What you need to know about the new HUD and GFE

DC-1381985 v.1

New GFE/HUD-1Mortgage Brokers Really Need to

Know This Stuff

United Wholesale Mortgage2009 RESPA Webinar

Phillip L. Schulman, [email protected]

202-778-9027

November 18, 2009

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Background

1. RESPA reform has been going on since 1992

2. It is never without controversy, as proposed changes typically pit settlement service providers against each other

3. This was certainly the case in 2002 when HUD introduced a proposed rule calling for a guaranteed mortgage package

4. In 2004, the settlement service industry led the movement to have the rule withdrawn

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Background (cont’d)

5. In 2005, HUD conducted a series of roundtable discussions with industry representatives, trade associations, and consumer groups

6. Two and a half years later, HUD published its proposed RESPA rule on March 14, 2008 - HUD received approximately 12,000 public comments in response to the proposed rule

7. HUD’s timing for a new rule could not have been worse

8. But, HUD determined to get the rule out before end of Bush Administration

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Today’s Session

1. Familiarize Mortgage Brokers with these new rules

2. Discuss impact on the real estate industry

3. Identify the most complicated and troubling aspects of this rule

4. Help you respond to your clients’ questions and concerns

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Main Components

1. New Good Faith Estimate

2. Controversial YSP Disclosure

3. Tolerance Limitations

4. New HUD-1 Settlement Statement

5. Average Charges

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Good Faith Estimate – Final Rule

1. Centerpiece of RESPA reform

2. Goal was greater clarity and transparency

3. Only HUD could simplify process by taking one page GFE and turning it into three pages

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Good Faith Estimate – Particulars

1. Must be provided to Borrower within 3 business days of application

2. Lender may not verify Borrower information prior to issuance of GFE

3. Quotes good for 10 business days, unless “Changed Circumstances”

4. Lender may not charge Borrower for preparation of the GFE

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Good Faith Estimate – Page 1

ABC Mortgage Broker123 Maple Ave.Washington, DC 20006

(202) 555-5555

[email protected]

John Doe

123 Main St.Arlington, VA 22201

September 22, 2009

9/23/09 @ 9 am

10/5/09

30

15

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X

1,318.00X

X

X

1,725.00

X

295,000.00

305.0

10


X

1,725.00

1,500.00

9,685.00

11,185.00

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Good Faith Estimate – Yield Spread Premiums

1. What are YSPs?

2. Mortgage Brokers must disclose YSP

3. Mortgage Bankers do not disclose

4. WhySecondary market exceptionBrokers scream = not level playing field

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Good Faith Estimate – HypotheticalsPar interest rate = 6%

Total origination fee = $1,5003 Possibilities

i. loan closes at par rate$1,500 origination fee

ii. loan closes at 6.5% interest rate$1,500 origination fee to lender$2,000 YSP to mortgage broker

iii. loan closes below par at 5.5% rateborrower charged $2,000 in discount points

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1,500

X 6 0

1,500

14


3,500

X 6.5 -2,000

1,500

2,000

15


1,500

X 5.5 2,000

3,500

2,000

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Good Faith Estimate – LitigationA. December 19, 2008 NAMB sues HUD

1. Seek permanent injunction

2. Claim rule isarbitrary and capriciousviolates APAunlevel playing field = lower fees

B. July 2009

1. Court denies NAMB request for injunction

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$5,326.00

$1,000.00

$725.00

$295.00

$50.00

$1,200.00

$250$45

SurveyPest Inspection

$220 / $40$54 / $12$5,000.00

Appraisal/Credit ReportTax Service/Flood CertificationUpfront Mortgage Insurance Premium

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$400.00X X

$39.00

$650.00

$650ABC Insurance

$39.0010/31/091

9,685.00

11,185.00

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TOLERANCES

1. Epicenter of the Rule

2. Way HUD holds lenders’ feet to fire

3. Guts of the whole shindig

accuracy clarityencourage shopping

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TOLERANCES = 3 BUCKETS

A. Zero Tolerance

B. 10% Tolerance

C. No Tolerance

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22


295,000.00

5.0

1,725.00

11,185.00

23


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Good Faith Estimate – So What?

1. What happens if lenders’ prices exceed Tolerances?

2. Can they kill ya?No penalties under the Act

30 day cure period contractual

UDTP

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TOP TAKEAWAYS REGARDING

GOOD FAITH ESTIMATE

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Good Faith Estimate – Top TakeawaysNo. 1: Lender is bound by GFE provided by

mortgage broker

If lender accepts the GFE issued by the mortgage broker, the lender is subject to loan terms and settlement charges

A zero tolerance applies

Timely communication between the lender and mortgage broker is essential to assure compliance

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Good Faith Estimate – Top Takeaways (cont’d)

No. 2: Fees to be paid on behalf of the Borrower by the seller must be disclosed on GFE

The Rule:

1. Charges “typically” paid for by the Borrower are always listed on the GFE, even if seller pays them

2. Charges “always” paid for by the Seller are neverlisted on the GFE

3. Except that title charges are always listed on the GFE no matter who pays for them

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No. 3: A written list of settlement service providers must be provided to the consumer

1. When lender/mortgage broker permits Borrower to shop for third party settlement services, consumer must be provided with a list of providers on a separate sheet of paper

2. At least one provider per service required

3. Because provider chosen from lender list places transaction in the 10% tolerance bucket – expect lenders to limit number of vendors appearing on the list

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No. 4: Origination charges lumped together on GFE as a bundled fee

