RESPA Reform effective January 1, 2010

Here are highlights of the new RESPA rules:

Standardized Good Faith Estimate form that all lenders must use. You can view the new three page GFE at http://www.hud.gov/content/releases/goodfaithestimate.pdf. It will be worthwhile for you to familiarize yourself with this form since it is what all everyone will be using.

This new form groups fees into subtotals rather than itemizing each one. The idea is that buyers can compare the total of the fees rather than adding up the various individual fees and trying to determine which ones vary from lender to lender.

New HUD-1 Settlement Statement corresponds to the GFE allowing buyers to easily compare the quoted fees to the actual fees at closing.

Certain fees, including all lender fees, can not change (0% tolerance) once they are quoted unless there is a change in circumstances (loan amount, down payment, etc.) or a change requested by the borrower (loan term, etc.). Even in these cases, only the charges directly affected by the new circumstance can change.

Even third party fees that are required by the lender, like title and escrow, must be accurately disclosed to within a 10% tolerance. Ideally these tolerances will finally put an end to the “bait and switch” tactics employed by some lenders.

The new GFE also makes the loan terms very clear right on the first page. It includes “yes or no” checkboxes for things like variable rates or payments, negative amortization, balloon payments, and prepayment penalties.

We've been creating regulations like this for almost as long as lending has been around, and so far they still haven't come up with a way to keep dishonest lenders from cheating unsuspecting borrowers. I don't have much confidence that they've finally figured it out now either. These new rules certainly aren't perfect and certainly won't prevent all predatory and dishonest lending practices, but they are the reality we have to deal with for now.

For more information you can go to the 51 page FAQ section of HUD’s website at http://www.hud.gov/offices/hsg/ramh/res/resparulefaqs.pdf