Understanding RESPA ReformThe session will begin at 2:00 PM ESTAllRegs Customer Service: (800) 848-4904 Know it all.
Welcome to this training event provided by AllRegs Academy and hosted by U.S. Bank Home Mortgage www.allregs.com or http://academy.allregs.com Know it all.
U.S. Bank Home Mortgageis pleased to offer this training for ourCUSB Lenders
January 1, 2010 Changes New and revised definitions. Revised form of Good Faith Estimate (GFE) – cannot be altered in any way. Revised GFE rules, including tolerances. Revised forms of HUD-1 and HUD-1A. Revised HUD-1/1A rules. Know it all.
Presentation Overview • What triggers the need to provide a GFE. • Fee restriction. • New rules governing issuance of and revisions to a GFE. • Tolerances on increases in charges. • Exceptions to tolerances. • Walk through of the GFE, including how to complete. • Mandatory disclosures associated with the GFE. • GFE Violations. • GFE and Truth in Lending Act (TILA) differences. Know it all.
Presentation Overview • Walk through of the HUD-1, including how to complete. • Analysis of disclosure of credits and fees. • Situations in which HUD-1A may not be used. • Administrative and processing services. • Comparing the GFE and HUD-1. • HUD-1 violations Know it all.
Rule and HUD FAQs HUD adopted the revisions to the RESPA rule in November 2008, and the final rule appeared in the November 18, 2008 Federal Register. On August 13, 2009, HUD began issuing guidance on the revised RESPA rule in the form of Frequently Asked Questions (FAQs). The FAQs appear to conflict with the RESPA rule and other laws, such as TILA, in various respects. Know it all.
GFE Trigger • The receipt of an application triggers the need for a loan originator to provide a GFE. • A “loan originator” is a mortgage broker or a lender. • An “application” is the submission of a borrower’s financial information in anticipation of a credit decision that includes at least six items: • Borrower’s name. • Borrower’s SS# to obtain a credit report. • Borrower’s income. • Property address. • Estimate of the property’s value. • Loan amount sought. Know it all.
GFE Trigger Additional information can be required to have an application, but there are tolerance implications. A loan originator must provide a GFE within 3 business days of the receipt of an application. A “business day” for this purpose remains any day on which the offices of the loan originator are open for conducting substantially all of its business operations. (U.S. Bank Home Mortgage does not recognize Saturdays or Sundays as business days.) The period to issue a GFE once an application is received is not revised. Know it all.
GFE-Related Fee Restriction • Other than a credit report fee, a loan originator may not impose a fee on a consumer before the consumer receives a GFE. • If the GFE is mailed, the consumer is deemed to receive the GFE 3 calendar days after mailing, exclusive of Sundays and Federal holidays in 5 USC 6103(a). • Note, this is the specific “business day” definition under Regulation Z. • HUD FAQ: A fee beyond a credit report fee may be imposed after a loan applicant both receives a GFE and indicates an intention to proceed with the loan covered by the GFE. Know it all.
GFE Initial Availability • If there are two separate loans, such as a first lien loan and a piggyback loan, two separate GFEs must be provided. • When a GFE is issued, the GFE terms must be available for at least 10 business days, except for the interest rate and the interest rate-dependent charges, and the related loan terms. • The interest rate-dependent charges are: • The credit or charge (points) for the rate chosen. • The adjusted origination charges. • Per diem (or daily) interest. • There is no minimum period of availability for the interest rate or the interest rate-dependent charges. Know it all.
U.S. Bank Home Mortgage Procedures for Issuing the Initial GFE • The Broker will be responsible for issuing the initial GFE to the borrower. • Submit a copy of the initial GFE with the Transmittal for Early TIL. • The GFE will be reviewed to insure it was issued on the proper form within 10 general business days prior to the date of the 1003, or within 3 general business days after the date of the 1003. GFEs not issued on the proper form or within prescribed timeframes will not be accepted, the broker will be notified, and the loan will be ineligible for funding. • If the GFE is accepted and the rate is locked, USBHM will insure that the loan terms in the system match those on the GFE. If not, the broker will be notified and will be required to update the system to reflect the terms disclosed to the borrower.
GFE Tolerances • If within the 10 business day-period, or such longer period that the loan originator may specify, the consumer expresses an intent to proceed with the loan covered by the GFE, the GFE is binding subject to both tolerances on charge increases and exceptions. • For purposes of the disclosure, U.S. Bank recognizes Monday through Friday, exclusive of legal Federal holidays, as business days. Know it all.
