- February 05, 2009
- All New York State Office Counsel, Managers and Agents
- RESPA Reform 2009 - NEW HUD-1, NEW HUD-1A, Average Cost Pricing, and Required Use
The Department of Housing and Urban Development (HUD) has adopted a Final Rule (Rule) pertaining to Real Estate Settlement Procedures Act (RESPA) to "Simplify and Improve the Process of Obtaining Mortgages and Reduce Consumer Settlement Costs." (24 CFR Part 3500, 73 FR 68204)
This Rule modifies the definition of "required use" for Affiliated Business Arrangements and for purchase of an Owner's Policy.
This Rule authorizes Average Charge (Average Cost Pricing) for a settlement charge by a settlement service provider.
This Rule does not adopt any of the following that had been proposed:
- Guaranteed Mortgage Package(GMP) Transactions (a guaranteed package price for a comprehensive package of settlement services), but the Rule does require aggregation of "adjusted origination charges" (Line 803) and "Title services and lender's title insurance" (Line 1101).
- Closing Script to be read aloud and explained by the settlement agent, but the Rule does require an additional page to the HUD-1 and HUD-1A to compare the GFE and HUD charges and to describe the loan.
- Negotiated discounts, including volume based discounts, but HUD's position is that discounts negotiated by loan originators or other settlement service providers and fully passed on to the borrower are not illegal rebates.
EFFECTIVE DATES OF NEW RULE
"Average charge" (Average cost pricing) is effective January 16, 2009.
The revised definition of "required use" of settlement services is delayed until April 16, 2009.
Mandatory use of the revised HUD-1 and HUD-1A is effective the earlier of (1) January 1, 2010, or (2) whenever the revised GFE is first used for the loan transaction.
"Any settlement service provider who delivers the new GFE prior to January 1, 2010, will be subject to all of the requirements related to the new GFE, including compliance with the tolerance provisions and use of the required HUD-1/1A."
NEW HUD-1, NEW HUD-1A, NEW GFE
The lines in Section L (Settlement Charges, page 2 of HUD-1, page 1 of HUD-1A) refer to the applicable lines from the GFE.
Terminology of the HUD-1 and HUD-1A conforms to the terminology of the GFE.
These changes promote comparison of the HUD-1 and HUD-1A with the GFE, allowing the borrower to see any changes to the settlement charges or loan terms.
In lieu of the Closing Script, HUD has added an "additional page on the HUD-1/1A settlement statement that sets forth a comparison between the charges listed on the GFE and the charges listed on the HUD-1/1A, and summarizes the final loan terms of the borrower's loan."
The loan originator must transmit "sufficient information to the closing agent to allow the closing agent to prepare the HUD-1/1A, including the new last page." This may include providing a copy of the GFE to the closing agent.
KEY CHANGES ON HUD-1, HUD-1A:
- Line 801 Our origination charge (from GFE #1) - includes all charges received for origination, except points. Show outside the columns (for Borrower's or Seller's Charge).
- Line 802 Your credit or charge (points) for the interest rate (from GFE #2) - when the payment to the mortgage broker exceeds the initial loan amount, there is a credit or negative number; when the initial loan amount exceeds the amount paid to the mortgage broker, there is a charge to the borrower as a positive number. Show outside the columns.
- Line 803 Your Adjusted origination charges (from GFE A) -- the sum of Lines 801 and 802. Show in the column as a positive or negative number. If a "no cost loan" that includes third party settlement services, Line 802 will more than offset Line 801, and Line 803 will be a negative number.
- Lines 804-808 Appraisal, Credit report, Tax service, Flood certification, etc. (from GFE #3) - Identify third party and show inside the columns or as P.O.C.
- Line 1001 Initial deposit for your escrow account (from GFE #9) - the sum of 1002-1006 (and subsequent numbers) less the Aggregate Adjustment of Line 1007. Show the amount in the column, and the itemizations in Lines 1002-1007 outside the columns.
- Lines 1100 -1108 Title charges --- includes title charges and charges by attorneys and closing or settlement agents, including title examination, title search, document preparation, title insurance, and fees for closing and escrow, legal charges for attorneys for representing lenders, sellers, or borrowers, and attorney preparing title work, notary, and delivery fees - show amounts paid to third parties outside the columns. Charges not listed in Line 1101 must be shown in the column.
