Overview of RESPA Reform Jonathan W Cannon Buckley

Overview of RESPA Reform Jonathan W. Cannon Buckley. Sandler LLP Final RESPA Reform New Jersey Bankers Association Mortgage Bankers Association of New Jersey Joint Mortgage Lending Conference December 3, 2009

RESPA Final Rule • New GFE with detailed loan terms and costs • Settlement costs are grouped in categories • New accuracy/consistency requirements between GFE and revised HUD-1/1 A • Compliance required by January 1, 2010 3/17/2018 2

HUD’s Objectives • The revised rules and forms are “designed to protect consumers from unnecessarily high settlement costs” • HUD wishes to “ensure that at settlement borrowers are aware of final costs as they relate to their particular mortgage loan and settlement transaction. ” 3/17/2018 3

HUD’s Objectives • Another goal: “limiting bait-and-switch methods whereby the originator uses the GFE to draw in a borrower and, after a significant application fee is paid or burdensome documentation demands are made, claims that a material change has resulted in a more expensive loan offering. ” 3/17/2018 4

HUD’s Updates to Rule • On Nov. 13, HUD announced a 120 -day period of “restrained enforcement” for FHA-approved originators who demonstrate a “good faith effort” to implement the changes. • HUD encourages others to follow its lead for non-FHA originators and other settlement service providers. 3/17/2018 5

HUD’s Updates to Rule • HUD has issued 51 pages (so far) of FAQs clarifying the provisions of the rule. • Industry still requires more guidance on compliance. 3/17/2018 6

Transition to New Forms • All applications taken on or after Jan. 1, 2010: – New GFE (new rules apply) • Applications taken before Jan. 1, 2010 – have a choice: – Can continue to use old GFE and old HUD-1 (current rules apply) – Can issue new GFE (with same terms and charges), then use new HUD-1 (new rules apply) 3/17/2018 7

Final RESPA Rule — Application “Application” consists of six items: • • • Name Property address SSN to order credit report Gross monthly income Borrower’s information on the house price or best estimate of the property’s value • The amount of the loan sought And any other information deemed necessary by the loan originator. 3/17/2018 8

Final RESPA Rule — Application • Loan originator cannot require the submission of supplemental information to verify the six items as a condition for providing the GFE. • HUD’s goal in re-defining “application”: “minimize delays in issuing GFEs” and “facilitate shopping by borrowers. ” 3/17/2018 9

GFE Page 1 3/17/2018 10

Summary of your loan 3/17/2018 11

New GFE – Page 1 • Information about loan terms, not settlement costs: – – – – 3/17/2018 Initial interest rate and the specific date it remains available The specific date the estimate for settlement charges remains available Rate lock period and when the applicant must lock prior to settlement Initial loan amount Loan term Initial interest rate Initial monthly amount owed for principal, interest and mortgage insurance (but not taxes) 12

New GFE – Page 1 More information on loan terms, not settlement costs: – Whether the interest rate can rise, and the maximum – Whether the loan balance can rise, and the maximum – Whether the monthly payment (P, I, MI) can rise, and the maximum – Whether the loan has a prepayment penalty, and the maximum – Whether the loan has a balloon payment, and description – Whether the loan has a monthly escrow payment for taxes and other obligations and how much 3/17/2018 13

New GFE – Page 1 • New Summary Totals – “A” - Your Adjusted Origination Charges – “B” - Your Charges for All Other Settlement Services – “A + B” - Total Estimated Settlement Charges 3/17/2018 14

GFE Page 2 3/17/2018 15

New GFE – Page 2 • “Your Adjusted Origination Charges” is comprised of – “Our origination charge” (Block 1) and – Your “Credit or Charge (points)” for the specific interest rate chosen (Block 2) • “Our origination charge” means all direct origination charges by either the broker or the lender. The proposal states that it should include charges “of all originators. ” 3/17/2018 16

New GFE – Page 2 • Three choices for the “Credit or Charge” for the specific interest rate chosen: – The Credit or Charge is included in “Our origination charge” – You receive a credit of $XX for this interest rate (this credit reduces your settlement charges) – You pay a charge of $XX for this interest rate (this charge (points) increases your settlement charges) – A credit and a charge cannot be shown in the same transaction 3/17/2018 17

New GFE: Recasting Yield Spread Premiums • All charges received by the broker and any other originator paid by the borrower or lender are included in “Our Origination Charge” in the “Your Adjusted Origination Charges” section on page 2 of the GFE • A YSP is shown as a credit for the specific interest rate chosen – which reduces total origination charges • Discount points (a “charge”) collected by the broker to be paid to the lender would be netted against any YSP (“credit”) and shown as net “credit” or “charge, ” depending upon which is larger 3/17/2018 18

Example 3/17/2018 19

GFE Components: Your Charges For Other Settlement Services Page 2 of the new GFE also discloses other settlement charges in nine separate categories, as follows: • “Required services that we select” (other than title) (Block 3): • Title services and lender’s title insurance (Block 4) • Owner’s title insurance (Block 5) • “Required services that you can shop for” (Block 6) 3/17/2018 20

