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2009-12-17 15:28:05
New Mortgage Rules to Help Consumers

New RESPA rules may save consumers an average of nearly $700 in costs and fees per mortgage

Buying a home in America should be the fulfillment of a dream. Instead, millions of families go to the settlement table each year without clearly understanding what they are paying for. 

For the first time ever, HUD will require that mortgage brokers and mortgage lenders to provide consumers with a standardized description of terms called the Good Faith Estimate. The GFE will be given to borrowers at the time an estimate is provided and will more clearly answer key questions consumers have when applying for a mortgage:

  • What's the term of the loan?
  • Is the interest rate fixed or can it change?
  • Is there a pre-payment penalty should the borrower choose to refinance at a later date?
  • Is there a potentially crippling balloon payment?
  • What are total closing costs?

The Department of Housing and Urban Development (HUD) has released an updated version of a booklet that's intended to help consumers comparison-shop for a mortgage. Much of the 49-page publication, 'Shopping for Your Home Loan: HUD's Settlement Cost Booklet,' is devoted to the new standardized Good Faith Estimate and HUD-1 settlement statement forms that lenders must begin using on Jan. 1.

The forms and other changes to implementation of the Real Estate Settlement Procedures Act (RESPA) are intended to help consumers comparison shop. HUD believes the new RESPA rules, which encourage lenders to package settlement services like title insurance with loans, will save consumers an average of nearly $700 in costs and fees per mortgage.

HUD will require that lenders and mortgage brokers provide consumers with a standard Good Faith Estimate (GFE) that clearly discloses key loan terms and closing costs. Closing agents will also be required to provide borrowers a new HUD-1 Settlement Statement that clearly compares consumers’ final and estimated costs. The new Real Estate Settlement Procedures Act (RESPA) rule became effective on January 16, 2009, but provided a one-year transition period for the mortgage industry to incorporate these changes. HUD will continue to work with the mortgage industry during this period, including providing a comprehensive set of frequently asked questions (FAQs) on its website.

In addition to the stepped up training and technical assistance announced today, HUD is instructing its Mortgagee Review Board (MRB) to exercise restraint in enforcing RESPA’s new requirements for 120-days. The MRB instructed its staff to exercise such restraint in considering an action against FHA-approved lenders who demonstrate a good faith effort to comply with RESPA’s new requirements.

HUD is also asking other federal and state enforcement agencies to exercise the same 120-day restraint in enforcement for non-FHA originators and other settlement service providers who demonstrate good faith in implementing RESPA’s new rules. In determining whether a mortgagee has made a good faith effort, MRB staff will consider whether the mortgagee has relied on the new RESPA rule and other written guidance issued by the Department, and the extent to which the mortgagee has made sufficient investment and commitment in technology, training, and quality control designed to comply with the new rule. HUD still expects all loan originators to begin using the new GFE and revised HUD-1 after January 1, 2010.

Read more at the HUD Web site.

 
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