- Line 1101 Title services and lender's title insurance (from GFE #4) - total must be listed in the column. (Instructions for GFE for Title services and lender's title insurance: "The loan originator must also include any lender's title insurance premiums, when required, regardless of whether the provider is selected or paid for by the borrower, seller, or loan originator. All fees for title searches, examinations, and endorsements, for example, would be included in this total." This number does not include Owner's Title Insurance. If amounts included in Line 1101 are shown in other lines, such as Settlement or closing fee, show outside the column on that other line. )
- Line 1102 Settlement or closing fee - include in total of Line 1101, and show the specific settlement or closing fee outside the column of Line 1102.
- Line 1103 Owner's title insurance (from GFE #5) - show amount inside the column.
- Line 1104 Lender's title insurance - include cost of Loan Policy and endorsements outside the column.
- Line 1107 Agent's portion of the total title insurance premium (amount, but percentage may also be shown) - show the dollar amount outside the column.
- Line 1108 Underwriter's portion of the total title insurance premium (amount, but percentage may also be shown) -- show the dollar amount outside the column.
COMPARISON OF GOOD FAITH ESTIMATE AND HUD-1/1A CHARGES
(HUD-1 page 3; HUD-1A page 2)
CHARGES THAT CANNOT INCREASE
- Our origination charge (HUD Line 801, GFE #1)
- Your credit or charge for interest (HUD Line 802, GFE #2)
- Your adjusted origination charges (HUD Line 803, GFE A)
- Transfer taxes (HUD Line 1203, GFE #8)
CAUTION: If there is an increase in any of these charges from the GFE, do not close without written instructions from the loan originator.
CHARGES THAT IN AGGREGATE CANNOT INCREASE MORE THAN 10%
- Title services and lender's title insurance (HUD Line 1101, GFE #4) (where lender selects or identifies)
- Appraisal, credit report, tax service, flood certification (HUD Lines 804-808, GFE #3) (where lender selects or identifies)
- Mortgage insurance premium (HUD Line 902, GFE #3)
- Government recording charges (HUD Line 1201, GFE #7)
- Increase between GFE and HUD-1/1A Charges (Any amount of increase must be entered as both a dollar amount and as a percentage increase.)
Note: If the total increase from the GFE exceeds 10%, do not close without written instructions from the loan originator.
CHARGES THAT CAN CHANGE (NO 10% LIMIT)
- Initial deposit for your escrow account (HUD Line 1001, GFE #9)
- Daily interest charges (HUD Line 901, GFE #10)
- Homeowner's insurance (HUD Line 903, GFE #11)
- Required services that you can shop for (HUD Line 1301, et seq., GFE #6) ("Any third party settlement services for which the borrower selected a provider other than one identified by the loan originator must also be included in this section.")
This section of the HUD-1 and HUD-1A must be completed as instructed by the lender. The settlement agent should not have to refer to the loan documents.
SELLER PAID OR NO COST CLOSINGS
Lines 204-209 may be used if the Borrower receives credit from the Seller for closing costs, including seller-paid GFE charges.
Lines 506-509 should reflect Seller obligations for charges that were disclosed on the GFE but that are actually paid by the Seller.
If the transaction is a "no cost" loan, the charge on Line 803 will be zero (if no cost for loan originator fees) or negative (if "no cost" includes third party settlement fees).
An average charge may be used by any settlement service provider that secures a service from a third party on behalf of the borrower or seller.
"A settlement service provider may define a class of transactions based on the period of time [no less than 30 days nor more than six months], type of loan, and geographic area. For example, a settlement service provider might calculate an average charge for all purchase money mortgages in the States of Georgia and South Carolina in a specified period of time. Alternatively, a settlement service provider could establish the class of transactions in which it would use a single average charge broadly, e.g., all transactions in engages in for a period of time, regardless of loan type or location."
The settlement service provider must recalculate the average charge at least every six months, and must use the same average charge for every transaction within the class. The average charge shall be no more than the average amount paid for a settlement service by one settlement service provider to another settlement service provider. The total amounts paid by borrowers and sellers based on an average charge may not exceed the total amounts paid to the providers of the service for the particular class of transactions.
