Slated to go into effect on January 1, 2010, the amended Real Estate Settlement Procedures Act (RESPA), promises borrowers new found freedom in the ability to comparison shop when seeking a home mortgage. The 2010 amendments to RESPA change the way in which lenders must complete disclosures required under the Act, allowing for no more than a ten-percent (10%) difference between many amounts initially quoted on the Good Faith Estimate (GFE), a document showing the costs that a lender will charge the borrower in conjunction with the loan, and those listed on the Settlement Statement (HUD-1), a document that provides an itemized listing of the funds that were paid at closing. These new and more stern requirements have been enacted with the hope that forcing lenders to be more upfront with borrowers about possible costs associated with the origination of a mortgage will allow borrowers to compare the settlement charges of numerous lenders and result in lower overall costs to the consumer.
An important aspect of any piece of legislation, essential to its success or failure, is the manner in which it will be enforced. The U.S. Department of Housing and Urban Development’s (HUD) Office of RESPA and Interstate Land Sales is responsible for enforcement of the new RESPA amendments. The HUD Reform Act of 1989 created the Mortgagee Review Board (“MRB”), which functions to provide administrative sanctions to HUD/FHA-approved mortgagees or lenders who knowingly and materially violate legislation such as RESPA. On November 13, 2009 HUD announced a delay in the enforcement of the new RESPA rules for 120 days on FHA loans for all mortgage professionals making a good faith effort to comply with the new requirements. In addition, HUD requested that other enforcement agencies exercise the same restraint with respect to non-FHA loan originators and settlement service providers. The delay in enforcement will offer a small reprieve for the lending industry, however, the four month period will not delay potential civil litigation based on RESPA 2010 violations.
The enforcement mechanisms of RESPA 2010 were more clearly articulated in HUD’s informational pamphlet called the “New RESPA Rule FAQs” (FAQs). The FAQs address many questions posed by the lending industry regarding the new legislation, including enforcement provisions. One such question addressed by the FAQs, and particularly relevant during the infancy of the new requirements, is the result in the event of an inadvertent or technical error on a required document. The FAQs provide a rather relieving answer to this question, stating that as long as a revised copy of any error-ridden documentation, such as a HUD-1, is provided within thirty days of closing, a lender will not be in danger of receiving reprimand for violation of the new RESPA requirements.
The FAQs also allow settlement agents, such as Penner Law Firm, to breathe a sigh of relief in regards to potential RESPA violations. The FAQs dictate that a lender is the responsible party for curing tolerance violations, such as differences of more than ten-percent (10%) between figures listed on the GFE and HUD-1. The FAQs also dictate that a settlement agent is under no obligation to stop a closing when a toleration violation is recognized, because it is the duty of the lender to cure the potential violation within 30 days of the closing. These safety valve provisions in the new legislation, as well as the temporary enforcement reprieve, will hopefully serve to lessen the delay in closing loans after the January 1, 2010 effective date of RESPA 2010.