Bulletin: NY000427

Date:
December 08, 2009
To:
All New York State Office Counsel, Managers and Agents
RE:
Compliance with New RESPA Regulations (HUD-1 and GFE)

Frequently Asked Questions (FAQs)

Compliance with New RESPA Regulations (HUD-1 and GFE)


General

Q: When do the new regulations take effect?

A:  There are different implementation dates, but as of January 1, 2010 lenders must issue the new Good Faith Estimate (“GFE”) to loan applicants and  the new HUD-1/HUD-1A must be used for closing loans when the new GFE has been used by the lender.  The tolerances also take effect on January 1, 2010.

Q: What happens for loans applied for prior to January 1, 2010?

A:  If a GFE is issued on the old form prior to January 1, 2010, and the loan will close after January 1, 2010, then the old HUD-1 form must be used.  

Q: Will Stewart Title Insurance Company (“STIC”) assist loan originators and their counsel/representatives in complying with the new regulations and quickly produce the GFE?

A: Absolutely, STIC is taking a strong, pro-active position to help its customers comply. All facets of our operations are ready to help.

STIC’s Role in Helping the Lender Issue the Good Faith Estimate Quickly

Q: What is STIC specifically doing to ensure that the loan originator quickly receives the costs for STIC “title services” for the GFE?

A:  STIC recognizes that because of the new regulations and new GFE form STIC must act quickly to provide its costs to the loan originator.  In order to facilitate quick turnaround and accurate figures, STIC is providing all of our residential customers with a copy of our title application form and a Closing Statement Information Sheet (see [link] to download a copy).  These documents provide us with the information necessary for us to provide an accurate preliminary title invoice which can be used by our lender customers to compile necessary amounts for the new GFE for the mortgage consumer.  The forms should be submitted as soon as possible to your appropriate sales representative or application desk, preferably at the opening of a title order.

Tolerances

Q: What do the regulations mean by tolerances?

A:  The regulations establish tolerances for the amount, if any, by which the actual charges at settlement may exceed the amounts included on the GFE.  These fall into three categories, as follows:

 

    Zero Tolerance
10% Tolerance
Charges Which May Change
The actual charges at settlement may not exceed the amounts included on the GFE for:

1. The loan originator’s origination charge.

2. While the borrower’s interest rate is locked, the credit or charge for the interest rate chosen.

3. While the borrower’s interest rate is locked, the adjusted origination charge.

4. Transfer taxes
The sum of the charges at settlement for the following services may not be greater than 10% above the sum of the amounts included on the GFE:

1. Lender required settlement services, where the lender selects the third party settlement service provider.

2. Lender-required services, title services and required title insurance, and owner’s title insurance, when the borrower uses a settlement service provider identified by the loan originator; and

3. Government recording charges.
Charges for the following may change at settlement:

1. Required services that the borrower may shop for (if the borrower does not use companies which the lender identifies).

2. Title services and lender’s title insurance (if the borrower does not use companies which the lender identifies)

3. Owner’s title insurance (if the borrower does not use companies which the lender identifies)

4. Initial deposit for the escrow account with the lender.

5. Daily interest charges.

6. Homeowner’s insurance.

 


Lender Required Settlement Services and Companies the Lender Identifies

Q: When will STIC’s services be subject to the tolerance rules?

A: As noted above, transfer taxes, which include mortgage taxes, have a zero tolerance regardless of whether or not the lender identifies STIC for providing title services.   However, if STIC was identified by the lender when the GFE was issued as a company to use for title services, then the 10% tolerance rules apply to the items identified in that category regardless of whether  the title order may have been placed by the borrower or the borrower’s attorney. It is important that the lender inform STIC whether it has identified STIC as the company to use.

Suggested Practices for Minimizing Problems

Q:  How can the loan originator minimize the need to issue a new GFE or postpone the closing?

A:  New York is unique in many respects, including transfer taxes, mortgage taxes (defined as a transfer tax in the regulations) to name only two.  It is critical that the loan originator obtain from the borrower complete information to avoid an inaccurate or incomplete GFE.  The Closing Statement Information Sheet is designed to help.  It is important to keep in mind that under the regulations, the lender is permitted to obtain not only the standard information about the borrower but also “any other information deemed necessary by the loan originator”[1] Getting the information at application avoids problems later.

Changed Circumstances

Q: Why would STIC change its statement of charges?

A:  STIC will provide its statement of charges based on the facts provided in the Closing Statement Information Sheet.  If the facts change, then there may be a need to change our closing charges.  The loan originator should advise STIC promptly of any changes, and STIC will work quickly to provide a revised statement of charges, if applicable.

Example:  Husband and wife are the borrowers. After the loan application is received and the GFE is issued, the borrowers advise the loan originator that the wife cannot attend the closing.  The loan originator agrees to allow the husband to execute the loan documents by a power of attorney.  The power of attorney needs to be recorded.  This is a changed circumstance.  STIC will need to increase the recording fees.

Avoiding Traps and Pitfalls

Q:  What special problems does the loan originator need to avoid?

A:  STIC expects that mortgage taxes will be a special problem.  Because mortgage tax falls under the definition of transfer taxes, there is zero tolerance in changes.  The common practice of the assignment of existing mortgages to the new lender means that it is critical the loan originator not understate the mortgage recording tax that will be due at closing.  Under the regulations it is not a tolerance violation if the charges are lower at closing. [2]The new regulations allow a cost to be lower than shown in the GFE. STIC recommends that as a standard practice the loan originator assume that the “new money” the new lender extends is greater than if the loan were to close quickly. We suggest that when computing the mortgage tax, it be assumed that at least two additional principal payments will be made on the existing loan prior to closing the new loan.

Example: The loan originator agrees to take an assignment of the borrower’s existing mortgage, so needs to estimate the mortgage recording tax on the “new money”.  The borrower makes an additional principal payments after the pay-off letter on which the GFE’s mortgage tax disclosure is based. The mortgage tax figure in the GFE now is understated and unless a new GFE is issued, a tolerance violation will occur at the settlement of the new mortgage.

Q: Are real estate transfer taxes a problem?

A: Yes, they can be.  Example: the borrower is purchasing a condominium unit from the sponsor.  Under the purchase agreement, the purchaser, the borrower, pays the transfer tax.  This results in a higher transfer tax than a straight computation.  We suggest that in any purchase, the loan originator require the borrower to furnish the contract of sale as part of the application and that the loan originator furnish the contract to us when the title order is placed.

Closing Statement Information Sheet (click to view)

For on-line viewing of this and other bulletins, log onto http://www.stewartnewyork.com/

 


[1]“Application means the submission of a borrower's financial information in anticipation of a credit decision relating to a federally related mortgage loan, which shall include the borrower's name, the borrower's monthly income, the borrower's social security number to obtain a credit report, the property address, an estimate of the value of the property, the mortgage loan amount sought, and any other information deemed necessary by the loan originator. An application may either be in writing or electronically submitted, including a written record of an oral application.” 24 CFR 3500.2 (b)

[2] See Page 31, Question 4, New RESPA Rule FAQs 11/17/09 http://www.hud.gov/offices/hsg/ramh/res/resparulefaqs.pdf

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