An average charge may not be used if the charge is based on the loan amount or value of the land, such as transfer taxes, daily interest charges, reserves or escrow, and all insurance (e.g mortgage insurance, title insurance, and hazard insurance).
The settlement service provider making use of an average charge must maintain all documents used to calculate the average charge for at least three years after any settlement with an average charge.
REQUIRED USE AND BUNDLING
The Rule revises the definition of "required use." A person may not require purchase of a settlement service from an Affiliated Business Arrangement, and a seller of a residence may not require, directly or indirectly, that a buyer purchase title insurance from a particular title company.
As revised, "required use" means "a situation in which a person's (seller or borrower) access to some distinct service, property, discount, rebate, or other economic incentive, or the person's ability to avoid an economic disincentive or penalty, is contingent upon the person using or failing to use a referred provider of settlement services."
A settlement service provider may continue to offer a combination of bona fide settlement services at a discounted total combined price lower than the sum of market prices for the individual settlement services, if the combination is optional to the buyer and the lower price is not made up by other charges in the settlement process.
This definition may mean that the seller cannot require that an Owner's Policy be issued by a particular title company, even if the seller pays for the policy, and may prohibit builder incentives, including non-cash incentives.
This definition is being litigated by the National Association of Home Builders.
VIOLATIONS AS TO GFE, HUD-1/1A
Completion of the GFE and staying within the tolerances is the obligation of the loan originator. The loan originator is bound by the GFE. Prior to the settlement, a loan originator may revise the GFE because of "changed circumstances" (which is a defined term) affecting settlement costs in excess of the tolerances or the loan terms, or the GFE can be revised due to a borrower's requested change or if the GFE has expired. An increase in a third party fee alone is not a changed circumstance.
A violation of the requirements pertaining to the GFE is a violation of Section 5 of RESPA (12 USC 2604). However, a loan originator may cure the tolerance violation by reimbursing the borrower the amount by which the tolerance was exceeded either at settlement or within 30 calendar days after settlement.
A violation of requirements for the HUD-1/1A is a violation of Section 4 of RESPA (12 USC 2603). An inadvertent or technical error in a HUD-1/1A may be corrected by providing a revised HUD-1/1A within 30 calendar days of settlement.
Not all RESPA provisions provide a private right of action under RESPA, but a private right of action may then lie for violation of state consumer protection or deceptive practices laws.
EXHIBITS (Click to View):
For on-line viewing of this and other bulletins, please log onto www.stewart.com/new-york.
THIS BULLETIN IS FURNISHED TO INFORM YOU OF CURRENT DEVELOPMENTS. AS A REMINDER, YOU ARE CHARGED WITH KNOWLEDGE OF THE CONTENT ON VIRTUAL UNDERWRITER AS IT EXISTS FROM TIME TO TIME AS IT APPLIES TO YOU, AS WELL AS ANY OTHER INSTRUCTIONS. OUR UNDERWRITING AGREEMENTS DO NOT AUTHORIZE OUR ISSUING AGENTS TO ENGAGE IN SETTLEMENTS OR CLOSINGS ON BEHALF OF STEWART TITLE GUARANTY COMPANY. THIS BULLETIN IS NOT INTENDED TO DIRECT YOUR ESCROW OR SETTLEMENT PRACTICES OR TO CHANGE PROVISIONS OF APPLICABLE UNDERWRITING AGREEMENTS. CONFIDENTIAL, PROPRIETARY, OR NONPUBLIC PERSONAL INFORMATION SHOULD NEVER BE SHARED OR DISSEMINATED EXCEPT AS ALLOWED BY LAW. IF APPLICABLE STATE LAW OR REGULATION IMPOSES ADDITIONAL REQUIREMENTS, YOU SHOULD CONTINUE TO COMPLY WITH THOSE REQUIREMENTS.
- Bulletins Replaced:
- Related Bulletins:
- NL000015 RESPA
- NL000048 RESPA (The Real Estate Settlement Procedures Act) and the New Escrow Accounting Procedures (May 24, 1995)
- SLS2009002 RESPA Reform 2009 - NEW HUD-1, NEW HUD-1A, Average Cost Pricing, and Required Use
- Underwriting Manual:
- Exceptions Manual: