Sep 14, 2011 FIC Alliance
Sep 14, 2011
FIC Alliance – Week 7
RESPA – Technical Corrections & Clarifications On July 11, 2011 HUD published in the Federal Register, a final rule concerning RESPA Technical Corrections and Clarifying Amendments which became effective August 10, 2011. Now that the 2010 major regulatory changes to RESPA have been in effect for a little over a year, HUD has identified certain necessary technical corrections, which this rule will make, and certain other regulatory provisions in which additional clarifications would be helpful.
Notice of Intent to Proceed Section 3500.7 of RESPA addresses when a lender must provide the GFE to an applicant borrower, and it addresses the same for a mortgage broker. Neither the lender nor the broker are permitted to charge, as a condition for providing a GFE, any fee for an appraisal, inspection, or other similar settlement services. The lender or the mortgage broker may at its option, charge a fee limited to the cost of a credit report. The lender or the mortgage broker, as appropriate, may not charge additional fees until after the applicant has received the GFE. After the GFE has been received, and the applicant borrower has indicated an intention to proceed with the loan covered by that GFE, the loan originator may collect additional fees needed to continue with the loan application process. Although this language in the preamble makes clear that an applicant borrower receives the GFE for the loan before a lender or mortgage broker can collect additional fees from the applicant borrower beyond the cost of a credit report, this was inadvertently omitted from the regulatory text. The question of whether an applicant borrower must express an intent to continue with a loan before the lender or mortgage broker can collect additional fees is an issue that came up after the regulations were promulgated and HUD addressed that question in its New RESPA Rules Frequently Asked Questions (FAQ’s issued August 13, 2009, by replying in the affirmative that a borrower must express an intent to continue with the loan. (See question #10 on page 7 of the FAQ’s updated April 2, 2010, without changing this FAQ. http://portal.hud.gov/hudportal/documents/huddoc?id=resparulefaqs422010.pdf )
********** 10) Q: At what point can a loan originator charge a loan applicant fees for services other than the cost of obtaining a credit report? A: After a loan applicant both receives a GFE and indicates an intention to proceed with the loan covered by the GFE, the loan originator may collect fees beyond the cost of a credit report for origination-related services. ********** To eliminate any ambiguity about whether the applicant borrower must express an intent to continue with the applicant process, this rule amends §3500.07(a)(4) and (b)(4) to provide that the applicant borrower must indicate an intention to proceed with the loan covered by the GFE received by the applicant borrower from the lender or mortgage broker, before the lender or mortgage broker can charge additional fees. Since no model form has been provided by RESPA, many lenders have developed and implement their own form to serve this purpose. As depicted below, the FIC Real Estate Compliance Manual and the RESPA Guides that we offer through FIC, provide an example of one being used in the industry. Once the GFE has been provided, the lender or mortgage broker may wish to capture an expression of intention to proceed with the loan application to document it prior to the lender or mortgage broker charging any additional amounts beyond the cost of a credit report. Again, no model form has been promulgated by HUD or RESPA for these purposes. This is only intended to provide an example language.
Notice of Intent to Proceed with Loan Application Date:________________________________________ Applicant:____________________________________ Property Address:_____________________________ I/We acknowledge receipt of our Good Faith Estimate of Closing Costs within three (3) business days of our loan application. Furthermore, I/We have reviewed our Good Faith Estimate and by signing below, we are expressing our intent to proceed with the loan application process.
