Delivery of GFE

Delivery:

The revised rule states that a GFE may be provided by:1. Hand delivery2. Mail, or, if the consumer agrees, by3. Fax4. E-mail or 5. Other electronic means

Electronic Delivery:

With regard to electronic delivery, a HUD FAQ states that as long as the consumer consents and the other specific requirements for consumer disclosures under the Electronic Signatures in Global and National Commerce Act (ESIGN) are met, a GFE may be provided by e-mail, fax or other electronic means.

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Business Day vs. Calendar Day

Business Day = (General Business Day per MDIA):

Under RESPA, days in which a lender’s office’s are open to the public for carrying on substantially all of it’s business functions (i.e. for FMC this is all calendar days (M-F) excluding Saturdays, Sundays and specific Federal legal public holidays).

Calendar Day = (Specific Business Day per MDIA):

Same as rescission period which is Monday through Saturday excluding Sundays and specified Federal legal public holidays.

Note, this is the specific “business day” definition under Regulation Z for TILA disclosures.

RESPA vs. MDIA

TOPIC RESPA MDIA

Business Days Days in which a lender’s offices are open to the public for carrying on substantially all of its business functions

Same as Rescission Period (Monday – Saturday excluding Sundays and Federal Holidays

Initial Disclosures

Handled by Loan Originator (Lender or Broker) within 3 business days (General Business days) of receipt of an application

Handled by Lender (who is on Note) within 3 “specific” business days from receipt of a written application (Oral applications must be written down or it doesn’t count.

Fee Collection Fees beyond a credit report fee may be imposed after a loan applicant:1. Receives a GFE, AND2. Indicates an intention to

proceed with the loan covered by the GFE

Fees beyond a credit report fee may be imposed 3 days after mailing the initial TILA disclosures unless lender can prove disclosures were received earlier or handled face-to-face

Responsible Party

Loan Originator which can be the:1. Lender for Retail loans, OR 2. Broker for Wholesale loans

Creditor – Entity named on the face of the Note (FMC)

Overview

Overview of RESPA Changes

Overview of RESPA Changes

Significant Changes

1. Standardized Good Faith Estimate (GFE)

2. Disclosing points and yield spread premiums

3. Create fee tolerances between GFE and HUD-1

4. Changed Circumstances

5. Use of Average Charges

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1. Standardized GFE

The new Standardized GFE discloses key loan terms and closing costs.

Potential consumers savings of up to $700 with improved up front disclosures limiting the amount of estimated charges a lender can charge the applicant

Empowers families to shop for appropriate loans that meet their needs

Compare fees between lenders

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2. Disclosing Points & YSPs

We are now required to disclose points and yield spread premiums which are those charges for getting the loan.

For Retail – Disclosure of Rebate /YSP is not required You disclose all origination fees, add any discount

points if applicable, to obtain the adjusted origination charges

For Wholesale - Brokers will disclose the Rebate/YSP as a credit, and Discount Points as a charge You will disclose all origination fees, subtract any

Rebate/YSP (or add any discount points), to obtain the adjusted origination charges

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3. Fee Tolerances between GFE & HUD-1

The new reform also creates fee tolerances between the GFE and the HUD-1.

There are three categories for tolerances1. 0% Tolerance2. 10% Tolerance3. No Restriction

Applicants are able to compare estimated costs on the GFE with final costs on the HUD-1 Each designated line on the HUD-1 will now reference a

relevant line on the GFE

Lenders can cure violations of tolerances by reimbursing the applicant the amount by which the tolerance was exceeded. Reimbursement must be made at settlement, or within 30

days after settlement

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GFE Tolerances

There are three categories for tolerances:

1. 0% Tolerance – no change (increase) permitted

Government transfer taxes Origination charges (both Lender and/or Broker) Credit or charge (points) for the interest rate chosen

Only when the rate is locked Adjusted origination charges

Only when the rate is locked

2. 10% Tolerance – charges in total may not increase by more than 10%. There is no limit on the amount a specific charge may increase except for the overall cap

Government recording charges Charges for loan originator-required services when the originator selects

the specific provider Charges for loan originator-required settlement services, title services,

required title insurance and owner’s title insurance, when the applicant uses a provider identified by the originator

3. No Restriction – no limit on increases in charges

GFE Tolerance Exceptions

There are three exceptions that permit a loan originator to revise a GFE without regard to the tolerances:

1. Changed Circumstances

2. Borrower-requested changes

3. Newly constructed homes

With a “changed circumstance” or “borrower-requested change”, only the changes affected by the changed circumstance or borrower-requested change may be increased.

