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Industry NewsRecognize changes in new GFE and HUD-1
REALTORS® should now be working with the new Good Faith Estimate (GFE) and HUD-1 forms and they need to understand the changes to the two forms and how those changes can impact their buyers and them.
Mortgage lenders are using the new forms in compliance with the new regulatory requirements under the Real Estate Settlement and Procedures Act (RESPA) which took effect January 1. The Department of Housing and Urban Development (HUD) said it would exercise restraint in enforcing those requirements for 120 days.
“All lenders should be using these new forms at this point but HUD will show some leniency as long as lenders are making a good faith effort to comply with these changes,” said Brett Woodburn, Esq., PAR’s associate general counsel.
The RESPA rule changes were designed to provide greater clarity and transparency in the loan process for the consumer, as well as create more accountability from lenders. The new forms create three lending areas: zero-tolerance fees that aren’t estimates but fees the lender commits to, 10-percent fees which are estimates from the lender that cannot vary more than 10 percent and no-restriction fees which include fees that are beyond the lender’s control.
One area of the forms that may create issues at closing is “change of circumstance.” For example, if the interest rate changes when the buyer locks in, the lender can prepare a revised GFE. The lender can only change those costs that are affected by the change. “In other words, the lender cannot change the origination costs because an interest rate change has no bearing on the origination costs,” he added.
Once a buyer provides a lender information in six key areas, the lender has to generate a GFE. The lender cannot condition generating a GFE upon receiving supporting documentation, Woodburn said. After the buyer decides to accept the loan terms presented on the GFE, however, the lender can (and will) request all of the supporting documentation from the buyer.
Non-local lenders who are unfamiliar with local transfer taxes may create problems at settlement, according to Woodburn. Transfer taxes fall within the zero-tolerance category and if the lender underestimates what a buyer will owe in transfer tax, the LENDER will have to pay the difference. The lender can compensate the buyer before settlement, at settlement by showing a credit on the HUD-1 or by sending a reimbursement check to the buyer within 30 days of settlement. The transfer tax will be collected at settlement, so how a lender decides to correct a tolerance violation can have a major financial impact on the buyer.
REALTORS® who are familiar with reviewing the laundry list of origination fees and title service fees may be surprised that those itemized lists no longer appear. These fees will now appear as only one price called “origination charge.” Title service fees should all be included as “title services & lender’s title insurance.” Owner’s title insurance policies will now be itemized separately.
For further information visit HUD’s web site.
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Kim Shindle is the Manager of Media Relations at the Pennsylvania Association of Realtors®. |
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Great article. Few other things lenders need to keep in mind is ALL GFE items are listed in borrower’s column irrespective of paid by seller or lender. This complicates the HUD preparation as all third party paid items which are shown in borrower’s column then need to be adjusted on line 206 and 506.
In many ways, new HUD-1 and GFE is a lot less disclosure for borrower’s due to non-itemization requirements. A good HUD software is almost mandatory for preparation of these documents now.
Maybe it would just be easier if the banks owned the title companies and the real estate companies, possibly then the government would feel that the public would be in better hands. Afer all we just don’t seem to be able to do it right. Oh, then I guess the government would own the banks, so then maybe we would be government employees and would have heath insurance and paid vacation and retirement. wow
Some licensees and title companies are struggling with lenders that, for whatever reason, are not smoothly adapting to these changes. One complaint that I heard is that lenders are not giving the GFE to the title company until the last minute so title companies are not able to generate a HUD-1 before settlement. Remember that your BUYERS will have a copy of the GFE and it should be identical to the GFE the lenders have. If YOU give a copy of the GFE to the title company…
Kim
Great article! REALTORS(R) need to be more active and less passive in this area, especially when representing buyers as a buyer’s agent.