NOTICE TO APPLICANT(S): Signing this document does NOT obligate you to obtain a mortgage loan through this mortgage loan originator and this is not a loan commitment or a loan approval. Your interest rate is NOT locked at this time, unless otherwise disclosed. If you intend to proceed with this loan application, please sign, date and return this notice of intent to proceed with loan application. ______________________________________
______________________________
Applicant
Date
FIC Regulatory Education Alliance / Copyright ©FIC Conferences, Inc. – Sep 14, 2011 – Week 7 Page 2
Binding Good Faith Estimate – 10 Business Days Section 3500.7(f) addresses when the GFE becomes binding but uses the terms “new” GFE and “revised” GFE without complete definition. It is important to maintain the distinction between “new” and “revised.” The loan originator is bound, within the tolerances, to the settlement charges and terms listed on the GFE provided to the borrower, unless a revised GFE is provided prior to settlement consistent with an allowable “changed circumstance.” If a loan originator provides a revised GFE consistent with this paragraph, the loan originator must document the reason that a revised GFE was provided. Loan originators must retain documentation of any reasons for providing a revised GFE for no less than 3 years after settlement. However, it has not been clear in the regulatory text prior to this clarification, that the GFE does not remain binding indefinitely but expires 10 business days after the GFE is provided to the borrower if the borrower does not express an intention to continue with the loan application process. (Note: A lender may choose to provide a longer period of time than the required 10 business days.) Each time a new or revised GFE must be issued due to an allowable “changed circumstance,” there is no requirement for lenders to provide additional 10 business day periods. If a borrower does not express an intent to continue with an application within the 10 business days after the GFE is provided, or such longer time specified by the loan originator, the loan originator is no longer bound by the GFE.
FIC Regulatory Education Alliance / Copyright ©FIC Conferences, Inc. – Sep 14, 2011 – Week 7 Page 3
Changed Circumstances Affecting Settlement Costs In the case of “changed circumstances” affecting the settlement costs, RESPA provides that the revised GFE may increase charges for services listed on the GFE but only to the extent that the changed circumstances actually resulted in higher charges at settlement that would exceed the tolerances for those charges. If a revised GFE is to be provided, the loan originator must do so within 3 business days of receiving information sufficient to establish changed circumstances. The revised GFE may increase charges for services listed on the GFE only to the extent that the changed circumstances resulted in higher charges. Changed Circumstances Affecting the Loan If changed circumstances result in a change in the borrower’s eligibility for the specific loan terms identified in the GFE, the loan originator may provide a revised GFE to the borrower within 3 business days of receiving sufficient information to establish the changed circumstances. The revised GFE may increase charges for services listed on the GFE only to the extent that the changed circumstances affecting the loan actually resulted in higher charges. Borrower-Requested Changes If the borrower requests changes to the mortgage loan identified in the GFE that change the settlement charges or the terms of the loan, the loan originator may provide a revised GFE to the borrower within 3 business days of the borrower’s request. Again, the revised GFE may increase charges for services listed on the GFE only to the extent that the changed circumstances affecting the loan actually resulted in higher charges. Interest Rate Dependent Charges and Terms If the interest rate has not been locked, or a locked interest rate has expired, the charge or credit for the interest rate chosen, the adjusted origination charges, per diem interest, and loan terms related to the interest rate may change. When the interest rate is later locked, a revised GFE must be provided showing the revised interest rate-dependent charges or terms. The loan originator must provide the revised GFE within 3 business days of the interest rate being locked or, for an expired interest rate, re-locked. All other charges or terms must remain the same as on the original GFE unless there is an allowable changed circumstance
FIC Regulatory Education Alliance / Copyright ©FIC Conferences, Inc. – Sep 14, 2011 – Week 7 Page 4
FIC Regulatory Education Alliance / Copyright ©FIC Conferences, Inc. – Sep 14, 2011 – Week 7 Page 5
New Construction Home Purchases In transactions involving new construction home purchases, where settlement is anticipated to occur more than 60 calendar days from the time a GFE is provided, the loan originator may provide the GFE to the borrower with a clear and conspicuous disclosure stating that any time up until 60 calendar days prior to closing, the loan originator may issue a revised GFE. If no such separate disclosure is provided, the loan originator cannot issue a revised GFE unless there is an allowable changed circumstance. There is no model provided by HUD for the purposes of this disclosure, however, for your convenience, here is an example of one used in the industry. no model form has been promulgated by HUD or RESPA for these purposes. This is only intended to provide an example language.
