The Federal housing arm of our government, HUD, has implemented new rules through the “Real Estate Settlement Procedures Act” (RESPA). The new rules require lenders to accurately disclose the costs associated with a mortgage loan at least 7 days prior to closing. This RESPA regulation is the biggest single change in the industry since the inception of RESPA.
Effective January 1, 2010, RESPA requires lenders to use an entirely revised form called a “Good Faith Estimate” that’s designed to be more consumer friendly. This GFE itemizes all of the costs the buyer will have to pay at closing. Once disclosed, the buyer’s costs shown on the GFE must remain the same until closing of the transaction. In addition, the form provides a worksheet the consumer can use to compare costs of other lenders. This will allow the borrower to more easily and accurately shop rates and fees before they have committed to any one lender.
Once the disclosure is made and the closing documents are prepared by the title company, a second form is used in the closing called the HUD-1. This form has also been modified to show the earlier quoted prices from the GFE so they can easily be compared to the actual amounts being charged at the closing table. This is where a final check is made to assure the loan fees quoted on the GFE did not (with limited exception) change. If the fees vary from the quote, a new disclosure of costs must be signed by the borrower which then triggers a three day hold on closing.
Understandably, this potential delay in the closing may create a hardship for a borrower needing to move. However, more importantly, this will keep the lender from changing any of their charges and allow the borrower to more accurately plan for their expenses before they close. One thing to keep in mind about these changes is that there are still many unanswered questions both by the lending industry and RESPA. In implementing these new rules, many possible scenarios may arise from a transaction, so you could still see additional changes.
We as REALTORS applaud these changes to help today’s buyers better plan for their purchases.
Gary Kuhatschek is a broker at RE/MAX Cross Country REALTORS located at 1990 Justin Rd. in Highland Village. He can be reached at 972 317-9401 or by email [email protected].