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What is RESPA Reform? RESPA Reform was enacted by the U.S. Department of Housing and Urban Development (HUD). The final rule was published on 11/17/08 with the goal of providing consumers greater protection surrounding the terms, fees and settlement charges of their mortgage loan. The new RESPA rules apply to loan applications taken as of 1/1/10.
Principles of RESPA Reform Primary Goals include: • Helping the customer shop for the best loan • Shopping Leads to Greater Competition and Lower Prices • Key final terms of the loan disclosed to the borrowers at closing • Preserve a competitive market for all settlement service providers
Important Changes • New Good Faith Estimate Disclosure • Timing of upfront fee collection • Changed Circumstances Concept • New Tolerance and redisclosure requirements • Greater emphasis on communication between the broker and the lender at time of application through closing • New HUD-1 Settlement Disclosure
New Definition - Application Stearns Lending considers an application complete for RESPA, GFE purposes when the originator (mortgage broker or lender) has the following: • Borrower’s name • Borrower’s monthly income • Borrower’s social security number • Property Address • Estimated value of the property • Loan Amount
At Application The GFE must be given to the borrower within 3 business days of receipt of these 6 pieces of information. The broker is responsible for preparation of the Good Faith Estimate and any redisclosure until the complete loan file is submitted to Stearns Lending for underwriting and approval. If a transaction involves more than one mortgage loan, a separate GFE for each loan is given to the applicant.
Intent to Proceed RESPA states the borrower must express their intent to proceed prior to: • Collection of any upfront fees other than a credit report fee, and • Verification of any information provided by the applicant The new Good Faith does not have signature lines. The borrower does not sign the GFE, they can initial receipt of the GFE by their name on the first page but this is not required. There can be no other attachments to the GFE, no other document in the file is to be named GFE.
Good Faith Estimate (GFE) • The new GFE is designed to create more transparency regarding key loan terms, fees and charges to encourage the borrower to shop and compare terms offered by different lenders. • The originator is responsible for providing accurate figures of the true costs of the loan at application, avoiding surprises at settlement. • The new GFE includes all charges typically paid by a borrower regardless of who is paying the charges (borrower, seller, lender) on an individual transaction. • For applications taken beginning 1/1/10 or only the standardized GFE form defined by RESPA may be used. If a loan has an application date prior to 1/1/10, we can use the previous GFE and the settlement agent will use the old HUD-1.
Good Faith Estimate (GFE) • Loan Originators, (mortgage brokers and lenders) are bound to the settlement charges and terms listed on the GFE initially provided to the borrower, subject to certain tolerances.
PreApprovals If there is no subject property, the transaction is not considered an application for RESPA purposes. A GFE cannot be issued. Verification and/or processing of the loan request cannot begin until the borrower selects a property, receives the GFE and expresses intent to continue with the loan.
GFE – Getting it Right Dates,Fees,Details What you need to know
GFE – Page 1 The first page of the GFE acts as an overview of the loan transaction. A snapshot of the terms of the loan for which the borrower applied. • Included on the first page: • loan originator contact information, • important dates, • summary of loan terms • total of estimated settlement charges. This page is designed to make shopping for a loan easier for the consumer. Our job as a lender is to review the broker’s GFE for accuracy and completion. In Wholesale at submission our TIL package will no longer include the GFE. After submission if we are preparing the GFE due to changed circumstances, our system will complete the form based on our data entry.
GFE – Getting it Right, Page 1 Contact Information In the first section you must fill in the name, business address, phone number and email address of the loan originator completing the GFE. • Broker contact information is shown until the time the processed loan file is submitted for approval, then Stearns contact information will be entered In the second column the borrowers’ names, property address and the date the GFE is prepared is entered.
GFE – Getting it Right, Page 1Important Dates The important dates section notifies applicants of the timeframe the terms quoted at application are available to them. When a loan is locked the GFE is reissued because this section updates to give the borrowers accurate information.
GFE - Getting it Right, Page 1-Important Dates Line 1. Enter the date through which the quoted interest rate will be available. You may enter a date and time, or if the rate is floating enter N/A. If the loan is locked the lock expiration date is shown here. Line 2. RESPA requires all other settlement charges quoted at time of application to be binding for a minimum of 10 business days. Do not count Saturday and Sunday if you are not open for business on those days. If the rate is locked, the lock expiration date is shown here. Enter that date here. Line 3. Enter the term of the rate lock here. If the loan is floating enter N/A. This field will be updated at the time the loan is locked and a new GFE reissued. Line 4. This field represents the number of days prior to settlement that the rate must be locked. The minimum number of days for Stearns Lending is 14. If the loan program requires a greater number of days, enter that here.
