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The New RESPA Rules

The New RESPA Rules

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The New RESPA Rules

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  1. The New RESPA Rules How will they affect the way we do business in 2010?

  2. Stated Principles of RESPA REFORM Help consumers shop for the best loan Shopping leads to competition and lower prices Loan terms fully disclosed at beginning of process (not closing)

  3. Changes from Proposed Rules • No Closing Script • Shorter GFE • Removed volume based discounts • Added 30 day right to cure • HUD-1 Disclosure of Key Loan Terms • Owner’s Title Insurance is no longer listed as “optional”

  4. Final RESPA Rule When Does the Rule Become Effective? • Most of the new rule’s requirements became effective January 16th, 2009 • The new Good Faith Estimate (GFE) and HUD-1 are required as of 1/1/2010

  5. The New HUD-1 Form The new RESPA Rules enacted January 16, 2009, just like the prior RESPA rules, provide that the HUD-1 form of settlement statement can be used on all transaction types, even those transactions that would not normally be covered by RESPA.

  6. The New HUD-1 Form However, the new form makes comparisons and references to the Good Faith Estimate throughout and would do nothing but confuse a seller and buyer on a transaction that does NOT fall under the guise of RESPA

  7. The New HUD-1 Form In addition, TICOR policy provides that we use a standard form buyer/seller closing statement on transactions not governed by RESPA, such as all-cash, vacant land and commercial transactions, to avoid the risks associated with using a federal form

  8. Good Faith EstimatePage 1 Standardized form

  9. Good Faith EstimatePage 2 Page devoted to loan costs – origination and other settlement charges

  10. Good Faith EstimatePage 3

  11. HUD-1Settlement StatementPage 1

  12. HUD-1Settlement StatementPage 2

  13. HUD-1Settlement Statement800 Section

  14. HUD-1Settlement Statement1100 Section

  15. HUD-1 Settlement Statement1100 SectionAgent Underwriter Split 1107-1108 • The HUD-1 continues to require disclosure of the agent/underwriter split, even after strong arguments made by ALTA and others against it • HUD determined “that this breakdown will help consumers better understand their title charges”

  16. HUD-1 Settlement StatementPage 3 • Loan originators are required to provide all information needed to complete the comparison chart and loan terms disclosure • It is expected and necessary that lenders will provide a copy of the GFE with their request for estimated HUD1 as well as with their closing instructions for final estimated HUD1

  17. HUD-1 Settlement StatementPage 3 • Additional information is required – GFE loan terms do not match HUD-1 loan terms • The new HUD-1 references each line to the corresponding area of the GFE for easier consumer comparison

  18. HUD-1Settlement StatementPage 3

  19. Final RESPA Rule Zero Tolerance – Category 1 • Origination and lender costs are subject to a zero tolerance; They may not increase • Transfer Taxes may not increase

  20. Final RESPA Rule 10% Combined Tolerance – Category 2 • Individual services required by lender may exceed the tolerance as long as the total remains under 10% (of the fees in Category 2) • Recording charges are now part of the 10% category Charges that can change – Category 3 • Borrower selected services

  21. Final RESPA Rule Tolerances • Settlement services recommended by the lender are subjected to Category 2 and a 10% tolerance between the GFE and closing • Title charges are subject to this tolerance if the lender recommended title company is chosen by the borrower • The tolerance applies to the sum of all the included settlement services under Category 2

  22. Final RESPA Rule Tolerances • Loan Originators will need a fee quote for all escrow and title services at the time they prepare the GFE • Accuracy of the quote provided is crucial • Restate the loan terms and fees included in quote (EX: How many delivery fees included, what endorsements, etc.)

  23. Final RESPA Rule Right to Cure Tolerance Deficiencies • Available to lenders if they repay the consumer any charges that exceed tolerances on settlement services in the zero and 10% tolerance categories of the GFE; Otherwise, the overages will be considered a violation of RESPA and the loan unsellable • The onus is on the lender for repayment and they have 30 days after closing to discover and repay the overages

  24. Final RESPA Rule Right to Cure Tolerance Deficiencies • Closing agents also have 30 days to cure any errors or omissions on the HUD-1 • We assume the lender will run any overages through settlement, so we can issue an amended HUD-1 as an amended HUD-1 will be a condition to make the loan RESPA compliant and sellable

  25. Final RESPA Rule Average Charge Pricing • Allows all settlement service providers to use average charge for services obtained from third parties, such as recording and courier fees • Excludes any service based on the value of the property or loan (such as any type of insurance) or charges of the settlement provider itself

  26. Final RESPA Rule Average Charge Pricing • There is a 3 year recordkeeping requirement and the total average charge over the utilized time period must not exceed the total paid for those services to third parties (no up charge) in the information gathering • The Average Charge Pricing will only apply to RESPA compliant loans to be compliant as well with State laws

  27. Average Recording Fees and Fee Quotes In 2008 changes were made to HERA and HOEPA which prompted changes to the Truth in Lending Act regulations prescribed by the Federal Reserve Board. Included in HERA was MDIA. These changes took effect on July 30, 2009. As a result lenders and mortgage brokers are now required to provide early disclosures and final disclosures to borrowers regarding the specifics of the loan they are applying for. The timing of the disclosures is very specific.