GFE Tolerances • There are three tolerance categories: • 0% tolerance—no charge increase permitted. • 10% bucket tolerance—charges in total may not increase by more than 10%. There is no limit on the amount a specific charge may increase except for the overall 10% cap. • No tolerance—no limit on increases in charges. Know it all.
GFE Tolerances • 0% tolerance: • Government transfer taxes. • Origination charge. • Credit or charge (points) for the interest rate chosen, when the rate is locked. • Adjusted origination charges, when the rate is locked. Know it all.
GFE Tolerances • 10% bucket tolerance: • Government recording charges. • Charges for loan originator-required services when the originator selects the specific provider. • Charges for loan originator-required settlement services, title services, required title insurance and owner’s title insurance, when the consumer uses a provider identified by the originator. Know it all.
GFE Tolerance Exceptions • There are three exceptions that permit a loan originator to revise a GFE without regard to the tolerances: • Changed Circumstances. • Borrower-requested changes. • Newly constructed homes. • With a changed circumstance or borrower-requested change, only the charges affected by the changed circumstance or borrower-requested change may be increased. Know it all.
GFE Tolerance Exceptions • Changed circumstances include: • Acts of God, war, disaster or other emergency. • Information regarding the borrower or loan relied on in providing the GFE that changes or is found to be inaccurate. • New information regarding the borrower or loan. • Changed circumstances do not include: • Market price fluctuations. • Any information collected before the GFE is provided that is later found to be inaccurate • Oops, my bad. Know it all.
GFE Tolerance Exceptions • The exceptions for changed circumstances and borrower-requested changes operate the same way. • If there is a changed circumstance or borrower-requested change, within 3 business days the loan originator may: • Deny the loan (if applicable). • Issue a revised GFE, revising only the applicable charges. • HUD FAQ: When a broker and lender are involved, the 3 business day-period begins to run when either the broker or lender learns of the changed circumstance or borrower-requested change. • The general “business day” definition applies. U.S. Bank does not recognize Saturday as a general business day. Know it all.
GFE Tolerance Exceptions The newly constructed home exception is available when settlement is expected to occur more than 60 days after the GFE is provided. In such a situation, the loan originator may provide along with the GFE a separate, clear and conspicuous disclosure stating that at any time up until 60 calendar days before closing the originator may issue a revised GFE. HUD FAQ: If a use and occupancy permit has been issued for the home prior to issuance of the GFE, then the home is not considered to be under construction and the transaction would not be a new home purchase for purposes of the exception. Know it all.
GFE Tolerance Exceptions If a loan originator provides a revised GFE based on the changed circumstance or customer-requested changes, it must document the reason(s) that a new GFE was provided and retain the documentation for no less than 3 years. Know it all.
U.S. Bank Home Mortgage Procedures for Changed Circumstances • For each Changed Circumstance, the Broker must provide the following to USBHM within 3 general business days of notification of the Changed Circumstance: • Copy of the Revised GFE issued to the Borrower • Transmittal for Revised Good Faith Estimate Form • Written documentation supporting the changed circumstance • USBHM will review the documentation for validity and, if accepted, will issue a corrective TIL (if needed.) If not acceptable, the broker will be notified that the loan is not eligible for funding; or is eligible for funding at the terms of the last accepted GFE. • Rate locks constitute a Changed Circumstance.
GFE Form Substantially Changed • The new GFE form is 3 pages with 13 main sections. • Transition: • If the new GFE form is used, the new HUD-1/1A form must be used. • The new GFE form cannot be altered in any way. • If the existing GFE form is used, the existing HUD-1/1A form must be used. • The existing GFE can be issued through December 31, 2009. • The existing HUD-1/1A must be used for loans closed on or after January 1, 2010 if the existing GFE was used. • What if the existing form of GFE was issued before January 1, 2010, and after January 1, 2010 the GFE is revised? Know it all.
GFE Format The revised rule states that a GFE may be provided by hand delivery, by placing it in the mail or, if the consumer agrees, by fax, email or other electronic means. If the GFE is sent to the customer by electronic means, U.S. Bank Home Mortgage will consider it to have been placed in the mail for purposes of calculating customer receipt date. Know it all.
GFE—Page 1 • Transaction identification section. • Purpose section. • Shopping for your loan section. Know it all.
