Sheet on HUD's Final RESPA Rule
- For the first time
ever, HUD will require mortgage lenders and brokers
to provide borrowers with an easy-to-read standard
Good Faith Estimate (GFE) that will clearly answer
the key questions they have when applying for a
What's the term of the loan?
Is the interest rate fixed or can it change?
Is there a pre-payment penalty should the borrower
choose to refinance at a later date?
Is there a balloon payment?
What are total closing costs?
- HUD estimates that
by improving upfront disclosures on the GFE, and
limiting the amount estimated charges can change,
consumers will save nearly $700 in total closing
- Based on substantial
public comment, HUD withdrew a proposed requirement
that closing agents read and provide a 'closing
script.' Instead, to borrowers in favor of a new
page on the HUD-1 Settlement Statement that allows
consumers to easily compare their final closing
costs and loan terms with those listed on the GFE.
- HUD's new Good
Faith Estimate has been reduced from four to three
pages, including an instructional page to help borrowers
better understand their loan offer. In addition,
the GFE will consolidate closing costs into major
categories to prevent junk fees and display total
estimated settlement charges prominently on the
first page so the consumer can easily compare loan
offers. HUD will specify the closing costs that
can and cannot change at settlement. If a fee changes,
HUD will limit the amount it can change.
- To help borrowers
compare their Good Faith Estimate with their HUD-1
Settlement Statement, each designated line on the
final HUD-1 will now include a reference to the
relevant line from the GFE. Borrowers will now be
able to easily compare their estimated and actual
costs in the same manner many commenters suggested.
- HUD will require
lender payments to mortgage brokers (often called
Yield Spread Premiums) to be disclosed in a more
meaningful way. These payments are directly dependent
on the interest rates that consumers agree to. To
ensure that HUD's new requirement will not create
a consumer bias against brokers, the Department
did rigorous consumer testing and found the new
Good Faith Estimate helped consumers to select the
lowest cost loan nine-out-of-10 times, regardless
of whether the loan was originated by a lender or
- Loan originators
will be required to provide borrowers their Good
Faith Estimate three days after the loan originator's
receipt of all necessary information. To facilitate
shopping, loan originators could not require verification
of GFE information (tax returns etc.) until after
the applicant makes the decision to proceed.
- HUD will allow
lenders and settlement service providers to correct
potential violations of RESPA's new disclosure and
tolerance requirements. Lenders and settlement service
providers will now have 30 days from the date of
closing to correct errors or violations and repay
consumers any overcharges.
- The new, standardized
GFE and revised HUD-1 will not be required until
January 1, 2010.