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Addressing RESPA Implementation Inconsistencies: Guidance & Best Practices

The 2010 RESPA implementation guidelines highlight significant inconsistencies affecting consumers' ability to comparison shop for mortgages. This guidance addresses how third-party originators must adapt to varying requirements and clarify lender responsibilities regarding Good Faith Estimates (GFEs) and HUD-1 Settlement Statements. Key topics include the concept of "Restrained Enforcement," the correct usage of new forms, and the process for providing pre-approval without a property address. This resource aims to ensure lenders comply with RESPA's intent while enhancing consumer protections.

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Addressing RESPA Implementation Inconsistencies: Guidance & Best Practices

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Presentation Transcript

  1. WELCOME RESPA 2010 “Implementation Consistency”

  2. The Goal Highlight known implementation inconsistencies and provide guidance to correct

  3. Current Issues • Inconsistencies in implementation make it difficult for consumers to comparison shop • Third party originators must manage to varying requirements • Settlement agents and lenders may disagree on completion of HUD-1 Settlement Statement

  4. What Does “Restrained Enforcement” Cover? It only covers a lender if they have implemented RESPA “in good faith” • New forms MUST be used • Lenders should be abiding by the intent of RESPA • Fee categories • Tolerances

  5. What Does “Restrained Enforcement” Cover? • It is intended to provide lenders and HUD time to understand implementation gaps and interpretation inconsistencies and resolve them while providing RESPA benefits to the consumer • Guidance will be rolled out to the industry regarding specific areas of restrained enforcement

  6. Worksheet? HUD believes worksheets can be useful for generic rate quotes, BUT… • If a consumer asks for a GFE, the originator should disclose the information needed to provide a GFE • A consumer should not have to show “intent to move forward” to receive a GFE

  7. Worksheet? HUD believes worksheets can be useful for generic rate quotes, BUT… • A worksheet should not look like a GFE and be clear that it is not a GFE • A worksheet should never be used “in lieu of” a GFE • If a consumer has provided the required elements in a lender’s policy a GFE must be provided

  8. Worksheet? (continued) • A worksheet used in conjunction with a GFE should contain the fee amounts as the GFE, but may provide additional items deemed important by the originator (seller credits, other non-loan fees, cash to close calculation, etc.) • If a worksheet is used as a tool during the pre-qualification or pre-approval process (a process used when there is no property address), a refinance should not be allowed

  9. Pre-Approval - What’s Acceptable? • RESPA does not prohibit providing the GFE without a property address, but there is risk for the lender due to limitations of using a “changed circumstance” • RESPA does prohibit a lender from REQUIRING the consumer to verify information provided in the application prior to providing the GFE

  10. Pre-Approval - What’s Acceptable? So, how does a lender provide a firm pre-approval without taking on risk of providing a GFE without sufficient information?

  11. Pre-Approval - What’s Acceptable? RESPA does not want a consumer to feel bound to a lender prior to understanding the cost of their loan and being able to shop. It does not intend to prohibit a consumer from feeling confident that they qualify to shop for home! If the lender offers a pre-approval AND the consumer CHOOSES to provide documentation, it would not be prohibited

  12. Pre-Approval - What it CANNOT be? • NEVER a refinance • On a purchase, a pre-approval without a GFE should only be used if the consumer has not executed a purchase contract on a property • The lender should NEVER advise a consumer not to disclose their property address in order to avoid providing a GFE

  13. Let’s move on to the GFE and HUD-1

  14. What Have We Heard About Block 1? • All of the YSP • Double the YSP • None of the YSP

  15. So What’s the Right Answer? • All of the YSP - sometimes • Double the YSP - never • None of the YSP - unlikely

  16. WHY? Let’s go through the instruction for Block 1

  17. So what does this mean? For wholesale loans- all fees paid to the broker, which may or may not be all or some of the YSP + lender admin and processing fees

  18. How Does It Differ for Retail? • Block 1 does not represent compensation for LO • Origination points, if any, and admin and processing fees • Points and/or Discount Points may be listed in Block 1 or Block 2 • In Block 2, a credit would only be listed if the lender plans to pay borrower fees or part of their origination points

  19. What are Administrative and Processing Fees? • Basically all loan origination processing fees EXCEPT tax service, credit report, flood certification, life of loan flood and appraisal • Includes third-party fees for services the lender uses to process or underwrite the loan • Third-party fees not determined by the lender, but required will go into Block 3 - 3rd party subordination fee, HOA certifications

  20. Pricing Scenario Number 1 Wholesale Pricing and Wholesale Disclosure Loan Amount $200,000 Interest Rate 5% Yield Spread Premium 1% = ($2,000) Lender Administrative Fee $300 Broker Compensation $4,000 + $200 Processing Fee

  21. Retail Pricing and Retail Disclosure Loan Amount $200,000 Interest Rate 5% Origination Point 1% = $2,000 Administrative Fee $500 Pricing Scenario Number 1

  22. Pricing Scenario Number 1 Retail Disclosure Wholesale Disclosure

  23. Pricing Scenario Number 2 Loan Amount $200,000Interest Rate 5.25% Lender Credit ($1,000) Origination Points 0 Lender Administrative Fee $500 Retail Disclosure 23