GFE—Page 1 • Line 1: Insert the date and, at your option, time through which the interest rate and rate-dependent charges are available. • No minimum period is required. • Line 2: Insert the date through which all other charges are available. • 10 business day minimum period. • Line 3: Insert the rate lock period. • Line 4: Insert the deadline to lock the rate before settlement, if applicable. Know it all.
GFE—Page 1 • HUD FAQ: If rate is locked when an initial or revised GFE is issued, complete Lines 1, 3 and 4 “with the information that corresponds to the locked rate”. • Line 1: Insert date lock expires. • Line 3: Insert lock period. • Line 4: If rate is already locked, enter “NA” • HUD FAQ: If a lender does not offer a rate lock, enter “Not Applicable” or “NA” in Lines 1, 3, and 4. Know it all.
GFE—Page 1 HUD FAQ: If the interest rate is locked after the GFE is issued, a revised GFE must be issued to reflect the rate lock. HUD FAQ: If a revised GFE is provided based on a changed circumstance or borrower-requested change, Line 2 must be completed by entering a date a least 10 business days from the date the revised GFE is provided. Know it all.
GFE—Page 1 Summary of loan terms and escrow account information. Summary of charges from page 2 of the GFE. Result is that page 1 sets forth the availability of the GFE terms, and summarizes the loan and the settlement charges. Know it all.
GFE—Page 1 • HUD FAQs: • Initial rate is the interest rate applicable on closing date. • Not the APR. • Initial rate may not necessarily be the note rate. Know it all.
GFE—Page 1 • HUD FAQs: • For the initial monthly payment, show the higher of (a) principal, interest and mortgage insurance or (b) accrued interest for first regularly scheduled payment, plus mortgage insurance. • All loans must be shown as monthly payment loans. Know it all.
GFE—Page 1 • HUD FAQ: • For a loan with a conditional preferred rate feature, such as a lower rate while the borrower is employed by the lender, enter “unknown” in the blank for when the rate may first change. • If the interest rate is locked after the GFE is issued, the loan terms summary in the revised GFE must be based on the locked rate. Know it all.
GFE—Page 1 • HUD FAQ: • Based on a recent Fed interpretation, with an FHA loan the requirement to pay interest through the end of the month when a prepayment occurs on a date that is not the installment due date is not a prepayment penalty. Know it all.
GFE—Page 1 • HUD FAQ: • The blank for the monthly amount owed is the monthly payment of principal, interest and mortgage insurance that is disclosed in the summary of your loan section. Know it all.
GFE—Page 2 • Page 2 of the GFE identifies settlement charges in various categories. • HUD FAQs: • Paid outside of closing (POC) items are not separately itemized or designated on the GFE. • If the seller will pay fees typically paid by the borrower, the fees are still included in the GFE as being paid by the borrower. • Except for title charges, fees that typically are not charged to the borrower and are typically charged to a third party, such as the seller, do not have to be included in the GFE. Know it all.
GFE—Page 2 • Block 1: Enter all broker and lender compensation. • This includes all lender and broker fees and compensation, including broker compensation paid by the lender. • HUD FAQs: The “our origination charge” item includes processing and administrative fees, which includes application, processing, administration, underwriting, document preparation, wire, lender inspection, loan handling and other miscellaneous fees, even if paid to a third party. Know it all.
GFE—Page 2 • Block 2, Box 1: This is an optional box that may be used in transactions that involve only a lender. • Apparently, a lender may elect to include in Block 1 the credit or charge for the rate chosen and then check Box 1 to reflect that it did so. • But, while the instructions indicate a lender may take this approach, the instructions also provide that a charge (points) for the rate chosen may not be included in Block 1. Know it all.
GFE—Page 2 • Block 2, Box 2: This box is checked to show a credit for the rate chosen, which would include a yield spread premium. If the Box is checked: • The dollar amount of the credit and the interest rate must be entered in the blanks. • In Box 2, the dollar amount of the credit must be entered as a negative number. Know it all.
GFE—Page 2 • Block 2, Box 3: This box is checked to show a charge (points) for the rate chosen. If the Box is checked: • The dollar amount of the points and the interest rate must be entered in the blanks. • In Box 3, the dollar amount of the charge must be entered. Know it all.