  28. Average Recording Fees and Fee Quotes First, within three business days after the borrower makes application and before they pay any fees other than a reasonable fee for a credit report the borrower must receive the initial mortgage disclosures. The lender must also mail or deliver early TILA disclosures at least seven business days prior to closing. If any fees or costs change which increase the APR by .125% the lender must issue a revised final TIL three days prior to closing. Examples of items which could affect the APR are a change in the loan amount, changes to fees including the settlement agent fees, recording fees and daily interest charges.

  29. Compliance with these changes is the obligation of the lender. Settlement agents will be expected to provide accurate rate quotes and/or HUD-1 statements in order for the lender’s to meet the early TILA and Final TIL disclosure deadlines. As a result, Ticor Title will provide an Escrow and Title Fee Quote sheet within 24 hours of opening your transaction. In addition, in response to the new RESPA rule section allowing average pricing for fees paid to a third party provider which provides direction to operations on how to implement average pricing for their recording fees. The use of the average pricing provision in RESPA will only assist settlement employees in the effort of providing accurate rates to the lenders. Since these changes have gone into effect on July 30, 2009 it is hard to anticipate what additional items each lender will require from the settlement agent to ensure compliance..

  30. Common Questions and Answers What do the acronyms stand for? • Housing and Economic Recovery Act of 2008 (HERA) • Mortgage Disclosure Improvement Act (MDIA) • Home Ownership and Equity Protection Act (HOEPA)

  31. What do these Acts amend? • The Truth in Lending Act (TILA) Per RESPA the new HUD does not have to be used until January 1, 2010. Is this something different? • Yes. The required use of the new HUD-1 and GFE is regulated under RESPA. These acts do not have anything to do with that. They are completely separate and apart.

  32. Who is required to comply with these Acts? • Lenders and mortgage brokers

  33. How will these changes affect the settlement agent? • It will be crucial for the Escrow Officer to provide accurate Escrow and Title Fee Quote sheets within 24 hours of opening transaction. Ticor Title will require the Escrow Officer to ensure they have all the terms and requirements in order to provide an accurate quote

  34. If any fees change on the HUD isn’t sending a revised HUD to the lender sufficient? • No. Any changes to the fees or the HUD-1 must be clearly communicated to the funding lender pursuant to their loan instructions. Settlement agents must point out the change so the lender can determine if the change(s) affects the APR which triggers a revised TIL disclosure.

  35. How much can the APR change before a revised TIL must be issued? • Any increase in the APR of more than .125% will require a re-disclosure of the Truth in Lending (TIL) and could delay closing.

  36. What happens if the change affects the APR? • The lender is required to deliver a revised final TIL to the borrower. Once it is deemed the borrower has received the revised final TIL three business days must elapse before the closing may occur.

  37. Does the TIL have to be re-issued if the fees go down? • The Acts only require re-disclosure if there is an increase, but that doesn’t mean the lender may not allow it.

  38. What fees affect the APR? • The Acts do not list each fee or charge which affects the APR. Instead it refers to most fees and costs and charges for services the lender requires even if the lender did not choose the service provider. Ultimately it is up to the lender to determine what fees affect the APR.

  39. What is considered a business day? • All calendars days except Sunday and the following legal holidays: • Birthday of Martin Luther King, Jr., the third Monday in January • Washington’s Birthday, the third Monday in February • Memorial Day, the last Monday in May • Independence Day, July 4 • Labor Day, the first Monday in September • Columbus Day, the second Monday in October • Veterans Day, November 11 • Thanksgiving Day, the fourth Thursday in November • Christmas Day, December 25

  40. Can the TIL be back dated? • No Can the borrower sign the loan documents anyway and just date them three days later? • No

  41. Can the borrower waive the three day wait period? • Yes, they can but only for a bona fide financial emergency like a pending foreclosure. The lender must approve the borrower’s waiver.

  42. What are the potential risks for the escrow and title company? • If the settlement charges provided to the lender change resulting in a change of the APR the lender may expect: • The escrow or title company to waive their fees which have changed • Pay for lock extension fees • Reimburse the lender for any restitution they have to pay to the borrower • Loss of business from the real estate agents and mortgage brokers if the settlement agent does not provide accurate rate quotes • Potential claims from buyers and sellers for financial losses resulting in delayed closings

  43. Summary Roll Up of Charges • While the old form required itemization, the new form requires a roll up of all itemized charges by provider.

  44. Summary Seller Concessions • The old form allowed for seller concessions to be itemized as seller charges. The new form, however, requires that borrower costs be show on the borrower side of the HUD-1, with an offsetting lump sum debit and credit on page 1 for any seller concessions.

  45. Summary Mortgage Broker Compensation • Mortgage Broker compensation will no longer be shown as a POC item. Mortgage Broker compensation must be included in the charges show on lines 801 and 802 of the HUD.

  46. Summary Side-By-Side GFE and HUD-1 Charges • The new form requires a side-by-side comparison of the estimated charges provided to the borrower on the Good Faith Estimate to those actual charges provided on the HUD-1 at closing.

  47. Summary Curing of Tolerance Violations • We have an obligation to send the completed HUD-1 to the lender and mortgage broker to review prior to closing in case they elect to cure any tolerance violations at that time.

  48. Summary Re-Disclosure of Loan Terms • The new form requires a re-disclosure of the loan terms which can only be completed by transferring the information from the loan instructions.

  49. Summary Re-Disclosure of Loan Terms • The new form requires a re-disclosure of the loan terms which can only be completed by transferring the information from the loan instructions.