Posted by Rona Fischman January 6, 2010 02:01 PM
Attorney Richard D. Vetstein.told you RESPA changes were coming. Well, here they are! Avoid reading the 51-page FAQ; Attorney Vetstein tells would-be borrowers how to handle the new forms.
If you are applying for a loan in 2010 you will likely receive the brand new Good Faith Estimate under new Real Estate Settlement Practices Act (RESPA) rules which became effective January 1. These rules, which I wrote about earlier, significantly change the way lenders must disclose and charge for loan and closing costs. Under the new rules, loan and closing costs are categorized into one of three of what I call “tolerance buckets”:
(1) those that cannot change from the Good Faith Estimate (GFE) disclosure to the closing – 0% tolerance;
(2) those subject to a 10% tolerance–that is, those which cannot increase by more than 10% from the GFE to the closing; or
(3) those that can vary by any amount – no tolerance.
Here is a snapshot of the new Good Faith Estimate with the three “buckets”:
This new formula was designed to curb the frequent increase of closing costs from those originally disclosed by the lender and those actually charged at the closing. The new lender “origination charge” – representing the total cost of the loan – is now required to be disclosed as a lump sum number, and must include all those pesky fees such as processing, application, underwriting, document preparation, wire, and handling fees, as well as factoring in any points or credits. Under the new rules, the origination charge cannot change from what was disclosed on the new GFE. That is, a 0% tolerance. For closing attorney fees (called “title services”) and title insurance, the “tolerance” rules apply. Those costs will go into either bucket #2 (10% tolerance) or #3 (no tolerance). This depends on whether the borrower chooses a service provider recommended by the lender—a new option under the rules. If the borrower selects a provider from the list, such as a closing attorney, their charges cannot increase by more than 10% from the GFE to the closing. That’s a good thing for consumers. Thus, lenders have an incentive to recommend trusted providers whose charges are reasonable and predictable. If, however, the borrower wants a particular attorney or title insurance provider not on the preferred list, their charges are not subject to the 10% tolerance and can go up (or down) by any amount. The new rules thus preserve the option for borrowers to shop around for attorneys or title companies. If there is a violation of the tolerance provisions, the lender must provide the borrower with a credit no later than 30 days after closing. This is but one small piece of the complicated new RESPA rules. While HUD has tried to simplify the disclosure rules, the irony is that it needs a 51 page FAQ to do so.
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Scott Van Voorhis is a freelance writer who specializes in real estate and business issues.
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