HUD issues new mortgage rules to help consumers shop for lower cost home loans: New GFE to save borrowers nearly $700MortgagePress.comHUD, GFE, mortgage reforms, RESPA, Steve Preston, Brian Montgomery, comment letters, HUD-1 Settlement Statement
For the first time in more than 30 years, the U.S. Department of
Housing and Urban Development today issued long-anticipated
mortgage reforms that will help consumers to shop for the lowest
cost mortgage and avoid costly and potentially harmful loan offers.
HUD will require, for the first time ever, that lenders and
mortgage brokers provide consumers with a standard Good
Faith Estimate (GFE) that clearly discloses key loan terms and
closing costs. HUD estimates its new regulation will save consumers
nearly $700 at the closing table.
A full copy of "The Real Estate Settlement Procedures Act (RESPA):
Rule to Simplify and Improve the Process of Obtaining Mortgages and
Reducing Consumer Settlement Costs," may be found by clicking
here.
In announcing HUD's final changes to the regulatory requirements
of the Real Estate Settlement Procedures Act (RESPA), HUD Secretary
Steve Preston said that changes in the housing market and increases
in home foreclosures demands action. Decretary Preston's speech may
be read in its entirety by clicking here.
"It has been a long road but today we can finally announce a
better way to buy homes in America," said Preston. "Consumers need
and deserve to know what they're getting themselves into before
they sign on the dotted line. After carefully considering the
concerns of consumers and the different businesses in the housing
sector, we have developed an approach that empowers the average
family to shop for the most appropriate loan to meet their
needs."
Last March, HUD proposed reforms to the longstanding regulatory
requirements of the Real
Estate Settlement Procedures Act (RESPA) by improving
disclosure of the loan terms and closing costs consumers pay when
they buy or refinance their home. Last May, HUD extended the rule's
comment period to June 12 to allow for more opportunity for comment
on the Department's proposed GFE form.
Brian Montgomery, HUD's Assistant Secretary of Housing, Federal
Housing Commissioner, said, "We have carefully considered the
concerns expressed from every corner of the mortgage market in
developing this rule. I am convinced that we successfully balanced
the needs of consumers with those in the business of homeownership.
None of us can lose sight of the fact that millions of Americans
simply don't understand all the fine print of their mortgages and
this, in many respects, is at the heart of today's mortgage
crisis."
Since 1974, little has changed about the process Americans
endure when they buy and refinance their homes. Now, HUD's final
reform will improve disclosure of the key loan terms and closing
costs consumers pay when they buy or refinance their home.
HUD received approximately 12,000 comment letters following the
proposal of its new RESPA rule. In considering those comments, the
Department made considerable modifications to its proposal. For
example, HUD originally proposed that settlement agents read a
closing script at the closing table and that a copy be provided to
borrowers. HUD ultimately discarded the script in favor of a new
page on the HUD-1 Settlement Statement that allows consumers to
easily compare their final loan terms and closing costs with those
listed on their Good Faith Estimate.
Most industry commenters said HUD's proposed four-page GFE was
too long. HUD shortened the GFE form to three pages including an
instructional page to help borrowers understand their loan offer.
HUD continues to believe that consumers need to be aware of the key
aspects of their loan as well as associated settlement costs.
HUD agreed with many commenters who suggested the new GFE allow
consumers to compare their estimated closing costs with the actual
costs included on their HUD-1 Settlement Statement. To facilitate
comparison between the HUD-1 and the GFE, each designated line on
the final HUD-1 will now include a reference to the relevant line
from the GFE. Borrowers will now be able to easily compare their
estimated and actual costs in very much the same manner as many of
the commenters suggested.
HUD will require the new standardized GFE and HUD-1 beginning
January 1, 2010. To view these documents, click on the following
links:
HUD's
standard Good Faith Estimate
HUD-1
Settlement Statement
Fact sheet on HUD's final RESPA Rule
For the first time ever, HUD will require mortgage lenders and
brokers to provide borrowers with an easy-to-read standard GFE that
will clearly answer the key questions they have when applying for a
mortgage including:
" What's the term of the loan?
" Is the interest rate fixed or can it change?
" Is there a pre-payment penalty should the borrower choose to
refinance at a later date?
" Is there a balloon payment?
" What are total closing costs?
HUD estimates that by improving upfront disclosures on the GFE,
and limiting the amount estimated charges can change, consumers
will save nearly $700 in total closing costs.
Based on substantial public comment, HUD withdrew a proposed
requirement that closing agents read and provide a 'closing
script.' Instead, to borrowers in favor of a new page on the HUD-1
Settlement Statement that allows consumers to easily compare their
final closing costs and loan terms with those listed on the
GFE.
HUD's new Good Faith Estimate has been reduced from four to
three pages, including an instructional page to help borrowers
better understand their loan offer. In addition, the GFE will
consolidate closing costs into major categories to prevent junk
fees and display total estimated settlement charges prominently on
the first page so the consumer can easily compare loan offers. HUD
will specify the closing costs that can and cannot change at
settlement. If a fee changes, HUD will limit the amount it can
change.
To help borrowers compare their Good Faith Estimate with their
HUD-1 Settlement Statement, each designated line on the final HUD-1
will now include a reference to the relevant line from the GFE.
Borrowers will now be able to easily compare their estimated and
actual costs in the same manner many commenters suggested.
HUD will require lender payments to mortgage brokers (often
called Yield Spread Premiums) to be disclosed in a more meaningful
way. These payments are directly dependent on the interest rates
that consumers agree to. To ensure that HUD's new requirement will
not create a consumer bias against brokers, the Department did
rigorous consumer testing and found the new Good Faith Estimate
helped consumers to select the lowest cost loan nine-out-of-10
times, regardless of whether the loan was originated by a lender or
a broker. Loan originators will be required to provide borrowers
their Good Faith Estimate three days after the loan originator's
receipt of all necessary information. To facilitate shopping, loan
originators could not require verification of GFE information (tax
returns etc.) until after the applicant makes the decision to
proceed.
HUD will allow lenders and settlement service providers to
correct potential violations of RESPA's new disclosure and
tolerance requirements. Lenders and settlement service providers
will now have 30 days from the date of closing to correct errors or
violations and repay consumers any overcharges.
The new, standardized GFE and revised HUD-1 will not be required
until January 1, 2010.
For more information, visit www.hud.gov.
