Final Rule on RESPA - Part II
By Linda Holder
The Department of Housing and Urban Development (HUD)
issued its final rule in regards to changes to the Real
Estate Settlement Procedures Act (RESPA) in November
of 2008. Part I of this article covered changes dealing
mostly with the Good Faith Estimate (GFE), which covers
estimates of closing costs and disclosures about loan
terms. Part II will cover tolerances in fee changes,
unforeseeable circumstances that allow for changes in
fees, cure provisions, yield spread premiums, new definition
of a mortgage broker, and limits on origination fees.
Part III covers changes to the settlement statement,
the closing script, average cost pricing of settlement
services, use of affiliates, and technical amendments.
In order to provide meaningful estimates of fees on
the GFE, HUD has implemented the use of tolerances for
differences in fees at closing from those on the GFE.
The tolerances run from zero to ten percent. For example,
title services have a ten percent tolerance while the
loan originator’s own charges have a zero tolerance.
Recording fees are subject to a ten percent tolerance,
but transfer taxes have a zero tolerance. If changed
circumstances result in a new GFE, then the comparison
is made between the final closing charges and the revised
GFE. A violation of the tolerance requirements is a violation
of section 5 of RESPA. The loan originator can cure such
violations by reimbursing the borrower for the difference
at settlement or within 30 calendar days after settlement.
The proposed rule used the term “unforeseeable
circumstances” to describe the basis for revising
a GFE. However under the final rule the term was replaced
with the term “changed circumstances.” Market
price fluctuations by themselves are not considered changed
circumstances. If information about the borrower is relied
upon in providing the GFE and that information materially
changes or was inaccurate such that the borrower no longer
qualifies for the loan quoted, then a revised GFE could
be issued. Loan originators are presumed to have relied
on at a minimum, namely, the borrower’s name, monthly
income, property address, property value estimate, loan
amount and credit report. A revised GFE can be issued
based on changes in this information only if the change
is substantial. If the borrower requests changes in the
loan, the originator may revise the GFE to reflect the
changes. Borrowers must express an intent to continue
with the loan within 10 business days of receiving the
original GFE, or the originator is no longer bound by
its terms. If the interest rate is not locked, then interest
rate-dependent charges may be revised, and once a rate
is locked, a revised GFE should be issued. For new construction,
an originator may provide a revised GFE no later than
60 days before closing but must provide a clear and conspicuous
disclosure with the original GFE of that possibility
or tolerances will be compared with the original GFE.
If a GFE is revised, the originator must document the
reasons for the changes and retain that information for
three years after settlement.
Disclosures regarding yield spread premiums (YSP) are
still required on the GFE. A yield spread premium is
a fee paid outside of closing to a mortgage broker for
which the borrower pays a higher interest rate. The disclosure
is made on page 2 of the GFE in the section entitled “Your
Adjusted Origination Charges.” Mortgage brokers
are required to disclose in block 1 the amount they received
for loan origination from the borrower and any payments
from the lender to the broker for the origination. In
block 2, mortgage brokers disclose any credits (YSP)
or charges (points) to the borrower for the specific
interest rate chosen which are then subtracted from or
added to the origination charge in block 1 to arrive
at the adjusted origination charge. Lenders are not required
check these boxes about credits or charges unless they
separately disclose such items for the loan or they are
in fact charging points. If the disclosures are not made,
then the first box in block 2 must be checked. Regarding
limitations on origination fees, HUD has removed the
limits on the amounts that may be charged to borrowers
for originating and closing an FHA loan but reserves
the right to set limits on those fees.
Finally, the definition of mortgage broker has expanded
to include “a person or entity that renders origination
services and serves as an intermediary between a borrower
and a lender in a transaction involving a federally related
mortgage loan, including a person or entity that closes
the loan in its own name in a table-funded transaction.” This
expanded definition includes an exclusive agent of a
lender who is not an employee but provides origination
services.
A more complete explanation of these changes and the reasoning
behind HUD’s decisions regarding the final rule can
be found at
http://www.hud.gov/offices/hsg/sfh/res/finalrule.pdf.
Linda Holder practices in Granite City, Illinois where she handles real estate transactions, probate matters and business organizations. Ms. Holder is the current chair of the ABA General Practice, Solo and Small Firm Division Real Estate Law Committee.
© Copyright 2009, American
Bar Association.
