Author: Jamie Feigelson

This article is part three of a three part series by Attorney Jamie Feigelson.

The final chapter of the three part blog is here. At closing, one of the most important documents a borrower will sign is the HUD-1 settlement statement (“HUD”). The HUD-1 is critical, because it contains all the expenses associated with the transaction, cumulating in how much the borrower must pay. The old HUD was two pages; the new one is now three. The primary improvement to the new HUD is that it clearly shows how the numbers on the HUD should match the numbers you were given on your Good Faith Estimate (see previous blog), and the new third page illustrates the comparison for borrowers to review.

The big change for 2010 is this: most of the entries on the HUD direct you to the specific line on your Good Faith Estimate (“GFE”), for the corresponding number. In the past, lenders did not always require a GFE to be signed at closing. Now, however, not only must a GFE be signed, but it also must be compared side-by-side to the HUD at closing. Borrowers must sign both at closing; brokers and lenders alike must provide these documents for a borrower at closing.

The new HUD also has a section that reconciles any differences between the final numbers and those provided on the GFE. It is now easier to see if the lender might owe a refund to a borrower because of an inaccurate estimate. Plus, the final page of the HUD includes a summary of the loan terms, so there’s no confusion about the loan terms when a borrower reaches to closing table.

In summary, the changes HUD has made to these important lending and settlement documents appear to be positive for borrowers and banks alike. Everyone involved in a closing process is now fully informed of all fees before closing. At Penner Law Firm, we now have “guarantees closing costs” for our clients and service providers, thus ensuring costs for all parties.

My prediction: there are always those borrowers out there who seem to find some sport in trying to subvert the system. This also will create a learning curve, as HUD begins to deal with people who try to resist the new requirements. However, having worked with a new HUD, I see a positive change that will help consumers be better informed. We now have uniformity for the real estate closing process; something we all can agree is a good thing.

This article is part two of a three part series by Attorney Jamie Feigelson.

As we last discussed, the new HUD rules are set to go into effect on January 1, 2010, but the enforcement of such rules will not be implemented until April 2010 to give time to settlement agents and lenders to adjust to the changes. The changes to both the Good Faith Estimate (“GFE”) and HUD settlement statement will have a tremendous impact on the entire settlement process.

To begin, the first change is that all residential lenders and mortgage brokers will be required to use a new GFE that clearly discloses loan terms and closing costs. Settlement agents and attorneys will also be using a new settlement statement for all residential loan closings. The statement will mirror the GFE and disclose any variances from the original figures. The main differences between the new and old GFEs are the standardization of the form; the grouping of fees; and the tolerance for variations from the GFE amounts at settlement.

The new GFE is a three page standardized document (as opposed to the old four-page version) that gives loan terms and an estimate of settlement charges.  The consumer should easily be able to compare GFEs from various lenders when shopping for loans. On a new third page, there is a comparison of the original GFE figures and the settlement statement figures, with an explanation of the tolerances. There is also a summary of the loan, including amount, term, rates, initial monthly payment, prepayment penalties and other loan terms.

In addition, on the new GFE, certain fees have been grouped together.  This allows the consumer to see a total cost for each category, rather than a random list of fees. The fees are broken down into four categories:

1. The “Origination Charge” is the total of all fees incurred for originating the loan.  Only one origination charge is disclosed and includes all service charges (charges paid to the lender/broker, including the YSP, and all junk fees lumped into one amount) and the charge or credits for the interest rate chosen is added to or subtracted from the service charge to arrive at one lump origination charge.
2. “Required Services Selected by the Lender”, such as appraisals, credit reports, and flood certifications and tax service fees are grouped, but each charge is listed separately.
3. “Title Services” includes the settlement agent’s charges for lender’s title insurance, the settlement fee, title searches, title examinations, commitments, and ALL other charges payable to the settlement agent.  There is a separate line item for Owner’s title insurance, since this is an optional purchase.
4. “Required Services that You Can Shop For”, which includes surveys, home warranties, pest reports, etc.

