Consumer Law

Amended RESPA Regulations for Good Faith Estimates

By Jeff Sovern

On November 17, HUD issued amended regulations intended to simplify and provide more timely notice of mortgage settlement notices under RESPA.  Here's the summary of the amendments from the HUD Federal Register Notices:

The changes made by this final rule are designed to protect consumers from unnecessarily high settlement costs by taking steps to: improve and standardize the Good Faith Estimate (GFE) form to make it easier to use for shopping among settlement service providers; ensure that page 1 of the GFE provides a clear summary of the loan terms and total settlement charges so that borrowers will be able to use the GFE to identify a particular loan product and comparison shop among loan originators; provide more accurate estimates of costs of settlement services shown on the GFE; improve disclosure of yield spread premiums (YSPs) to help borrowers understand how YSPs can affect borrowers? settlement charges; facilitate comparison of the GFE and the HUD?1/HUD?1A Settlement Statements; ensure that at settlement borrowers are aware of final costs as they relate to their particular mortgage loan and settlement transaction; clarify HUD?1 instructions; expressly state that RESPA permits the listing of an average charge on the HUD?1; and strengthen the prohibition against requiring the use of affiliated businesses.

In many respects the new form is a huge improvement.  It will disclose not only settlement costs but also loan terms, like the interest rate and whether the rate is fixed or adjustable, and if it is adjustable, what the ceiling is for monthly payments.  The form comes closer to enabling consumers to understand whether there is a yield-spread-premium by requiring disclosure whether there is a charge for the selected interest rate.  If I understand the new rule correctly, based on my quick look, lenders may not charge more at closing than the GFE provides for as to some items, and as to others, the charge must be within 10% of the GFE.  It sounds like the new GFE will be much more useful to consumers who shop around for credit. (HT to Ralph Rohner). 

Full post as published by CL&P Blog on November 25, 2008 (boomark / email).