The New RESPA Rule: Will It Help Consumers Shop for Mortgage Loans?

The U.S. Department of Housing and Urban Development (HUD) adopted a new Real Estate Settlement Procedures Act (RESPA) reform rule on November 17, 2008. The new rule effected significant changes to Regulation X, most notably, dramatically changing the Good Faith Estimate (GFE), establishing consequences for inaccurate disclosures on that form, and modifying the HUD 1 and HUD 1A Uniform Settlement Statement forms (collectively the HUD-1). In this Commentary, Robert Jaworski examines the RESPA changes. He writes:
     The first page of the new GFE is the most critical one. HUD envisions consumers using it to comparison shop for a mortgage loan. Disclosed on this page are what HUD believes are the essential terms and attendant costs of a loan which a lender is willing to make to the consumer unless changed circumstances dictate otherwise. The new GFE will show the initial loan amount, term, initial interest rate, initial monthly payment amount, whether the interest rate can increase, and whether the loan allows for negative amortization or provides for a prepayment penalty or a balloon payment. It will also tell the consumer what the total origination charges and the charges for other settlement services are likely to be. The New Rule also provides that, to obtain the new GFE, consumers cannot be forced to pay more than the cost of the credit report.
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     The New Rule says that a GFE must be provided within three business days following receipt of a consumer’s application. In this respect, the New Rule is the same as the old one. However, the New Rule redefines the term application. Under the New Rule, lenders receive an application when potential borrowers submit financial information to the lender in anticipation of a credit decision, including, at minimum, their name, monthly income, social security number, property address, estimate of the value of the property, and the amount they wish to borrow, plus whatever other information the lender deems necessary. Lenders may require additional information as a condition of providing a GFE, but may not require borrowers to submit verifying information or documentation as part of an application.
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     The changes [to the HUD-1] consist primarily of the following: (1) Replacing the fee terminology that appears on the existing HUD-1 with the terminology that is used on the new GFE, specifically, Our origination charge, Your credit or charge for the specific interest rate chosen, Your adjusted origination charge, Title services and lenders title insurance, and Required services that you can shop for; (2) including after each such fee the line number on the GFE at which the same charge appears; and (3) providing a breakdown of the portion of the total title insurance premium that goes to the title underwriter and the title agent.

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