1. All origination charges for lenders and mortgage brokers included in Block 1 of the GFE under “Our origination charge”

2. Includes administrative fees, processing and underwriting fees, doc prep fees, etc.

3. Includes mortgage broker’s YSP

4. May not be itemized separately

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No. 5: Lender not stuck with estimates if circumstances change

1. Changed circumstancesloan terms or conditions changeproperty value changesborrower changes the deal

2. New GFEwithin 3 business days of change10 day shopping period starts overborrower can waive

3. Issuance of new GFE optionalsometimes lender may choose to issue a new GFEwhen?

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HUD-1 Settlement Statement

1. Final settlement figures

2. HUD seeks simplicity but turns 2 page Settlement Statement into 3

3. All settlement service providers critical of proposed March 2008 HUD-1

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HUD-1 Settlement Statement – HUD Listens

1. Realtors rewarded with synchronized HUD-1 that matches up with GFE

2. Title companies thrilled to see Closing Script withdrawn, but still have to show premium split between underwriter and agent

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HUD-1 Settlement Statement – Page 1

Seller credit for transfer taxes Seller credit for transfer taxes1,200.00 1,200.00

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16,000.00

$1,500.00$450.00$40.00$76.00$12.00

$897.00$5,000.00

$600.00

$512.0050.00

130.00498.00

166.00

50.00130.00166.00

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9,000 RE Broker #19,000 RE Broker #2

Earnest money deposit held by RE Broker #2 $2,000 P.O.C.

ABC Broker/XYZ Mortgage 3,500-2,000

Appraisal AmericaCredit Report Co.Tax Service USAFlood Certification, Inc.

10/8 10/31 39.00121

FHA

ABC Insurance

ABC Broker/XYZ Mortgage

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Survey to XYZ Survey Co.Pest Inspection to Bug-B-GoneHome Warranty to Home Warranty USA

225.0045.00

$13,922.00 $17,340.00

$300.00

$270.00

600.00600.00

15.00

600.00600.00

30.0025.00

215.00860.00

175.00

$1,200.00

$55.00

$1,200.00$15.00

$900.00

$2,110.00$125.00

300,000295,000

ABC TitleABC Title

ABC Title/UnderwriterABC Title/Underwriter

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AppraisalCredit ReportTax Service FeeFlood CertificationUpfront Mortgage InsuranceTitle Services – Lender’s InsuranceOwner’s Title Insurance

804805806807902

11011103

$50.00$220.00$40.00$54.00$12.00

$5,000.00$1,000.00

$725.00$7,101.00$1,542.00

$55.00$450.00$40.00$76.00$12.00

$5,000.00$2,110.00

$900.00$8,643.00

21.7

$400.00$39.00

$650.00$250.00$45.00

$512.00$897.00$600.00$225.00$45.00

13021303

SurveyPest Inspection

$3,500.00$-2,000.00$1,500.00$1,200.00

$3,500.00$-2,000.00$1,500.00$1,200.00

39.00

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HUD-1 Settlement Statement – Page 3295,000.00

30

5

1,725.00

2,071.00346.00

1,318.00

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MORE TOP TAKEAWAYSHUD-1 SETTLEMENT STATEMENT

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HUD-1 – Top Takeaways

No. 6: If Seller or Realtor pays Borrower Charge

1. Remember, this applies to Seller payment of charges “typically” paid for by Borrower

2. Shows up as a credit to Borrower on page 1 of HUD-1 Settlement Statement

Line 206 to Borrower

Line 506 from Seller

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HUD-1 – Top Takeaways (cont’d)

No. 7: Real estate commission percentages no longer disclosed

1. Percentages used to compute the sales commission removed from new HUD-1

2. Total amount of commission to each real estate broker or agent appears as Lines 701 and 702 (with amount of commission disbursed at settlement appearing inside the columns on Line 703)

3. New disclosure helps avoid Busby concerns

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No. 8: “Title services” fee also bundled

1. Again, title service fees bundled on Line 1101 of HUD-1

2. Includes title insurance, settlement costs, surveys, title examination fees, commitment fees, etc.

3. However, fees paid to third parties included in Line 1101 bundle must be itemized outside the columns in the 1100 series

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No. 9: Lenders must provide settlement agents with information to complete the HUD-1

1. No way settlement agent could complete page 3 of HUD-1 without Lender’s assistance

2. Page 3 will be of particular interest to your customers as it discloses whether Lender exceeded the tolerances

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Average Charges

1. What’s that all about?

2. Settlement service providers getting killed by class action lawsuits

3. March 2008 rule allowed only lenders to use average charges

4. Final rule permits all settlement service providers opportunities to use average charges

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MORE TOP TAKEAWAYS

AVERAGE CHARGES

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Average Charges – Top TakeawaysNo. 10: Settlement service providers not

permitted to make a profit on average charges

1. What to do if average charge turns out to be higher than actual charges?

Consumers do not get a refund

Overage credited to next average charge period

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Effective Dates

1. New GFE and HUD-1 forms go into effect January 1, 2010

2. Average charges went into effectJanuary 16, 2009

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Conclusion

1. HUD did a decent job of providing more transparency and clarity to settlement process likely to encourage greater consumer shopping

2. Despite MBA and other financial institutions’attempts to get HUD or Congress to scrap the rule, HUD is committed to the January 1, 2010 effective date

3. Lots of changes – Expect the unexpected

What you need to know about the new HUD and GFE

Economy & Finance

Transcript of What you need to know about the new HUD and GFE