Monday, April 26, 2010

Borrowers in Shock?

The “Final Rule” mandated by Dept of Housing and Urban Development changing the standard closing statement (also called a “HUD”) has been in effect for almost four months now. It was not an issue in the first month, since all loans that had originated prior to January 1, 2010 could be closed on the “old” HUD. However, we are now required to utilize the new HUD on nearly all loans.

What reactions have I seen to the new HUD? To begin with, not all lenders and attorneys really know how to prepare the new HUD. Mistakes are not unusual. I recently had a lender and investor disagree about the figures on the HUD. For two days we watched and read emails being sent back and forth between the lender and the investor before they finally found agreement with the figures on the HUD. Borrowers also are perplexed by the new paperwork. I see faces that appear confused and dazed as I explain the figures on the HUD.

As a closing attorney, I have always tried to explain the HUD in some detail. I firmly believe that every borrower needs to understand the numbers and the terms of the loan. But I find myself now having to judge exactly how much information is too much information. I don’t want to scare a new buyer/borrower with tons of information, but I also want them to be free to ask questions about things they don’t understand.

It is easy to read the numbers in the borrower’s column. With the new HUD, the numbers represent the total of fees in the body of the HUD. These numbers are such that they can be seen, totaled and explained very easily. However, the information given in the left hand section (outside the borrower’s column) of the second page of the new HUD is confusing. I don’t believe many borrowers can understand them. As experienced as we real estate professionals are, this new HUD has taken countless hours and ‘trial and error’ efforts for many of us to understand it. It may be difficult for a buyer/borrower to grasp in one closing.

The bottom line: unfortunately, I think that the new HUD may have the opposite effect from that intended by the federal regulators. Instead of a clearer understanding of the breakdown of fees, we are having more misunderstandings; instead of clarification, we are having more confusion. We will be waiting to see how this all ends up. Clear?

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