06.12.08

Proposed RESPA Changes have Value for the Consumer

Posted in Important new HUD program changes, Industry News, Mortgage Problems, RESPA, Regulation of Insurers and Banks at 4:28 pm by Jeanne

We all know the bad apple loan officer, title agent or appraiser. We all know the consumer, who anzious to move into that new home, signed on for a bad deal. Well, RESPA is looking to help out that consumer.

The vast majority of consumers shop for a mortgage focusing not on rates or settlement costs or other loan features, but on the one key number that signals to them whether they can afford the loan: the grand total that they will have to pay each month for their home. Most people know how much income they take home each month, and they try to figure out whether out of that monthly amount, the monthly mortgage payment will fit into their budget.

The new RESPA rules propose that the GFE disclose the monthly total of principal, interest, and mortgage insurance. I believe the GFE also disclose the estimated monthly payment for property taxes and insurance as well and for any adjustable rate mortgages, the GFE should provide the grand total both for the initial monthly payment and for the maximum monthly payment that could be reached under the loan terms.

The proposed RESPA law is designed to improve the life of the consumer, by requiring advance disclosure of accurate settlement costs, including higher enforcement of the existing law that requires delivery of the HUD-1 settlement statement three days prior to closing. It seeks to penalize those who hand out “bad” Good Faith Estimates (i.e. those where the estimated charges on the GFE bore little or no relationship to the actual charges shown on the HUD-1 closing statement.)

In the past, RESPA has had none of the proverbial “teeth” to enforce the law. So that, theoretically, handing out a blank piece of paper that said Good Faith Estimate with just about anything filled in would qualify. The proposed law would create a new GFE form to assist a line-by-line comparison between the GFE and the HUD-1 at closing. The plan is to better monitor compliance with newly defined tolerance limits that restrict the allowable differences between estimated and actual closing costs. The rule would also clarify and update consistent escrow account requirements and mortgage servicing transfer provisions for lenders.

To put teeth in the plan, HUD says it plans to seek legal amendments to RESPA to obtain specific enforcement authority including money penalties; the ability to obtain court orders to prohibit actions; and authority to require restitution for violations as well as the ability to further amend and enforce disclosures. They will be focusing particularly on the GFE and Special Information Booklet; loan servicing; prohibition against kickbacks; illegal referral fees; unearned junk fees; title insurance, and escrow account fees. RESPA will also seek such authority for HUD and State Regulators.
The proposed rule does not include the packaging or bundling stipulations that proved controversial in 2005 and provides a 12-month transition period for compliance once finalized. The proposed rule will also allow RESPA disclosures to be given to consumers in electronic form (so long as the consumer consents.) And will permit documents to be retained in electronic form, so long as certain requirements for document retention are met.

While HUD estimates that consumers will save on average $518 to $670 per transaction, industry insiders speculate the changes may actually cost consumers more per closing. I think it will make everyone a bit more honest, or at least a bit more careful in our disclosures.

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