In the past year, the mortgage industry has implemented changes that will help provide customers with the essential information and enough time to understand their home purchases and refinance options. Some of those changes have included the Home Valuation Code of Conduct (HVCC) changes in May 2009 and the Housing and Economic Recovery Act (HERA) requirements that came into effect July 30, 2009. The newest addition to those changes is the RESPA (Real Estate Settlement Procedures Act) Reform, which became mandatory for all lenders and mortgage brokers on January 1, 2010.
Here's what you need to know about the RESPA Reform as a consumer and an industry colleague.
What is RESPA Reform?
RESPA Reform was enacted by the U.S. Department of Housing and Urban Development with the goal to help protect borrowers applying for home financing by: standardizing the industry, providing a thorough explanation of key loan terms and settlement charges, including a side-by-side chart to help compare the estimated charges on the GFE (Good Faith Estimate) with the actual charges at closing, and requiring that fees not increase between issuance of the GFE and closing except under limited circumstances.
What is the RESPA Reform's Goal?
The objective of the new government requirements that relate to home financing is to provide information that can help every homebuyer and owner make better home financing decisions. For example, the HVCC ensures that borrowers have sufficient notice of appraisal content and promotes the accuracy of appraisals by shielding appraisers from undue influence. The RESPA Reform's main goal is to help borrowers avoid surprises at closing by placing tolerance levels on all charges for services associated with obtaining the mortgage where the vendor is not borrower-selected.
What impacts will the RESPA Reform have?
The HVCC and the HERA requirements may both impact the loan closing timeline. The RESPA Reform may also influence the timeline and has many process impacts for lenders, settlement agents and attorneys, however the transaction process for the consumers and other parties should remain relatively unchanged. Beginning January 1, 2010, HUD will require all lenders and mortgage brokers to provide borrowers with the new RESPA Reform GFE on any application that is taken on or after January 1, 2010 with a property identified. Additionally, settlement agents and attorneys will be required to provide borrowers with the new RESPA Reform HUD-1 settlement statement that closely aligns with the new GFE. Each lender can decide if or when to implement the new form prior to the required date of January 1, 2010. For any loan where the new GFE form is used, the new HUD-1 form must also be used, even if the closing is prior to January 1.
For Realtors, the new GFE should not impact how you do business and should help your buyers avoid surprise charges at settlement, have the ability to shop for the best loan, and ultimately feel more comfortable with their decision.
Other Important Facts About RESPA
RESPA Reform applies to all open-end and closed-end loans, but it does not apply to home equity lines of credit.
An applicant must receive his or her initial disclosures before upfront fees can be collected from that applicant. The only exception is this credit report fee, which can be collected at application.
Realtors and builders are recommended to talk to settlement agents or attorneys right away about the RESPA Reform requirements to ensure they are prepared to issue the new HUD-1 as required. This may help avoid the possibility of having to select a new closing agent midstream, which could impact the closing date.
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Jolenta Averill, Principal
Lake & City Homes Realty