GFE—Page 2 • Block 2, Box 2 and 3: GFE instructions provide that either Box 2 or Box 3 must be checked, because there cannot be a credit or charge in the same transaction. Potential interpretations: • Credits and charges are offset to produce a net credit or charge. • You cannot have a yield spread premium and discount point in the same transaction. • HUD FAQ: There may not be a credit for a yield spread premium and charge for discount points in the same transaction. Know it all.
GFE—Page 2 • Block A: The net of Block 1 and Block 2. • Example for initial GFE: $100,000 loan with no points, 1.5% lender fees and broker yield spread premium of 2%. • Block 1: $3,500 our origination charge ($1,500 lender fees plus $2,000 yield spread premium). • Block 2: -$2,000 credit (the yield spread premium). • Block A: $1,500 your adjusted origination charges (Block 1 less Block 2). Know it all.
GFE—Page 2 • Example for initial GFE: $100,000 loan with 2 points, 1.5% lender fees and broker fee of 1%. • Block 1: $2,500 our origination charge ($1,500 lender fees plus $1,000 broker fee). • Block 2: $2,000 charge. • Block A: $4,500 your adjusted origination charges (Block 1 plus Block 2). Know it all.
GFE—Page 2 • 0% tolerance applies to: • Our origination charge. • Your credit or charge for the rate chosen, while the rate is locked. • Your adjusted origination charges, while the rate is locked. • This means that: • The origination charge may not increase. • While the rate is locked, the credit for the rate chosen may not decrease and the charge for the rate chosen may not increase. • While the rate is locked, your adjusted origination charges may not increase. Know it all.
GFE—Page 2 • HUD FAQs: • When a no cost loan covers both the origination charge and some or all of the third party charges, then the credit in Block 2 must equal the origination charge plus the applicable third party fees. • This will result in Block A disclosing a negative number. • A temporary buy-down fee is a charge for the interest rate chosen. • If the rate is locked after the GFE is issued, Block 2 and Block A in the revised GFE must be based on the locked rate. Know it all.
GFE—Page 2 • Tolerances: • The origination charge is subject to the 0% tolerance. • When the interest rate is locked, the credit or charge for the rate chosen and the adjusted origination charges are subject to the 0% tolerance. • HUD FAQ: Apparently HUD is working on a FAQ to address this section when a revised GFE is issued based on a rate lock. Know it all.
GFE—Page 2 • Block 3: Includes each service required by the originator for which the originator will select the provider, or require the borrower to choose from a list of providers approved by the originator. • Enter each service and the charge for each service, with the total in Block 3. • Additional lines may be added if needed to show all charges. • The items in Block 3 are subject to the 10% bucket tolerance. Know it all.
GFE—Page 2 • Block 4: Enter the total for all title services, premiums and endorsements (but not owner’s title), regardless of who selects or pays for the title provider. • HUD FAQs: • Title services include: • The charge for conducting the settlement. • Processing and administrative services, such as document delivery, preparation and copying, wiring, and notary. • The amount in Block 4 is subject to the 10% bucket tolerance, if the consumer uses a title provider identified by the loan originator. Know it all.
GFE—Page 2 • Block 5: Enter the total for owner’s title premiums and endorsements, regardless of who selects or pays for the title provider. • For non purchase transactions, you may enter “NA” or “Not Applicable”. • Unless you know the consumer wants enhanced coverage, provide the quote for basic coverage • HUD has indicated that if the consumer later indicates that he or she wants enhanced coverage, this would be a changed circumstance. • The amount in Block 5 is subject to the 10% bucket tolerance, if the consumer uses a title provider identified by the loan originator. Know it all.
GFE—Page 2 • Block 6: Includes each service required by the originator for which the originator will permit the consumer to shop for the provider. • Enter each service and the charge for each service, with the total in Block 6. • Additional lines may be added if needed to show all charges. • If you allow the borrower to shop for the provider of one or more services in Blocks 4, 5 or 6, you must provide the consumer with a written list of providers for the applicable services along with the GFE. • The items in Block 6 are subject to the 10% bucket tolerance, if the consumer uses providers identified by the loan originator. Know it all.
GFE—Page 2 • HUD FAQ: If a government loan program requires a borrower to select from “approved” service providers, such as HUD approved housing counselors, for a service, the service must be disclosed in Block 6 (unless the loan originator will select the provider). • HUD does not address if the loan originator’s list of providers for the applicable service must list one, more than one or all of the providers on the government list. Know it all.