GFE –Page , Summary of your loan This section of the GFE highlights critical terms of the loan to the consumer. Line 1. The loan amount applied for Line 2. The term of the loan in years Line 3. The interest rate shown on the note at closing. If the loan is a 3-2-1 buydown the interest rate on the note not the buydown rate is quoted. For an ARM loan, the initial interest rate is quoted. Line 4. The initial monthly payment amount of principal, interest and mortgage insurance. If the loan program has other than monthly payments, total the amount of payments made in a year and divide by 12. That number goes here.
GFE Page 1Summary of your loan This section of the GFE highlights critical terms of the loan to the consumer. Line 5. If the interest rate can rise, check Yes and enter the maximum interest rate over the life of the loan and the number of months before the first interest rate change. If a fixed rate loan check No. Line 6. If a loan has negative amortization, check the box Yes and enter in the maximum amount the principal can rise. We do not offer negatively amortizing loans at this time. Check the box No. Line 7. If a fixed rate loan check No. If an ARM, enter the month of the first increase and the maximum associated payment amount. The maximum payment over the life of the loan is also shown. Line 8. Check Yes or No to show whether there is a prepayment penalty. If yes, state the maximum amount of the prepayment penalty, assume payoff on day 1. Interest paid through the end of the month on an FHA loan at the time of payoff is not considered a prepayment penalty. Line 9. Check Yes if the loan has a balloon payment and enter the amount and number of years until the balloon is due, otherwise check No.
GFE – Getting it Right, Page 1Escrow Account Information It is important for a consumer to know if their loan payment includes impounds for taxes and insurance. This box tells the consumer to ask their loan officer for information regarding impounds. The payment quoted in this section is only principal, interest and mortgage insurance. Check the box No or Yes depending on the situation. If the loan includes an impound account, information regarding impounds is on page 2 of the GFE.
GFE – Getting it Right, Page 1Summary of Settlement Charges The total charges shown in boxes A and B are detailed on page 2 of the GFE. This section gives the borrower the total amount of estimated settlement charges from both origination and other settlement charges.
GFE Page 2 • Page 2 displays loan fees as subtotals by service provided to the consumer, another tool for shopping for the best loan. • The fees quoted at time of application on page 2 are compared to the charges at closing on the HUD-1 to insure none have increased at closing more than is allowed by the regulation. • The lender is bound to the fees quoted at application. In a wholesale transaction, the lender is not able to ‘unbind’ the agreement between the broker and the applicant.
GFE Page 2,Your Adjusted Origination Charges Block 1. Our origination charge The dollar amount shown in this block represents all compensation paid to the broker and lender. This total is not dependent on who is paying the compensation. For example lender paid compensation to the broker as well as seller paid fees benefiting the broker or lender are included in the total.
GFE Page 2,Your Adjusted Origination Charges Enter the total of the following fees in block 1: YSP, or Lender to Broker Compensation Broker Fee Origination Fee Processing Fee Administration Fee Application Fee Underwriting Fee Courier Fee Messenger Fee Wire Fee SSN/Tax Return Verification Fee Lock Fee Employment Verification Fee Extended Lock Fee MERS Registration Fee Doc Prep Fee Commitment Fee
GFE Page 2,Your Adjusted Origination Charges Block 2: Your credit or charge (points), for the specific interest rate chosen Block 2 represents the fees paid or credit given to the borrower for the interest rate. This box reflects the net impact of any discount, YSP or other loan level price adjustment. Important to note: boxes 2 and 3 cannot be checked at the same time. The fee or credit shown is the ‘net’ impact of all charges related to the interest rate chosen.
GFE Page 2,Your Adjusted Origination Charges Check one of three boxes • Box 1 – wholesale, do not check. • Box 2 – if there is a credit for the interest rate, check the box, enter the dollar amount of the credit and the interest rate, carry the dollar amount of the credit as a negative number into the column. • Box 3 - if there is a charge for the interest rate, (discount points and loan level price adjustments) check the box, enter the dollar amount of the charge and the interest rate, carry the dollar amount as a positive number into the column. Again, the net charge or credit is reflected – do not choose both a credit and a charge. The amount from block 1 is added to the amount in block 2 and the total shown in box A.
