Power to the People: RESPA Rules Change on January 1, 2010

By
Real Estate Agent with Mason Real Estate CA BRE 01444168

The Dawn of a New Decade brings the Dawn of Consumer Rights When Shopping for a Mortgage

January First is typically a day when many new laws across the land become effective...and this year is no different.  The Department of Housing & Urban Development made one very important change to the Real Estate Settlement Procedures Act of 1974 law that is known as RESPA in the industry is now mandating thatUnited States Capital ALL mortgage lenders provide the consumer with the same information in the same format.

There is no doubt that this is too little too late for the homeowners who are currently at risk of losing their homes, but had these new rules been in effect 5 years ago, there is a good chance we would not be experiencing the meltdown of the American economy that we are.  I have no doubt this will definitely protect the consumer from this point forward.

Shopping for a mortgage has always been complicated and very few every really understood their options to determine if they got the best deal or not.  The challenge has been deciphering the differences between those lenders who advertised the lowest rates, which did not always mean the best deal.  Many low interest loans have high fees attached that can wipe out any benefit of the lower interest rate.  There are also the near-hidden features of loans that sit dormant waiting to blow up in the face of the borrower, such as pre-payment penalties.  Of course, borrowers have had the opportunity to pay ‘points' to bring the interest rate down lower...this has been known to confuse members of MENSA.  Another tactic of mortgage lenders has been to pepper the loan with numerous ‘garbage fees' designed to pad the loan officers margins and act as a diversion to the bigger picture, allowing the borrower to negotiate away some of these garbage fees.

Well, as of today, every lender in the United States of America is obligated to provide the borrower with a Shopping for a Home Loan - the old waygood faith estimate, within 3 days of loan application.  Yes the Good Faith Estimate has been around since RESPA first went on the books in 1974 - the difference today is that every lender no longer can play hide the cheese with their own form and now ARE REQUIRED to use the 3 page government form, which can be found here.

The new Good Faith Estimate form requires that the lenders wrap all of the fees they control into one "origination charge" so that the borrower can compare one set of lender fees with another.  I'll recommend to my real estate buyers in the Hemet - San Jacinto CA marketplace to focus on two points when shopping for a home loan:  the interest rate and the origination charge which includes all of the lenders points and garbage fees.

This new easy to read form clearly states what fees the lender can increase, by no more than 10% (such as Title & Escrow); which fees are locked in and cannot be increased (such as Origination Charges, points, etc.); and which fees (such as home owner insurance) the lender has no control over.

THE NEWS GETS BETTER

To keep things as simple as possible for the consumer the new RESPA rules take it a step further and include a new HUD-1.  The HUD1 has been and remains the form that escrow (Settlement Service outside of California) prepares to show where all of the money comes from and where it goes in a real estate transaction.

Once escrow opens it has been customary for escrow agents to prepare a preliminary HUD-1 or sometimes its called an Estimated HUD-1 that will give everyone an idea of what the deal really looks like on paper.

The new RESPA rules now call for a comparison between the estimate prepared at the beginning of escrow and the final closing statement. 

In addition, the new HUD-1 will also include a summary of the loan terms.

WILL THIS WORK?

HUD has estimated that the average savings to the borrower will be to the tune of $700 in closing costs, for the typical consumer, in large part due to the ability of the consumer to shop intelligently.  I believe that the new rules will indeed go a long way to leveling the playing field for the borrower, but it is hard to believe that the mortgage industry will not come up with some method to leverage the new rules to their advantage.

The home loan borrower needs to keep in mind that although the paperwork is now more universal to avoid confusion there will be many biases that the borrower will have to filter through.  The real estate agent may have a lender that has an affiliate agreement with the agents company or recommend one that will get a loan closed quickly and not necessarily for the best terms.  A builder will always want you to use their in-house lender and realize that mortgage brokers and loan officers are always working for themselves to earn a commission and not for you.

The consumer should realize that they have choices and that they now have an easy way of comparing the cost and terms of a loan.  It may make shopping for a loan easier that shopping for a new car - but remember, you would never rely on an auto manufacturer to provide you with an impartial review of the competition in the auto park, now would you?

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UPDATE

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Make sure to check out the follow-up article on this important topic:  RESPA - New ActiveRain Group

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Until Next Time, Have a Blessed Day,

John Occhi, ePRO, REALTOR®
DRE Lic No: 01444168


ePro,John Occhi,www.johnocchi.com,realtor      Certified Probate Real Estate Specialist Logo Awarded to John OcchiFive Star Logo,Certification,REO,Five Star Institute     

Excellence in Real Estate,Team Log,John Occhi,www.johnocchi.com,hemet,san jacinto,CA  

This blog and the contents written here is the intellectual property of John Occhi, Temecula - Murrieta, CA REALTOR® in the South West Riverside County region of the Inland Empire of Southern California.  The views and opinions expressed are just that - views and opinions of John Occhi and those who comment.  Please note that I am not an attorney or a tax professional and any time I discuss either topic, I suggest you consult with the proper professional for relevant assistance. 