FIC Regulatory Education Alliance / Copyright ©FIC Conferences, Inc. – Sep 14, 2011 – Week 7 Page 6
Clarification on HUD-1 – Instructions for Page 3 The HUD-1 form is to be used as a statement of the actual charges and adjustments. If the borrower, or a person acting on behalf of the borrower, does not purchase a settlement service that was listed on the GFE (e.g., owner’s title insurance), there should be no amount entered for that service in the corresponding line on Page 2 of the HUD-1, and the estimate of the charge from the GFE should not appear on the comparison chart on Page 3 of the HUD-1. HUD has determined that the current instructions are not sufficiently clear on this point. Allowing loan originators to include on Page 3 of the HUD-1, charges from the GFE for settlement services that were not purchased could both induce loan originators to discourage consumers from purchasing settlement services (e.g. owner’s title insurance) in order to gain padding in the 10 percent tolerance categories, and encourage loan originators to pad the 10 percent tolerance categories on the GFE with estimates of services that the consumer will not need in the transaction. HUD has previously addressed and clarified this issue in informal guidance. For example, in the July 2010 posting of its RESPA Roundup. III. Consumer Does Not Use Service Finally, we get the following question frequently: If a service that was listed on the GFE was not purchased, what should go into the borrower’s column on Page 2 of the HUD-1 and on the comparison chart on Page 3 of the HUD-1? If the consumer did not purchase a service that was listed on the GFE (usually owner’s title) there should be nothing entered in that line on Page 2 of the HUD-1 and the estimate of the charge should not appear on the comparison chart on Page 3 of the HUD-1. http://portal.hud.gov/hudportal/HUD?src=/program_offices/housing/rmra/res/resroundup
Because inquiries about estimates on the HUD-1 has been a question frequently asked, and to address any remaining confusion, HUD revises the first paragraph of the instructions for Page 3 of the HUD-1 to clarify that the amounts to be inserted in the comparison chart are those for the services that were purchased or provided as part of the transaction, and that no amount should be included on Page 2 of the HUD-1 for any service that was listed on the GFE, but was not obtained in connection with the transaction. Kimberly Lundquist FIC Conferences, Inc. 1150 N Loop 1604 W Suite 108-603 San Antonio, TX 78248 Tel 210.493.1761 Fax 210.493.9659 [email protected] www.ficconferences.com FIC Regulatory Education Alliance / Copyright ©FIC Conferences, Inc. – Sep 14, 2011 – Week 7 Page 7
FIC Alliance – Week 7
RESPA – Technical Corrections & Clarifications On July 11, 2011 HUD published in the Federal Register, a final rule concerning RESPA Technical Corrections and Clarifying Amendments which became effective August 10, 2011. Now that the 2010 major regulatory changes to RESPA have been in effect for a little over a year, HUD has identified certain necessary technical corrections, which this rule will make, and certain other regulatory provisions in which additional clarifications would be helpful.
Notice of Intent to Proceed Section 3500.7 of RESPA addresses when a lender must provide the GFE to an applicant borrower, and it addresses the same for a mortgage broker. Neither the lender nor the broker are permitted to charge, as a condition for providing a GFE, any fee for an appraisal, inspection, or other similar settlement services. The lender or the mortgage broker may at its option, charge a fee limited to the cost of a credit report. The lender or the mortgage broker, as appropriate, may not charge additional fees until after the applicant has received the GFE. After the GFE has been received, and the applicant borrower has indicated an intention to proceed with the loan covered by that GFE, the loan originator may collect additional fees needed to continue with the loan application process. Although this language in the preamble makes clear that an applicant borrower receives the GFE for the loan before a lender or mortgage broker can collect additional fees from the applicant borrower beyond the cost of a credit report, this was inadvertently omitted from the regulatory text. The question of whether an applicant borrower must express an intent to continue with a loan before the lender or mortgage broker can collect additional fees is an issue that came up after the regulations were promulgated and HUD addressed that question in its New RESPA Rules Frequently Asked Questions (FAQ’s issued August 13, 2009, by replying in the affirmative that a borrower must express an intent to continue with the loan. (See question #10 on page 7 of the FAQ’s updated April 2, 2010, without changing this FAQ. http://portal.hud.gov/hudportal/documents/huddoc?id=resparulefaqs422010.pdf )
********** 10) Q: At what point can a loan originator charge a loan applicant fees for services other than the cost of obtaining a credit report? A: After a loan applicant both receives a GFE and indicates an intention to proceed with the loan covered by the GFE, the loan originator may collect fees beyond the cost of a credit report for origination-related services. ********** To eliminate any ambiguity about whether the applicant borrower must express an intent to continue with the applicant process, this rule amends §3500.07(a)(4) and (b)(4) to provide that the applicant borrower must indicate an intention to proceed with the loan covered by the GFE received by the applicant borrower from the lender or mortgage broker, before the lender or mortgage broker can charge additional fees. Since no model form has been provided by RESPA, many lenders have developed and implement their own form to serve this purpose. As depicted below, the FIC Real Estate Compliance Manual and the RESPA Guides that we offer through FIC, provide an example of one being used in the industry. Once the GFE has been provided, the lender or mortgage broker may wish to capture an expression of intention to proceed with the loan application to document it prior to the lender or mortgage broker charging any additional amounts beyond the cost of a credit report. Again, no model form has been promulgated by HUD or RESPA for these purposes. This is only intended to provide an example language.