  24. Pricing Scenario Number 2 Loan amount $200,000 Interest Rate 5.25% Yield Spread Premium (2.5%) Broker Compensation $4,000 + $200 processing fee Lender Administrative Fee $300 Wholesale Disclosure

  25. Where do these fees go? • Application Deposit • Does not go on GFE but will show as a credit on the HUD-1 • Application Fee • Block 1

  26. Where Do These Fees Go? • Escrow Waiver Fee • Retail • Block 1(if priced at initial GFE) and Block 2 has Box 1 checked • Block 2 with Box 2 or 3 checked • Wholesale • Netted from YSP in Block 2 with Box 2 checked • Block 2 with Box 3 checked if no YSP

  27. Where Do These Fees Go? Rate Lock Extension • Retail • Block 2 with Box 2 or 3 checked • Wholesale • Netted from YSP in Block 2 with Box 2 checked • Block 2 with Box 3 checked if no YSP

  28. Key Thing To Remember Adjusted origination charges (Line A) should reflect the money a consumer will have to pay for points and lender/broker fees

  29. What About Float to Lock? Broker • Adjustment of YSP up or down will adjust the consumers cash to close • If a consumer wants to keep cash to close the same, then the broker chooses a different rate with a YSP consistent with the float YSP • Regardless, of how the YSP is adjusted, because Block 1 does not change, the broker’s compensation is constant (unless they determine that they are reducing their compensation, Block 1 can always decrease

  30. What About Float to Lock? Retail In a worsening market, an adjustment to an interest rate dependent charge would be disclosed in Block 2 • Float: 5.25% at a cost of 1% (with 1% in Block 1) • Lock: 5.25% at a cost of 1.5% • .5% would be disclosed in Block 2

  31. What About Float to Lock? Retail In an improving market, downward adjustments may reduce Block 1 • Float: 5.25% at a cost of 1% (with the 1% in Block 1) • Lock : 5.25% at a cost of .5% • Block 1 would be reduced by .5%

  32. Moving Line A to the HUD-1 • Block 1 = Line 801: to the left of the column • Block 2 = Line 802: to the left of the column • Line A = Line 803: in the column (any negative dollar amount will be subtracted from the borrower’s overall cost)

  33. Important Notes about Line A and the HUD-1 • Does not act as a ledger for broker compensation • Closing instructions need to include payments to be made to the broker • Lender/Broker credits to the borrower are captured in Line A (Line 803 of the HUD-1). • No additional 200 series credits (unless there are credits not related to the interest rate)

  34. Important Notes about Line A and the HUD-1 • If itemization to show fees credited is needed, it should be done on a HUD-1 addendum unless required by state law or governmental loan program, then on a blank line to left of the column in the 800 series.

  35. Pricing Scenario Number 2 (HUD-1) Retail Wholesale

  36. Let’s Go Block by Block

  37. Block 3 • Tax Service • Credit Report • Appraisal (to 3rd party) • Flood Cert / LOL • UFMIP

  38. Block 3 • VA Funding Fee • 3rd party Subordination Fee • HOA Certification No providers disclosed on written list, as consumers cannot shop

  39. Block 3 to the HUD-1 Move fees to 804 to 899 lines • Need to list vendor to which payment is being made • Credits captured in Line A of the GFE and Line 803 of the HUD-1 may not be itemized on page 2, but can be on an addendum • All of these charges will move to the 10% aggregate tolerance category in the chart

  40. Next up … Block 4 • Title exam and evaluation • Preparation and issuance of commitment • Preparation and issuance of policies • All settlement and escrow services NOTE: does not include settlement fees that are separate charges to seller (not borrower charges customarily paid for by seller)

  41. Old GFE vs. New GFE for Title Services settlement fee abstract/title search title examination doc prep attorney fee commitment/binder notary wire fee lender’s title insurance endorsements courier/delivery copying electronic miscellaneous “Title services & lender’s title insurance” 41

  42. Written List • May separately identify the service of conducting the closing from “title service” on the written list. • List the separate providers and amount. • Combined amount must equal Block 4. 42

  43. Example Block 4 = $1,000 Written List Closing Company A $150 Title Agency A $850 43

  44. Written List May not separate other services contained within “title services” such as notary, abstract, administrative or processing services. 44

  45. Block 4? Doc Prep-Third Party • Note and DOT= Block 1 (performed for a lender) • Deed = Block 4 (performed for settlement) • Assembling Loan Docs for Closing = Block 4 (performed for settlement) Title Review • Lender only = Block 1 • Buyer only = N/A • For Title Commitment = Block 4

  46. Block 5 • On all purchases • Basic rate • Even if “paid” by seller • Subject to 10% tolerance if “unshoppable” or if borrower selects provider from written list

  47. Let’s move the Block 4 and 5 fees to the HUD-1

  48. 1100s Example

  49. Summary: Outside Column Line 1102 – settlement/closing fee Line 1104 – lender’s title insurance premium & related endorsements Line 1105 – lender’s title policy limit Line 1106 – owner’s title policy limit

  50. Summary: Outside Column Line 1107 - $ of title insurance premium + endorsements retained by agent Line 1108 - $ of title insurance premium + endorsements retained by underwriter Line 1109 et seq. - title charges paid to 3rd parties

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