4. Changed Circumstances

Changed Circumstances include:

Acts of God, War, Disaster or other emergency

Information regarding the borrower or loan, relied on in providing the GFE, that changes or is found to be inaccurate Eg., credit quality, loan amount, estimated property value,

or other information

New information regarding the borrower or loan not relied upon when the initial disclosure was provided

A Changed Circumstance does NOT include:

Any fluctuations in the market price

Any information obtained in the credit report prior to providing the GFE unless the information is inaccurate

Oops, my bad… (Lender assumes risk – not the consumer)

Changed Circumstances cont’d…

The information collected by the Loan Originator as part of the application cannot later become the basis for a changed circumstance.

The Loan Originator may issue a revised GFE in the following situations:

If you can demonstrate that there was a change in the particular information provided, OR

That the information provided was inaccurate so if underwriting and verification show the income relied upon in issuing the Good Faith causes a change in the applicants eligibility for that loan and those terms, then you are not bound by that Good Faith Estimate OR

That the LO did not rely on that particular information in issuing the GFE.

Changed Circumstances cont’d…

If an applicant requests changes to the mortgage loan that’s identified in the GFE, and that request changes the settlement charges or the terms of the loan, a new GFE must be provided within 3 business days of the applicant’s request.

Some of those changes could be a change in the loan term (includes loan amount changes), or maybe they have decided to go from a fixed rate loan to an ARM loan (Program Change).

If an applicant has NOT LOCKED a particular rate, or if the rate lock has EXPIRED, then all interest rate dependent charges on the Good Faith are subject to change.

Charges that may change include: The charge or credit for interest rate chosen The adjusted origination charges The per diem interest

Changed Circumstances cont’d…

Other circumstances for re-disclosure are: Boundary disputes, or Need for Flood Insurance, or Environmental problems

In the case of new construction, the exception is available when settlement is expected to occur more than 60 days after the GFE is provided.

In such a situation, the loan originator may provide along with the GFE a separate, clear and conspicuous disclosure stating that at any time up until 60 calendar days before closing the originator may issue a revised GFE.

Note: We have the “New Home Purchases Disclosure” form used for new construction in FirstBase – Form #3100L

HUD FAQ: If a use and occupancy permit has been issued for the home prior to issuance of the GFE, then the home is not considered to be under construction and the transaction would not be a new home purchase for purposes of the exception.

Changed Circumstances Form

FMC:

If there is a changed circumstance or borrower-requested change, within 3 business days, either:

1. Issue a revised GFE, revising only the applicable charges

2. Deny the loan (if applicable)

If you should decide to issue a revised GFE in a permitted situation

Document the reason that the new GFE was issued

Retain the documentation for no less than 3 years after settlement

GFE disclosure cont’d…

How long the terms of the GFE are good for:

When a GFE is issued, the GFE terms must be available for at least 10 business days. The “interest rate” and “other settlement charges” dates are

independent of each other

Intent to Proceed

If within 10 business days, the consumer expresses an intent to proceed with the loan covered by the GFE, the GFE is binding subject to both tolerances on charge increases and exceptions

If applicant does not express intent to proceed with the application within 10 business days after GFE is provided, the GFE is considered expired and the loan originator is no longer bound by the terms of the GFE.

Intent may be verbal or written. o If verbal, loan originator must document the conversation. o Written acknowledgement must specify means of intent.