Notice of Intent to Proceed with Loan Application Date:________________________________________ Applicant:____________________________________ Property Address:_____________________________ I/We acknowledge receipt of our Good Faith Estimate of Closing Costs within three (3) business days of our loan application. Furthermore, I/We have reviewed our Good Faith Estimate and by signing below, we are expressing our intent to proceed with the loan application process.
NOTICE TO APPLICANT(S): Signing this document does NOT obligate you to obtain a mortgage loan through this mortgage loan originator and this is not a loan commitment or a loan approval. Your interest rate is NOT locked at this time, unless otherwise disclosed. If you intend to proceed with this loan application, please sign, date and return this notice of intent to proceed with loan application. ______________________________________
______________________________
Applicant
Date
FIC Regulatory Education Alliance / Copyright ©FIC Conferences, Inc. – Sep 14, 2011 – Week 7 Page 2
Binding Good Faith Estimate – 10 Business Days Section 3500.7(f) addresses when the GFE becomes binding but uses the terms “new” GFE and “revised” GFE without complete definition. It is important to maintain the distinction between “new” and “revised.” The loan originator is bound, within the tolerances, to the settlement charges and terms listed on the GFE provided to the borrower, unless a revised GFE is provided prior to settlement consistent with an allowable “changed circumstance.” If a loan originator provides a revised GFE consistent with this paragraph, the loan originator must document the reason that a revised GFE was provided. Loan originators must retain documentation of any reasons for providing a revised GFE for no less than 3 years after settlement. However, it has not been clear in the regulatory text prior to this clarification, that the GFE does not remain binding indefinitely but expires 10 business days after the GFE is provided to the borrower if the borrower does not express an intention to continue with the loan application process. (Note: A lender may choose to provide a longer period of time than the required 10 business days.) Each time a new or revised GFE must be issued due to an allowable “changed circumstance,” there is no requirement for lenders to provide additional 10 business day periods. If a borrower does not express an intent to continue with an application within the 10 business days after the GFE is provided, or such longer time specified by the loan originator, the loan originator is no longer bound by the GFE.