In addition to these groupings, there are separate line items for “Government Recording Charges”, “Transfer Taxes”, “Initial Escrow Deposit”, “Daily Interest” and “Homeowner’s Insurance”. This process will allow the borrowers to fully understand their fees during the application process, and it will help to eliminate junk fees.

Lastly, the new rules mandate that the final charges on the settlement statement can vary from those on the GFE only as follows:

1. For the Origination Charge and Transfer Taxes:  Zero Tolerance.  The GFE and settlement statement must match exactly.
2. For Required Services selected by the Lender, Title Services, Owner Title Insurance, Required Services That You Can Shop For (if you use companies identified by the lender) and Government recording charges:  There is a tolerance for a 10% increase for the total of these charges.
3. For the Initial Escrow Deposit, Daily Interest and Homeowner’s Insurance:  There is an unlimited tolerance for increases from the GFE.

NOTE – There are no restrictions on decreases of fees. Borrowers must love the sound of that.

After this GFE is completed, it is given to the borrower for review. At closing, the settlement agent or closing attorney will be required to put together a HUD which matches the GFE (see variances above). There should be no surprises by the time the closing happens, unless borrowers decide to not read the GFE at all. But HUD is here to protect the borrowers, and it appears they will achieve that. As for the closing agents and attorneys, that will be covered on the next blog. Part III of the blog will discuss the HUD form and the changes to it (tentatively entitled “A Rock and a HUD Place”).

This article is part one of a three part series by Attorney Jamie Feigelson.

It is widely understood that on January 1, 2010, there will be very big changes to the ways that real estate closings function. The U.S. Department of Housing and Urban Development (HUD) announced in November that it will not enforce for a 120-day period these new, sweeping regulatory changes to the Real Estate Settlement Procedures Act (RESPA). The new regulations will still go into effect on January 1, 2010, but the board overseeing enforcement of these new rules will “exercise restraint in enforcing” them.

This is very good news for closing attorneys and settlement agents. Our office at Penner Law Firm is equipped to adhere to the new RESPA rules; our technology has been updated for over a month. However, some settlement agents and closing attorneys may need some additional time to fully adjust the new forms and procedures. Having been to a RESPA seminar in early November, I can tell you that these changes will be difficult for some attorneys and closing agents.  Attorneys will have to alter the way they prepare HUD statements and fees, including sample HUDs for mortgage brokers and lenders. Banks and closing attorneys will have to work together to ensure all fees have been properly disclosed to a borrower/buyer on the GFE (good faith estimate). New software will be required for all closing attorneys to comply with the new HUD 3-page requirement. If a GFE (good faith effort – get it?) is made by the closing attorney, but the attorney fails to fully comply with the new law, HUD will advise the attorney on how to correct the problem. This could lead to problems for some attorneys in January and February.

But since RESPA says closing attorneys get a 120 day reprieve, why not prepare for the inevitable; when the new rules take effect, Buyers will need some patience in the closing timeline. One of the main changes to RESPA is that when a lender has to make changes to the terms of the loan such as rate, or closing costs, etc they have to reissue the good faith estimate (GFE) and the buyer must take 3 business days to review the new GFE. So if for some reason there was a change at the closing table, the closing would be automatically pushed back 3 days. You can see how this could potentially cause big problems at closing, especially for short sale transactions. Be prepared, Connecticut, for delays in the closing process.

Penner Law Firm will not have such problems, as we have already implemented our new software systems for RESPA and HUD statements. But the closing process involves multiple parties, and the 120-day break-in period should assist all parties to ensure a proper closing. In the end, things should work out better for buyers and borrowers, as these changes were made specifically to protect consumers.

The next two blogs will deal with the nuances and changes of the new HUD laws, and the effect it could have on brokers and lenders.

(Stay tuned for Part II of the “Sweeping Changes” series tentatively entitled “The Good, the Bad, and the HUD-ly”)