GFE disclosure cont’d…

FMC:

FMC will follow the 10 day limit

Consumer’s Intent to Proceed:

A standard form is available INTENT TO PROCEED, to be signed by the Loan Originator (including Broker), documenting conversation with borrower on their intent to proceed; whether it’s by phone, in person or by electronic means

This form will be required in all loan files submitted to underwriting

5. Use of Averaged Charges

Another feature of RESPA Reform was the use of “average charges”.

Settlement Service Providers who now process 3rd Party Settlement Services, may charge consumers, the average charge of the settlement service, provided that the consumer does not pay more than what the provider paid for the charge.

Settlement Service Provider must define a class of transactions. They may define the classifications based on either a: Period of time A type of loan, and Geographic area

The same average charge must be used for all loan transactions within that classification, and they must recalculate the average charge every 6 months

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Averaged Charges cont’d…

3rd Party charges for services that are not based on property value or loan amount may be estimated, charged and reported using an average charge. Example services not limited to:1. Appraisals2. Credit Reports3. Flood Certificates4. Tax Service5. Recording Documents6. Etc.

Average charges may not be used for charges based on loan amount or property value such as:1. Transfer Taxes2. Interest Charges3. Escrow Reserves4. All Insurances (including title insurance)

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IMPACT TO EXISTING POLICIES & PROCEDURES

GFE Specific ChangesBenefits of the “new” GFE

GFE is given to borrower within 3 business days of “application”

GFE triggers – minimum items needed to have an application See the 6 trigger items under definition of “Application” Loan originator is presumed to have received the 6 minimum

application items if GFE is issued.  Loan Originator is bound by the terms of the GFE even if later determined that any of the 6 items was/were missing.

Cannot require supplemental documentation to verify information before a GFE is given To facilitate shopping for the applicant and for purposes of issuing a

GFE, the loan originator is prohibited and cannot require supplemental documents to verify the 6 minimum application requirements. For example, if at application, the applicant does not present his/her paystubs, W2s or tax returns to support the monthly income.

You can however, request the applicant to provide such information after the GFE has been provided in order to complete your final underwriting

GFE Specific Changes

GFE Specific Changes

Can only collect the credit report fee before GFE is given

You are NOT permitted to collect other fees such as the appraisal fee, inspection fee, etc. as a condition of giving the GFE

If the GFE is mailed, the consumer is deemed to receive the GFE 3 calendar days after mailing, exclusive of Sundays and Federal Holidays

HUD FAQ: A fee beyond a credit report fee may be imposed after a loan applicant both receives a GFE, and indicates an intention to proceed with the loan covered by the GFE.

***Compare with the MDIA fee restriction***

Who is responsible for issuing the “Initial” GFE?

The Loan Originator, is responsible for providing the initial GFE within 3 business days of receipt of application

Retail – Loan Officer or Processor Loan Officer or Processor prepares initial GFE in Calyx

Point or First Base using the respective branch fee schedule

Wholesale – Broker For Broker originated loan applications, either Broker or

Lender (A/E) provides the GFE, not later than 3 business days after Broker receives the application

Can be prepared using Calyx Point if available or any other LOS used by the Broker

Broker must use First Mortgage’s fee schedule Initial GFE’s not in compliance with First Mortgage’s

requirements may be subject to rejection, or the difference may be netted from any Originations/YSP’s

GFE Disclosures…Who’s Responsible?

What happens when a loan is locked?

Once a loan is locked, a revised GFE must be issued by the FMC Retail Branch, or Wholesale Branch (not the broker), which will include the new interest rate and related costs

When the loan is locked by Secondary Marketing, a locked GFE is automatically saved in the system and an e-mail gets sent to the Processor and LO to print the re-disclosed GFE to be sent to the borrower.  Any and all changes must be made to the Origination, Discount and YSP before Capital Markets approves the lock.  No changes should be made to these 3 items after the lock has been approved.  If changes need to be made to these 3 fields those changes must be made by someone in the Capital Markets department.

Be sure to compare the “initial” GFE against the “revised” GFE in order to verify whether a tolerance level has been exceeded, and provide detailed itemization of the variances.

