New Real Estate Settlement Procedures Act (RESPA) Rules

There have been some questions and confusion in the industry over the new RESPA rules from HUD that took effect at the beginning of the year.

In November 2008, the Department of Housing and Urban Development added the new regulations to the Real Estate Settlement Procedures Act, including new Good Faith Estimate (GFE) and HUD-1 forms, along with rules and timelines for each ones use. Some lenders have already implemented them last year. As of the first of this year, however, all lenders must comply with the new procedures for providing GFE’s and transparent accounting of closing terms.

3-day Rule
Lenders must provide borrowers with a GFE within three days of receiving a loan application. HUD does allow lenders to provide general information worksheets in lieu of the GFE during the pre-approval process as long as no specific property is identified. If consumers ask for a GFE, however, one must be provided whether the borrower is ready to buy or not.

Fee Categories
The new GFE includes three categories of closing fees that buyers need to understand. They are (1) fees that cannot change at closing, such as origination fees (2) a group of charges that collectively can increase up to 10% only, such as government recording fees, and (3) costs that are permitted to change if a buyer chooses to shop around for services, such as homeowner’s insurance.

Checks and Balances
Consumers should confirm their lender’s compliance with the new RESPA rules by carefully reading and reviewing the GFE and HUD-1 forms. Realtor will assist buyers verify the fees and other information in preparation for their closing.

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