FIC Regulatory Education Alliance / Copyright ©FIC Conferences, Inc. – Sep 14, 2011 – Week 7 Page 3
Changed Circumstances Affecting Settlement Costs In the case of “changed circumstances” affecting the settlement costs, RESPA provides that the revised GFE may increase charges for services listed on the GFE but only to the extent that the changed circumstances actually resulted in higher charges at settlement that would exceed the tolerances for those charges. If a revised GFE is to be provided, the loan originator must do so within 3 business days of receiving information sufficient to establish changed circumstances. The revised GFE may increase charges for services listed on the GFE only to the extent that the changed circumstances resulted in higher charges. Changed Circumstances Affecting the Loan If changed circumstances result in a change in the borrower’s eligibility for the specific loan terms identified in the GFE, the loan originator may provide a revised GFE to the borrower within 3 business days of receiving sufficient information to establish the changed circumstances. The revised GFE may increase charges for services listed on the GFE only to the extent that the changed circumstances affecting the loan actually resulted in higher charges. Borrower-Requested Changes If the borrower requests changes to the mortgage loan identified in the GFE that change the settlement charges or the terms of the loan, the loan originator may provide a revised GFE to the borrower within 3 business days of the borrower’s request. Again, the revised GFE may increase charges for services listed on the GFE only to the extent that the changed circumstances affecting the loan actually resulted in higher charges. Interest Rate Dependent Charges and Terms If the interest rate has not been locked, or a locked interest rate has expired, the charge or credit for the interest rate chosen, the adjusted origination charges, per diem interest, and loan terms related to the interest rate may change. When the interest rate is later locked, a revised GFE must be provided showing the revised interest rate-dependent charges or terms. The loan originator must provide the revised GFE within 3 business days of the interest rate being locked or, for an expired interest rate, re-locked. All other charges or terms must remain the same as on the original GFE unless there is an allowable changed circumstance
FIC Regulatory Education Alliance / Copyright ©FIC Conferences, Inc. – Sep 14, 2011 – Week 7 Page 4
FIC Regulatory Education Alliance / Copyright ©FIC Conferences, Inc. – Sep 14, 2011 – Week 7 Page 5
New Construction Home Purchases In transactions involving new construction home purchases, where settlement is anticipated to occur more than 60 calendar days from the time a GFE is provided, the loan originator may provide the GFE to the borrower with a clear and conspicuous disclosure stating that any time up until 60 calendar days prior to closing, the loan originator may issue a revised GFE. If no such separate disclosure is provided, the loan originator cannot issue a revised GFE unless there is an allowable changed circumstance. There is no model provided by HUD for the purposes of this disclosure, however, for your convenience, here is an example of one used in the industry. no model form has been promulgated by HUD or RESPA for these purposes. This is only intended to provide an example language.
FIC Regulatory Education Alliance / Copyright ©FIC Conferences, Inc. – Sep 14, 2011 – Week 7 Page 6
Clarification on HUD-1 – Instructions for Page 3 The HUD-1 form is to be used as a statement of the actual charges and adjustments. If the borrower, or a person acting on behalf of the borrower, does not purchase a settlement service that was listed on the GFE (e.g., owner’s title insurance), there should be no amount entered for that service in the corresponding line on Page 2 of the HUD-1, and the estimate of the charge from the GFE should not appear on the comparison chart on Page 3 of the HUD-1. HUD has determined that the current instructions are not sufficiently clear on this point. Allowing loan originators to include on Page 3 of the HUD-1, charges from the GFE for settlement services that were not purchased could both induce loan originators to discourage consumers from purchasing settlement services (e.g. owner’s title insurance) in order to gain padding in the 10 percent tolerance categories, and encourage loan originators to pad the 10 percent tolerance categories on the GFE with estimates of services that the consumer will not need in the transaction. HUD has previously addressed and clarified this issue in informal guidance. For example, in the July 2010 posting of its RESPA Roundup. III. Consumer Does Not Use Service Finally, we get the following question frequently: If a service that was listed on the GFE was not purchased, what should go into the borrower’s column on Page 2 of the HUD-1 and on the comparison chart on Page 3 of the HUD-1? If the consumer did not purchase a service that was listed on the GFE (usually owner’s title) there should be nothing entered in that line on Page 2 of the HUD-1 and the estimate of the charge should not appear on the comparison chart on Page 3 of the HUD-1. http://portal.hud.gov/hudportal/HUD?src=/program_offices/housing/rmra/res/resroundup
Because inquiries about estimates on the HUD-1 has been a question frequently asked, and to address any remaining confusion, HUD revises the first paragraph of the instructions for Page 3 of the HUD-1 to clarify that the amounts to be inserted in the comparison chart are those for the services that were purchased or provided as part of the transaction, and that no amount should be included on Page 2 of the HUD-1 for any service that was listed on the GFE, but was not obtained in connection with the transaction. Kimberly Lundquist FIC Conferences, Inc. 1150 N Loop 1604 W Suite 108-603 San Antonio, TX 78248 Tel 210.493.1761 Fax 210.493.9659 [email protected] www.ficconferences.com FIC Regulatory Education Alliance / Copyright ©FIC Conferences, Inc. – Sep 14, 2011 – Week 7 Page 7
