If you’ve financed the purchase of a home before, then you probably remember receiving a “good faith estimate” from your lender and comparing it to other lenders to determine which one you wanted to do business with. Hopefully, when you closed, what was listed on the GFE was close to reality, but that’s not always the case.
To improve this part of the home buying process, HUD published new RESPA regulations on November 17, 2008, with several provisions that are being implemented on January 1, 2010:
- Standardized Good Faith Estimate forms
- New HUD-1 / HUD-1A documents for closing
- Tolerance increase thresholds for certain fees/charges by the lender
- Elimination of FHA cap on origination fees
Although designed with consumer protection in mind, some in the mortgage industry argue that it may lead to confusion and misunderstandings. Indeed, there are a lot of details to the new regulations and mortgage lenders will have to adjust and incur expenses to be compliant, but the end result should be a better process for the consumer.
Here’s a simplified summary of the new provisions. There are a lot of extra details and stipulations so this may not be applicable for every situation. You can see all of the information from the HUD web site listed below.
- Standard GFE form
- The initial GFE given by the loan originator becomes the binding GFE
- There will be 3 different categories for charges: those that can’t increase, those that can’t increase in total more than 10%, and those that can increase
- Fees typically charged to borrowers regardless of who pays must be listed on the GFE
- Very limited circumstances allow for changes to fees/pricing
- Easier to read HUD settlement statements which show the amounts stated on the GFE
The intent seems to be to give consumers the ability to more easily shop for loan and settlement services while protecting them from unexpected costs or increases in cost – a very good intention. Time will tell if the changes will be more confusing or if they will create other problems within the mortgage industry. Please refer to your mortgage lender and/or HUD for specific details, restrictions, etc. in regards to the latest regulations.
Related documents and sources:
HUD Site: RESPA – Real Estate Settlement Procedures Act