GFE Page 2, Your Adjusted Origination Charges Impact of a Lock: Once the loan is locked, the interest rate dependent charges only are updated. These are the net charges/credits shown in block 2. Origination Fees as disclosed in block 1 are not allowed to increase. These fees represent the charges involved in processing a loan and do not include rate dependent fees. It is important to take care when quoting the origination charges at application as these fees cannot change unless an appropriate changed circumstance exists and is documented and approved by Stearns Lending. We will address changed circumstances later in the presentation.
GFE Page 2,Your Adjusted Origination Charges Example 1: • Loan Amount: $200,000 • Interest Rate: 5.00% • Broker Price: 101.00 (1% YSP) • Broker Fees: origination $4,000.00, processing $500.00 • Stearns Fees: $750.00 administration • Credit for Interest rate to borrower: 1.00% (1% YSP)
GFE Page 2,Your Adjusted Origination Charges Example 2: • Loan Amount: $200,000 • Interest Rate: 4.50% • Broker Price: 98.00 (2 discount points) • Broker Fees: origination $2,000.00, processing $500.00 • Stearns Fees: $750.00 administration • Charge for Interest rate to borrower: 2.00% (2 discount points)
GFE Page 2,Your Adjusted Origination Charges Example 3: • Loan Amount: $200,000 • Interest Rate: 4.75% • Broker Price: 100 – par – no discount or YSP • Broker Fees: origination $2,500.00, processing $500.00 • Stearns Fees: $750.00 administration • Charge for Interest rate to borrower: 0.00%
GFE Page 2,Your Adjusted Origination Charges Impact of Float to Rate Lock on Example 1 • Loan Amount: $200,000 • Interest Rate: was 5.00% with 1 YSP now to get 5% the borrower must pay 1 discount • Broker Price: 101.00 became 99.00 a swing of 2 points • Broker Fees: origination $4,000.00, processing $500.00 • Stearns Fees: $750.00 administration • Credit for Interest rate towards closing costs for borrower: 1.00% (1% YSP) became charge for interest rate of 1.00%
GFE Page 2,Your Adjusted Origination Charges What happens now? The cost of the loan increased $4,000.00 (2 points) based on market changes. RESPA tells us the origination charge is not based on the interest rate but represents compensation to the broker and lender for originating and processing the loan. Before the rate lock, the broker was receiving $2,000 compensation from the lender, now to continue to earn the $5250 origination fee originally quoted, this compensation needs to be paid by the borrower. What do I do? Contact the broker – If the broker is holding his origination charge constant then the burden of payment has shifted from Stearns to the borrower. This will create additional prepaid finance charges to the borrower and may trigger a new Truth in Lending disclosure due to APR increases above tolerance. If the broker wants to reduce his origination fees then include that reduction in the redisclosure. A point to remember once a fee is reduced, it can’t be raised again unless there is a qualifying changed circumstance. You may need to remind your broker of this if he chooses to lower his origination charge in this example.
GFE Page 2,Your Adjusted Origination Charges Impact of Float to Rate Lock, improving market Example 3 • Loan Amount: $200,000 • Interest Rate: 4.75 was the par rate, now when paying 4.75% the borrower earns 1% YSP as a credit for that interest rate • Broker Price: 100 – par – no discount or YSP, now 101 • Broker Fees: origination $2,500.00, processing $500.00 • Stearns Fees: $750.00 administration • Charge for Interest rate to borrower: 0.00%, becomes credit of 1%
GFE Page 2,Your Adjusted Origination Charges What happens now? The cost of the loan decreased $2,000.00 based on market changes. RESPA tells us the origination charge is not based on the interest rate but represents compensation to the broker and lender for originating and processing the loan. Therefore broker and lender origination charges do not change. Since the market improved and costs for the interest rate selected decreased, the borrower receives a credit towards their closing costs. The borrower continues to pay their portion of broker and lender compensation.
GFE Page 2,Your Adjusted Origination Charges Example 4: • Loan Amount: $200,000 • Interest Rate: 6.00% • Broker Price: 102.5 • Broker Fees: origination $2,000.00, processing $500.00 • Stearns Fees: $750.00 administration • Credit for Interest rate to borrower: 2.50%
GFE Page 2,Your Adjusted Origination Charges What happens now? The Adjusted Origination Charges in box A are allowed to be a negative number. In this case the credit for the interest rate was larger than the origination charges. This credit will be carried down to offset the other settlement services in box B on the bottom of page 2.
GFE Page 2, Your charges for All Other Settlement Services This section lists each third party settlement provider selected by the originator other than title. The description of the service, not the provider name, and the charge for each must be included. The total of all these fees is entered in the right hand column. Examples include: credit report, appraisal, appraisal review, flood certification, property tax services, FHA upfront MIP and VA funding fee. These fees are limited to a 10% increase at close unless there is a changed circumstance. Brokers and Loan Officers need to create working relationships with their vendors to get accurate estimates at the time of application.