GFE Disclosures…Who’s Responsible?

GFE disclosure cont’d…

Who is responsible for issuing the “revised” GFE?

HUD FAQ: When a broker and lender are involved, the 3 business day-period begins to run when either the broker or lender learns of the changed circumstance or borrower-requested change.

Under the revised RESPA rule, a lender and a mortgage broker each have the ability to issue a GFE.

If a broker provided a GFE, the lender is NOT required to provide an additional GFE.

A lender is responsible to ascertain if a GFE was provided

The rule does not expressly address if a lender can issue it’s own GFE after it accepts an application from a broker who provided the consumer with a GFE.

GFE disclosure cont’d…

Also, HUD is not particularly clear in the FAQs on the issue. Nevertheless, it appears that HUD views the revised GFE requirement as follows:

If the lender accepts an application from a broker that issued a GFE, the lender is bound by the GFE as if the lender had issued the GFE

A consumer must receive a GFE within 3 business days of a broker’s or lender’s receipt of an application.

As a result, brokers must coordinate with your lender so that when a broker receives an application, either the broker issues a GFE that is acceptable to one or more lenders, or at least one lender issues a GFE, within 3 business day’s of the broker’s receipt of the application

Key is: Level of coordination between Lender & Broker that didn’t exist in the past will need to happen to make this work.

GFE Sample Process Flowchart

FEE TEMPLATES

RETAIL:

Provide Operations Support sample of your various GFE’s for FHA, VA, CHF ACCESS, Conventional, CalPERS, CalSTRS.

This will allow us to build accurate fee templates in Point and FirstBase for each branch based on program and will ensure fees are correct every time.

WHOLESALE:

Provide Operations Support sample of your various GFE’s for FHA, VA, CHF ACCESS, Conventional, CalPERS, CalSTRS.

This will allow us to build accurate fee templates in Point and FirstBase for each branch based on program and will ensure fees are correct every time.

Brokers should work closely with their Account Executive to make sure all fees are in place

A “Provider of Services Disclosure” must list the ‘lender recommended providers’ for those services that may be selected by the borrower. Disclosure #1

For First Mortgage, we have a disclosure in FirstBase called “Affiliated Business Disclosure” which describes the relationship between FMC and other business entities (such as Hacienda Escrow or HSC Insurance) and give the applicant an estimate of the provider’s charges. Disclosure #2

This will need to be included as part of our initial disclosures.

A very extensive list of Service Providers that have previously been input are available in both Point and FirstBase.

For any new Service Providers, input their information in both systems in order for them to populate the form correctly.

Lenders are responsible for fee requirements listed by their Loan Officers or the Broker.

SERVICE PROVIDERS

TIME FRAMES3-Business Days3-Calendar Days10-Business Days

Important Time Frames

3 Business Days:

Loan Originator must provide a GFE within 3 business days of the receipt of an application

3 Calendar Days:

If GFE is mailed, the consumer is deemed to receive the GFE 3 calendar days after mailing

10 Business Days:

When a GFE is issued, the GFE terms must be available to the consumer for at least 10 business days, except for: Interest Rate Interest Rate dependent charges Related loan terms

New GFE will apply to all loans for which creditor receives an application on or after

January 1, 2010

“GFE” IMPLEMENTATION DATE

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FMC Training & Support

First Mortgage is committed to providing ongoing trainings on the new RESPA Reform

1. RESPA Overview Training / Completing the GFE DONE

2. Completing the HUD-1 Settlement Statement DONE

3. Point Training – You need Point Version 7.2 DONE

4. FirstBase Training – FMC internal LOS system DONE

5. FMC Process Training – DONE

HUD is seeking legislation to determine how to assess penalties for non-compliance so BE PREPARED!!!

Train your internal teams/staff on the new RESPA rules, GFE, and any new software requirements

DOCUMENTATION is the key!

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RETAIL TRAINING Q&A

WHOLESALE TRAINING Q&A

On behalf of First Mortgage, thank you for joining

today’s training and we hope the information

provided will help you build your business!

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