RESPA

The real estate profession has become increasingly based in legalities. While a handshake can signify an agreement, the contract is the foundation of the real estate transaction today.

With the increased focus on legal issues, NVAR provides members services in the legal arena. Various articles on current and hot legal topics are provided through the weekly NVAR Online News. In addition, the Legal Information Line is available to members.

There are many real estate related questions that arise often. These FAQs (Frequently Asked Questions) by topic are provided to assist you in finding quick answers.

RESPA

Q:  RESPA made changes to its policies, what are those changes?

A:   The final rules reforming the Real Estate Settlement Procedures Act (“RESPA”) have finally been published by the U.S. Department of Housing and Urban Development (“HUD”).  Generally, these changes to the RESPA rules do not involve the real estate agent; but they are important to know and understand so that the agent can help his client understand lending and closing disclosure requirements.

The changes shortened the four-page standardized Good Faith Estimate (GFE) form to a three-page form.  Effective January 1, 2010 HUD will require mortgage lenders and mortgage brokers to provide consumers with the new standard GFE form within three (3) days of receiving an “application”.  The new GFE has a summary of key terms of the loan, an estimate of total settlement charges, and an estimate of total settlement costs.  Page 3 of the GFE form provides space in a chart format for a lender or broker to present a borrower with two additional loan options.  This is for comparison purposes so the borrower understands that a higher interest rate could reduce up-front settlement costs and a lower interest rate could increase the up-front charges a consumer would pay at the closing table.  Lenders/brokers are not required to fill out this chart; it is optional.

The Settlement Statement (HUD-1) form is redesigned to have the same categories of loan information as the GFE form (although these are not necessarily in the same order as the GFE form).  

The GFE has a section on page 2 which explains to the borrower what settlement charges may vary in the HUD-1.  It says, “This GFE estimates your settlement charges.  At your settlement, you will receive a HUD-1, a form that lists your actual costs.  Compare the charges on the HUD-1 with the charges on this GFE.”  Below this information is a table that tells the borrower the charges:
(1) that cannot increase from GFE to HUD-1 (zero tolerance charges),    
(2) that can only increase by 10% between the GFE and the HUD-1, and  
(3) that can change.  

The HUD-1 has a table on page 3 that lists the settlement charges as they were on the GFE and as they are on the HUD-1 so that the borrower can compare the charges.  

The RESPA changes on the GFE and HUD-1 forms that I have discussed above are primarily the changes that concern real estate agents.  There are many other changes in the RESPA rules which I will discuss in future articles, but these are the ones that real estate agents need to be aware of now.  The changes in the GFE and HUD-1 forms will not be effective until January 1, 2010.  See the new GFE and HUD-1 forms below.

Q:  What changes did RESPA make to the Good Faith Estimate form and HUD-1 Settlement Statement?


A:  The effective date for the U.S. Department of Housing and Urban Development’s (“HUD”) new Real Estate Settlement Procedures Act (RESPA) rule was January 1, 2010.  HUD’s new rule mandates use of a new Good Faith Estimate (GFE)  and a new HUD-1 Settlement Statement, and is intended to reduce consumer’s closing costs by encouraging comparison shopping.

Originally RESPA was enacted in 1974 to provide consumers with improved disclosures of settlement costs and to reduce the costs of closing by the elimination of referral fees and kickbacks.

Since January 1, 2010, HUD requires that lenders and mortgage brokers provide consumers with a standard Good Faith Estimate (GFE) that clearly discloses key loan terms and closing costs. Closing agents will also be required to provide borrowers a new HUD-1 Settlement Statement that clearly compares consumers' final and estimated costs. The new RESPA rule became effective on January 16, 2009, but provided a one-year transition period for the mortgage industry to incorporate these changes.
Generally, these changes to the RESPA rules do not involve the real estate agent; but they are important to know and understand so that the agent can help his client understand lending and closing disclosure requirements.

The HUD-1 Settlement Statement form is redesigned to have the same categories of loan information as the GFE form (although these are not necessarily in the same order as the GFE form).  

Closing agents are required to provide borrowers the new HUD-1 Settlement Statement  which clearly compares consumers' final charges with the GFE estimated costs so the borrower can compare the charges

The GFE explains to the borrower what settlement charges may vary in the  HUD-1 Settlement Statement  and the parameters for such changes.

Although there are many other RESPA changes on the GFE and HUD-1 forms, these are primarily the changes that concern real estate agents.