I am proud to be a full time REALTOR® who is proud to be a contributing member of the ActiveRain community.

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Re-Blogged 6 times:

Re-Blogged By Re-Blogged At
  1. Erica Ramus 01/01/2010 06:16 PM
  2. Lottie Kendall 01/01/2010 06:56 PM
  3. Monique Hailer & Todd Combs, PA 01/01/2010 08:22 PM
  4. Joy Carter & Jeff Booker Brother and Sister Team 01/02/2010 10:58 AM
  5. Gareth Ellzey 01/02/2010 11:30 AM
  6. Commercial Affiliates 01/02/2010 02:32 PM
Topic:
Lending / Financial
Location:
California Riverside County Hemet
Groups:
Mortgages
First Time Homebuyer
Advice for Buyers
1st Time Buyers
RESPA
Tags:
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san jacinto
ca
real estate
mortgage
consumer
borrower
respa
hud
mls
hud1
gfe
good faith estimate
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escrow
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Ambassador
1,932,846
Judi K Barrett
Judi Barrett~Integrity Real Estate Services~Idabel, Oklahoma - Idabel, OK
Broker/Owner, Integrity Real Estate Services -IDAB

Wow!  What a post!

Wish I could reblog with all comments in tact- for my clients.

 

Jan 02, 2010 06:47 PM #59
Rainmaker
302,065
John Occhi
Mason Real Estate - Temecula, CA
SRES,CPRES.ePRO - Temecula-Murrieta CA Real Estate

Judi,

It has been an education experience.  What I have seen others do with other blogs is to disable the comments and send them here to comment and read...

Thanks,

John

Jan 02, 2010 08:08 PM #60
Rainer
10,385
DeAnne Davidson
REMAX Professionals, Tacoma Washington - Lakewood, WA
GRI, CIAS - Washington State

Wow!  Good information about the changes happening in 2010.   There is always and adjustment period.  We shall see how this all pans out.

Jan 02, 2010 08:41 PM #61
Rainer
113,260
Beverly Femia
BlueCoast Realty Corporation - Hampstead, NC
Broker Realtor Stager - Greater Wilmington, NC Are

We'll all adjust and, pehaps the form will adjust too.  If not, we'll all adjust.  I would suggest that the demise of the 30 day close with all its haste may not be such a disaster.  John, I doubt the that this new form would have prevented much of the mortgage meltdown.  No form would compensate for loose lending standards, a belief in never-ending unrealistic appreciation and no ceiling on consumer debt. 

Jan 02, 2010 09:09 PM #62
Rainmaker
128,117
Mike Henderson
Your complete source for buying HUD homes - Littleton, CO
HUD Home Hub - 303-949-5848

Why don't they get input for professionals.  Cash to close and the total monthly payments.  Duh!  That's what they need the most, that is what is not on the forms.

Jan 02, 2010 09:56 PM #63
Rainer
36,280
Dave Humphrey, CDPE
RE/MAX Showcase- Orlando, Florida - Celebration, FL

After we transition through the "change period" this should be very good for consumers.

Jan 03, 2010 06:43 AM #64
Rainer
9,423
Catherine Kierzek
ReMax Lakeside - Muskego, WI
CDPE

Lyn I'm with you.  I have a buyer who's telling me she's  preapproved for a no money down loan, and when I asked her what kind of loan she's getting or what interest rate she was quoted, she didn't have a clue.  She had a Good Faith Estimate from the lender stating she was puting 20% down that she doesn't have and didn't understand any part of it.  Needless to say, she's seeing another lender.

Jan 03, 2010 08:45 AM #65
Rainmaker
302,065
John Occhi
Mason Real Estate - Temecula, CA
SRES,CPRES.ePRO - Temecula-Murrieta CA Real Estate

DeAnne,

Adjustment periods - there will be.  Hoping it does not cause too much confusion.

John

Jan 03, 2010 10:30 AM #66
Rainmaker
302,065
John Occhi
Mason Real Estate - Temecula, CA
SRES,CPRES.ePRO - Temecula-Murrieta CA Real Estate

Beverly,

I'll agree that the new form would not have prevented much of the current problems - but it certainly would be able to be a good tool to go back and say, "See, I told you" when looking at all of those wierd lons.

Now Have a Good One,

John

Jan 03, 2010 10:32 AM #67
Rainmaker
302,065
John Occhi
Mason Real Estate - Temecula, CA
SRES,CPRES.ePRO - Temecula-Murrieta CA Real Estate

Mike,

I agree there are three very important things missing on the new form:

1) Cash to close;

2) Monthly Payment broken down PITI (even if there is not impound account - the numbers are the same); and

3) A place for the borrowers signature.

