LEGAL ISSUES…LEGAL NOTES…PERSONAL PERSPECTIVES

New Changes for HUD and GFE  

The Department of Housing and Urban Development (HUD) has issued a “Final Rule” for the Real Estate Settlement and Procedures Act (RESPA). The Final Rule contains the most drastic and comprehensive changes made to the HUD and the Good Faith Estimate (GFE) in the last 30 years. The new forms (HUD Settlement Statement and Good Faith Estimate) attempt to clarify and simplify the overall mortgage and closing process while reducing the fees for the consumer. Whether that goal is accomplished is yet to be determined.

“THE FINAL RULE”

The new HUD and new GFE become effective on January 1, 2010. In some cases the new GFE will appear prior to January 1 when applications are taken in November or December (2009) but the anticipated closing date is after January 1, 2010.

The new GFE has sections that directly correspond to sections on the HUD Settlement Statement. The new GFE mandates when and how it is to be issued and distributed to potential borrowers. The following is an overview of the more interesting changes under the Final Rule:

There is to be no more “Application Fee”. The only fee that can be required by the Lender at the time of application is one that equals the cost of a credit report. At Closing, most Lender fees MUST be exactly as disclosed on the GFE.

Real estate Commissions are to be handled and disclosed differently than in the past.  The Earnest Money will be directly deducted from the Seller’s proceeds. The Commission shown on the HUD will reflect the deduction of the Earnest Money. The Commission sales percentage will no longer appear on the final HUD.

Probably the biggest change on the HUD in terms of disclosure pertains to fees for the Title Charges in line 1100 series. With the new GFE only one fee will be entered that includes attorney fees, title examination, title binder, Lender Title Insurance, delivery, notary fees, express or overnight fees, mail-out fees and/or document preparation fees (etc). The fees for each service can be itemized on the HUD but the fees MUST correspond to the fees quoted on the GFE. The Owners’ Title Insurance fee will be quoted separately in the GFE and on the HUD on line 1103.  These fees can change from the original GFE but must stay within a ten (10%) aggregate tolerance level.  This is calculated and disclosed on the third page of the HUD. That is another change: all HUDs will be at least three pages but could be longer.

ALL Settlement costs must appear on the HUD as being paid by the Borrower. If the Seller has agreed to pay some or all of the settlement costs, that amount will appear as a credit/debit on the front page of the HUD.  The HUD cannot reflect the Seller being charged with any settlement costs

There is much more, but I think you can get the gist of it from this information. To see an actual copy of the new GFE and HUD, go to my web site, www.relawyer.com, and click on “New GFE and HUD 2010.”

JBW