Real Estate Law

Robert M. Jaworski on RESPA: Spring Is in the Air -- An Assessment of the New Year's Day 2010 GFE/HUD-1 Rules Changes

In this Analysis, Robert M. Jaworski examines the important Real Estate Settlement Procedures Act (RESPA) changes implementing the new Good Faith Estimate (GFE) and HUD-1/1A effective January 1, 2010. Mr. Jaworski provides a recap of the new rules, identifies important implementation issues, and discusses the challenges involved in providing much-needed clarity. He writes:

The New GFE.

     The new GFE consists of three pages. The first page is the most critical, with HUD envisioning consumers using it to comparison shop for a mortgage loan. On it, the Loan Originator will disclose estimated loan costs ("Your Adjusted Origination Charges," "Your Charges for All Other Settlement Services" and the "Total Estimated Settlement Charges") and loan terms (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).

     To provide the consumer with an opportunity to shop for a better deal, these costs and terms (except for the interest rate and any costs and terms that are dependent upon the interest rate), must remain "fixed," i.e., within prescribed tolerances, for at least 10 business days, absent "changed circumstances." The initial interest rate is also fixed, but only for the period stated on the GFE-which can be less than 10 days-unless the consumer locks in that rate. If the consumer accepts this "offer," the terms and costs must then remain fixed through the closing, again within the same prescribed tolerances and absent "changed circumstances."

     . . . .

The New HUD-1/1A.

     The New Rule also changes the form of HUD-1/1A Settlement Statement to more easily permit comparisons with the new GFE. The new HUD-1 form is three pages long and the HUD-1A is two pages. The first page of the HUD-1 is unchanged. The second page of the HUD-1 and the first page of the HUD-1A are changed to include (1) fee terminology consistent with that 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 lender's title insurance," and "Required services that you can shop for"; (2) references to the line number on the GFE at which the same charge appears; and (3) a breakdown of the portion of the total title insurance premium that goes to the title underwriter and the title agent.

     The final page of both forms is new. It includes comparison charts of the loan terms and attendant costs disclosed on the GFE (or, if a revised GFE has been issued based on changed circumstances, the most recent such GFE) with the actual terms and costs of the loan being closed, and shows the borrower whether the tolerance limits on fees have been exceeded. This page, at the bottom, also directs borrowers with questions to "please contact your lender."

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