We will have to wait and see what happens - but in the mentime, it is the law of the land.

Now Have a Good One,

John

Jan 03, 2010 10:34 AM #68
Rainmaker
302,065
John Occhi
Mason Real Estate - Temecula, CA
SRES,CPRES.ePRO - Temecula-Murrieta CA Real Estate

Dave,

I think we can all agree that the transition period will be awkward - suppose it is better to happen now at a slow time of year for most of the country as opposed to the late Spring.

I agree it will end up being good for the consumer because it will make shopping for a loan easier...I hope so, as that is the goal.

Now Have a Good One,

John

Jan 03, 2010 10:38 AM #69
Rainmaker
302,065
John Occhi
Mason Real Estate - Temecula, CA
SRES,CPRES.ePRO - Temecula-Murrieta CA Real Estate

Catherine,

What I'm afraid of is that the 'bad lenders' will still tie buyers up with bad GFE's and then cancel at the end and pressure to do a new one, "since we already have all of your information in the hands of the underwriter".

Now Have a Good One,

John

Jan 03, 2010 10:40 AM #70
Rainmaker
107,498
Dana Devine
Charles Rutenberg Realty - Apollo Beach, FL

i agree with wayne #22 and Renee #11...how can u have a GFE with no total PITI...how stupid is that and why does the broker have to show YSP but not the lender...the lender makes more on the damn loan that the broker does

Jan 03, 2010 05:28 PM #71
Rainmaker
194,885
Alan Grizzle
Chestatee Real Estate - Dahlonega, GA
Full Time Realtor, Lifelong Resident of Dahlonega

Can anyone one tell me the last time the goverment made something more simple? Did they not do a great job making it easy to do your income tax? Just think getting a loan may soon be as simple as figuring out you income taxes. How much do you pay someone to help you file those simple tax forms?

Can anyone tell me when was the last time the goverment saved money? Remind me again how much the US goverment is in debt. Then tell me we can count on them to help save money.

Sounds like they added more work for the closing attorney to go over all the new forms. Should they be expected to do the extra work for free? What about all the extra work for the mortgage brokers? Do you not think they should get paid for it?

Jan 03, 2010 09:55 PM #72
Rainmaker
139,842
Gary Miljour
Starboard Financial - Tempe, AZ
Mortgage Lending for Arizona and California

John,

My 2 cents have always been that there is no bite in any of these government regulations.  As a mortgage lender I have followed all the rules, but still feel that hardly anything has been done to punish the bad apples of the industry.  Even though I applaud the governments attempt to help the consumer, I am afraid that the new regulations will only confuse more consumers.  The government also stated that HVCC would save the consumer money and it has done just the opposite.  I think the new regulation was a good attempt to fix the problem, but enforcement is crucial for any change to work effectively. 

 

Jan 04, 2010 10:43 AM #73
Rainer
83,161
Catherine Condon
Short Sales - Integrity Residential Brokerage - Pepperell, MA
Pepperell MA Homes - Middlesex County - Hillsborough County

Thanks for the clear breakdown.  I'm hoping that it actually does assist the consumer in making an informed decision.  Time will tell!

Jan 05, 2010 09:27 AM #74
Rainer
138,427
Paul Warkow
Paul Warkow-D.G. Weber Law Associates - Hauppauge, NY

HUD has a new booklet out for the consumer to explain the home buying process.  It takes nine pages to explain the new GFE.  Think about it.  How can a form be understandable and simple if it takes nine pages to explain it?  How is this benefiting the consumer?

Jan 05, 2010 04:52 PM #75
Rainer
117,198
Beverly of Bev & Bob Meaux
Keller Williams Suburban Realty - West Orange, NJ
Where Buying & Selling Works

I don't know. This one can be a consumer rights oxymoron. We have to do what we can to stay educated on this and to help provide sources of information to help our clients whenever possible.

Jan 06, 2010 07:37 PM #76
Rainer
12,749
John Waugh
True North Realtors NY : Exclusive Buyer Agency - Canandaigua, NY

All the more reason for buyers to enlist the services of an Exclusive Buyer Agent who will not only be up to date with the changes but also will represent the buyer's interests every step of the way. 

Feb 04, 2010 08:46 AM #77
Rainmaker
924,455
Tony Marriott
Haven Express @ Keller Williams Arizona Realty - Scottsdale, AZ
Associate Broker, REALTOR

If you have to ask whether or not it should be disclosed, it's always wiser to disclose.  That avoids any issues after the fact.

Jul 19, 2010 07:07 PM #78
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John Occhi

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