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New RESPA Regulations: What Lenders Should Know

March 17th, 2011 Comments off

** From 1 January 2010, the latest changes to the Real Estate Settlement Procedures Act (RESPA) entered into force for all the “creative lending” – banks Credit and mortgage broker – managing federal loans for residential real estate. RESPA revisions were intended to provide consumers with a means to better understand their obligations in terms of the loan. The burden for ensuring compliance with these regulations, however, falls exactly on the banks.

good faith estimate (GFE)

 

In addition, the GFE must contain a detailed list of all the expenses of origin (including yield spread premium if applicable) and the list of all transaction costs.

The GFE must be provided in a standardized form approved by HUD. Lenders are not allowed to make changes to any language on the form or add additional pages or additions. If the loan provides for a payment other than monthly, then the lender must make a monthly payment of the loan for the purpose of the form.

If the borrower requires two mortgages for a single property, a GFE should be completed for each loan.

While a mortgage broker can provide the borrower with a copy of the GFE within three days of business, the ultimate responsibility to ensure that the borrower has received a copy of it falls within the allotted time the lender.

HUD-1 Settlement Statement (HUD-1)

 

A chart is included in the HUD-1, which compares all actual costs at closing for the estimation of the costs contained in the GFE. If any of the actual costs exceed the estimates provided in the GFE by more than the tolerance given, then the lender is prohibited from accepting the old from the borrower.

The HUD-1 form must also include a final summary of the key terms of the loan. The creditor must provide this information to the settlement agent in a format that allows the agent to fill in the blanks on the HUD-1 without having to refer to the documents of the loan value.

Just as the GFE or the lender or settlement agent can change the language included in the standard form HUD-1. The borrower must be provided with a copy of the form completed and signed before leaving the closure.

Tolerances

Zero Tolerance:

• • Origination charges adjusted origination charges after the interest rate has been locked • Points to lock in interest rates • Government transfer taxes 10% Tolerance:

• Lender required settlement services (if the borrower chooses a servicer provided or identified by the lender) • Services required under Lender and title insurance (if the borrower chooses a servicer provided or identified by the lender) • Owner’s title insurance (if the borrower chooses a servicer provided or identified by the lender) • Registration fees • Government Services required that the borrower may purchase if the borrower chose to selected companies or identified by creditor

 

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