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By: Deborah Yahner, Underwriting Counsel, Stewart Title Guaranty Company

Recently, the only constant in the real estateindustry has been change – and that’s not going tochange any time soon. The latest challenge facingthe industry is a result of reforms made to RESPA,or the Real Estate Settlement Procedures Act.RESPA was modified in 2008 to provide consumers agreater ability to shop for the best loan bysimplifying the process and allowing borrowers tocompare the Good Faith Estimate (GFE) issued bythe lender (estimating the costs to close) with a newHUD-1/1A (the closing statement documenting theactual costs at closing).

The RESPA changes apply to all 1-4 familyresidential transactions with institutional lenderfinancing. The newHUD-1 does not need to be used for cashtransactions, seller financed transactions, loansfrom private sources, and transactions with 25 acresof land or more. HUD-1 is also not used forcommercial transactions such as a warehouse, six-plex, commercial building or strip center.

All lenders and title agencies are required to meetthe new RESPA regulations beginning January 1,2010. However, lenders may begin using the newGFE at any time, and if a new GFE is issued to aborrower, the title agency must use the new HUD-1for that transaction.

The relationship betweenthe new Good Faith Estimate and HUD-1Previously, there had never been a standardizedform for the GFE – creating a standardized version of

this form will be of great benefit to borrowers. Theamended HUD-1 was created to work with therevised GFE and has references on most lines to thecorresponding area of the GFE for easier comparisonof the two. A new third page on the HUD-1 includesa chart comparing the amounts listed for particularsettlement costs estimated on the GFE with the

actual costs for those same charges listed on theHUD-1. Additionally, there is a section that clearlylays out the terms of the borrower’s loan, whichshould go a long way toward helping consumersavoid agreeing to terms they cannot meet.

Loan originators, defined as the lender or mortgagebroker working directly with the borrower, mustprovide all the information necessary to completethe comparison chart and loan terms disclosure onthe new third page.

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Introducing tolerance levels for consumer protection

To further protect consumers, the RESPA reformestablishes tolerance levels for changes to costs laidout in the GFE so that no consumer will have to paya wildly different amount for their actual closingcosts than those

previously detailed in the Good Faith Estimate. Three separate categories of tolerance levels werecreated.

The first category, charges that cannot change fromthe GFE to the HUD-1, includes the borrower’sorigination charge, credit or charge for interest rateselected, the adjusted origination charge andtransfer taxes. The second

category, charges that can increase in aggregate no

more than 10%, includes title services, lender’s titleinsurance, appraisals, credit reports, tax service andflood certification where the lender selects oridentifies the provider for these services as well asmortgage insurance premium and recordingcharges. The third category, charges that can

increase with no cap, includes the initial deposits for

escrow reserves, daily interest charges,homeowners insurance and lender-required serviceswhere the borrower shops for and selects their ownthird-party provider, and

services the borrower chooses to have that are notrequired by the lender.

The rule requires the GFE settlement chargesremainavailable for 10 business days to allow the borrowerto comparison shop with other loan originators. TheGFE may be revised and reissued (in which event

there could be increases in the charges) prior tosettlement due to certain “changed circumstances”.

The HUD defines these

circumstances as acts of God, war, disaster or otheremergency; information about the borrower ortransaction that changes or is found to beinaccurate after the issuance of the GFE (e.g., creditquality, loan amount, propertyvalue or other information); newly found information

thatwas not previously relied upon as well as otherpossible circumstances.

Contact us for more information about the RESPAreform and why we’re the right title company for

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How new government regulations can impact your closing.

you.

CloSure Title & SettlementCo., LLC1885 Seminole Trail, Ste 100Charlottesville, VA 22901(434) 872-0655 Phone(434) 872-0656 Faxemail@closuretitle.comwww.closuretitle.com