GFE – Getting it Right, Page 2Your charges for All Other Settlement Services All fees related to closing go in box 4 and is shown as a total. The fees are not itemized individually. Included in this box are fees such as title search, examination and endorsements, lender’s title insurance fee, delivery fee, settlement or escrow fee, sub escrow fee, notary fee, messenger fee, email fee, and attorney’s fees for documents needed at close (not loan documents). Any fee relating to the settlement, escrow or title services except for owners title insurance goes here. Again, it is important for the Broker and Loan Officer to create close working relationships with the title companies in the borrower’s neighborhood so these fees are as accurate as possible.
GFE – Getting it Right, Page 2Your charges for All Other Settlement Services In a purchase transaction the fee for owner’s title insurance and any endorsements, independent of who is paying for them, is entered here. In a refinance, enter NA.
GFE – Getting it Right, Page 2Your charges for All Other Settlement Services Any required third party services that the borrower can shop for is listed here. Describe the service, (for example, pest inspection, survey) and list each estimated charge. The total goes in the right hand column. For services disclosed in boxes 4, 5 and 6, if borrowers are permitted to shop for a third party settlement services they must be given a separate written list of settlement service providers at the time of the GFE. This list contains the names of providers the estimates were based on. This list is prepared on a separate piece of paper provided along with the GFE. The broker is responsible for preparation of this list and submission at the time of application.
GFE – Getting it Right, Page 2Your charges for All Other Settlement Services Box 7 – enter any state and local recording fees for the loan and any required title documents. Communication with the settlement agent prior to preparation of the GFE is important so the estimate is accurate. Box 8 – Transfer Taxes represents the sum of all state and local government fees that will be charged at settlement based on the loan application. This fee must be exact and there is zero tolerance for charging more than is initially quoted per RESPA. Communication with the settlement agent is important for accuracy.
GFE – Getting it Right, Page 2Your charges for All Other Settlement Services Box 9 represents the estimate of the deposit that will be required for the borrowers’ initial impound account at closing. The estimate includes deposits for Property taxes Hazard Insurance Flood Insurance Mortgage Insurance Any other impounds.
GFE – Getting it Right, Page 2Your charges for All Other Settlement Services The estimated per diem interest collected at closing is shown in box 10. In box 11, list the type of Hazard Insurance and the estimated amount, carry the total to the right hand column. Insurance includes, hazard, fire, flood, earthquake etc.
Tolerance 10% Tolerance: The total of charges in blocks 3,4,5,6 and 7 can increase up to 10% if the service provider is identified by the loan originator. There is no tolerance limitation if the borrower selects their own service provider in blocks 4,5 and 6. Transfer Taxes, block 8, has zero tolerance, the fee cannot increase at settlement.
GFE Page 3 The third page of the GFE has minimal data entry by the originator and it’s primary purpose is to be a tool for the borrower when shopping and comparing loan offers from different lenders.
GFE – Getting it Right, Page 3 This part of the GFE is informational for the consumer. It tells the consumer which fees can and cannot change and the associated tolerance. If at closing there is a change greater than the tolerances allowed, the lender is responsible for the correction and that correction is shown on the HUD-1. Communication with brokers and settlement agents prior to documents being released is the key to success.
GFE – Getting it Right, Page 3 The consumer can use the tradeoff table to compare loan offers from the same lender. We will be programming the first column.
GFE – Getting it Right, Page 3 The shopping chart is a useful tool for the consumer to use to compare offers from all lenders during the 10 business day period described earlier. When a borrower chooses the loan program and lender they will be required to document their intent to proceed with the loan before any additional fees or information, (verification of the application) can be collected.
GFE – Getting it RightSettlement Servicers Providers List Anytime the borrower is allowed to shop for or choose a service provider, the Settlement Service Providers List must be given along with the GFE showing providers that are available to provide the services described. Key Points: • The Settlement Service Providers List is given to the applicant with each Good Faith Estimate • The list must include at least one provider for each required service along with contact information • The providers given must offer their services in the borrower’s neighborhood. • The applicant is not required to select from the list provided. • The borrower must notify the loan originator of his choice of service providers for each service within 10 business days of the application date. • If the borrower chooses a provider on the Settlement Service Providers List the fee at closing is limited to a 10% increase. If the borrower chooses their own provider then the fee is not limited.
