The New RESPA Rule – The Starting Point

If you work in residential lending or closings, during the past several months the mention of the new Good Faith Estimate and HUD-1 Settlement Statement may have made you want to check yourself into the asylum. Not that real estate brokers and sales agents are immune from the upheaval in procedures, but at least they don’t have to figure out what goes where on the two Federally mandated forms.

As lenders, title agents, and most real estate professionals know by now (although a surprising number of real estate practitioners still seem to be in the dark), revised versions of the GFE and HUD-1 went into effect January 1, 2010. Which means loan applications made on or after that date require use of the new GFE and new HUD-1, although the old HUD-1 is the proper settlement statement if the loan app was made prior to 2010 with borrower’s fees disclosed on the old GFE.

This so-called “New RESPA Rule” (“RESPA” meaning Real Estate Settlement Procedures Act originally passed by Congress in 1974 and administered by the Department of Housing and Urban Development) covers federally related mortgage loans on 1- to 4-family dwellings. In other words, it covers most mortgage loans in the U.S. That’s because practically all are made by federally regulated banks, credit unions, and other institutional lenders (including loans arranged by mortgage brokers) for the purchase or refinance of people’s houses.

As anyone who has waded through the applicable material knows, the New RESPA Rule is short on clarity. Nothing is more obvious to those of us in the title business, for we scratch our heads as Lender A instructs us to show Fee X in one place, while Lender B and Lender C instruct us to show Fee X somewhere else, none of the three being consistent. Still, as seminars are given, FAQ answers are tweaked, and HUD puts out more guidance, specific requirements will emerge from the haze. At least, those of us in the title business hope so. In the meantime, though, based on what seem to be the underpinnings of the New Rule, I’ll give you my view of how the title and closing portions of the new GFE and HUD-1 should be filled out.

As a preface, we at TitlePlus! have been attending presentations on the new forms since the Spring of 2009, gearing up for the 1/1/10 changeover which, back then, seemed a long way off. We’ve poured over FAQs, logged on to webinars by ALTA (American Land Title Association), and listened to guidance from our underwriters. As you might expect, an underlying theme of how to show Fee X, Fee Y, and Fee Z on the GFE and HUD-1 has emerged over the past few months. Interestingly, that theme is on target with what we first learned last Spring from attorney Ruth Dillingham, underwriting counsel for First American Title Insurance Company, an insider with first-hand knowledge of HUD’s intentions and expectations. Still, because Ms. Dillingham hails from Massachusetts, we were tempted to write off her comments, thinking that’s not how we do it here.

But as months passed, the theme from the Spring of 2009 became a pattern, as evidenced by other speakers – Philadelphia title agent and ALTA liaison with HUD, Ann Anastasi, and Washington, D.C. attorney Phil Schulman, both of whom have interfaced with HUD during the New RESPA Rule creation process. Those experts and others have transformed the pattern into a litany: this is the way HUD wants it done.

Which is not to suggest HUD is trying to alter local custom of who pays for what, for HUD doesn’t really care about that. Instead, because one of HUD’s missions is to regulate lenders’ dealings with borrowers, HUD’s rules – including the New RESPA Rule – are aimed at lenders (restrictions) and borrowers (protections). Sellers don’t really figure in. In other words, it’s all about the borrower. HUD’s goal is for borrowers to be informed as accurately as possible about how much getting a loan will cost. Therefore, the New RESPA Rule mandates lenders to disclose fees within certain margins of error – HUD calls this wiggle-room tolerances. So, when lenders tell borrowers in writing on the new GFE how much getting a loan will cost, tolerances dictate how much lenders can be off without having to eat the fees themselves.

This, then, is the starting point. The new GFE and HUD-1 unfold from here. In this series, I’ll take you through the parts of both forms (Blocks 4 and 5 of the GFE and the 1100-series of the HUD-1) which pertain to title and closings. I hope you’ll come along for the ride.