GFE Components: Your Charges For Other Settlement Services • If the loan originator permits the applicant to shop for any of the providers of the settlement services in Blocks 3, 4, 5, or 6, the loan originator must provide a written list, on a separate piece of paper, of the available service providers. • Affiliates may be included on the list; inclusion constitutes a referral. • List must be provided even when GFE is redisclosed and a new third-party service for which the consumer may shop is added. • If a list is provided and the consumer chooses a service provider not identified or selected by the loan originator, then there is no tolerance restriction on that fee (or those fees). 3/17/2018 21

GFE Components: Your Charges For Other Settlement Services Page 2 of the new GFE also discloses other settlement charges in nine separate categories, as follows: • Government Recording (Block 7) • Transfer taxes (Block 8) • Initial deposit for your escrow account (categories for taxes and insurance) at settlement (Block 9) • Daily interest charges (Block 10) • Homeowner’s insurance (premium at settlement) (Block 11) 3/17/2018 22

All Other Settlement Services 3/17/2018 23

All Other Settlement Services Cont’d. 3/17/2018 24

GFE Page 3 Instructions 3/17/2018 25

GFE Tolerances Page 3 of GFE highlights charges with restricted tolerances: • Charges with zero tolerance (must not increase at settlement): – the loan originator’s origination charge; – the charge or credit for the specific interest rate chosen (after the rate is locked); – the adjusted origination charges (after the rate is locked); – government transfer taxes. 3/17/2018 26

GFE Tolerances Page 3 of GFE highlights charges with restricted tolerances: • Charges with 10% tolerance (in aggregate must not increase more than 10%): – lender-required and selected services, i. e. , “Services we select” (appraisal, credit report, etc. ); – lender-required services, including lender’s title insurance and optional owner’s title insurance where the borrower is allowed to shop but still uses the provider identified on the originator’s list; – government recording charges. 3/17/2018 27

GFE Tolerances Page 3 of GFE highlights charges with restricted tolerances • Charges with no tolerance restriction (may increase without limit): – – 3/17/2018 Escrow deposit; Daily interest; Homeowner’s insurance; Any fees charged by a settlement service provider chosen by the consumer, only if the loan originator provided a written list, on a separate piece of paper, of service providers, and the chosen provider was not on the list (or otherwise identified by the loan originator). 28

GFE Tolerances • Opportunity to “cure” exceeded tolerance by reimbursing borrower excessive amount within thirty calendar days after settlement • “Cure” may also take place at settlement table by listing excess charge as P. O. C. by lender. 3/17/2018 29

GFE Loan Comparison Chart • Page 3 of the new GFE provides a rate/cost “tradeoff table” showing the subject loan amount and rate requested compared with alternative loans with the same loan amount and terms, but showing (i) a loan with a lower interest rate; and (ii) a loan with lower settlement charges • This chart must also show changes in the monthly payments for the loans. For ARM loans, the initial rate only may be shown. • Completing columns two and three of the tradeoff table is optional 3/17/2018 30

Tradeoff table 3/17/2018 31

Shopping Chart 3/17/2018 32

Timing for Delivery/ GFE Terms Available • Lender or mortgage broker must provide GFE to applicant within three business days after receipt of “application” • GFE terms must be available for at least ten business days from GFE delivery, except for: – – – interest rate (determined by loan originator) loan terms tied to the interest rate charge or credit for the specific rate chosen adjusted origination charges per diem interest • After ten days, if the borrower does not indicate an intention to proceed, none of the terms on the GFE remain binding. 3/17/2018 33

Underwriting and GFE Revisions • Revised GFE (with increased fees) may be provided based on “changed circumstances” • “Changed circumstances” means the following: – Acts of God, war, disaster, or other emergency; – Information particular to the borrower or transaction that was relied on in providing the GFE and that changes or is found to be inaccurate after the GFE has been provided (e. g. , credit quality of the borrower, loan amount, estimated property value, or any other information that was used in providing the GFE); – New information particular to the borrower or transaction that was not relied on in providing the GFE; or – Other circumstances that are particular to the borrower or transaction, including boundary disputes, the need for flood insurance, or environmental problems. • “Changed circumstances” does not include market price fluctuations 3/17/2018 34

Underwriting and GFE Revisions • Revised GFE may be provided based on “borrower-requested changes” to the loan resulting in changes to settlement costs or loan terms. • If revised GFE is to be provided for any reason, it must be provided within three days of receipt of information sufficient to establish the change, or of the borrower’s request. • If a revised GFE is issued based on “changed circumstances” or “borrower-requested changes, ” the basis for the revised GFE must be documented and retained for at least three years after settlement. 3/17/2018 35

Timing for Delivery/ GFE Terms Available • For new home purchases in which settlement is anticipated more than 60 days from the time a GFE is provided – a revised GFE may be issued at any time up until 60 days prior to closing (unless “changed circumstances”) • Originators must separately disclose this possibility 3/17/2018 36

HUD-1 Settlement Statement 3/17/2018 37

HUD-1 Page 2 3/17/2018 38

HUD-1 Page 3 3/17/2018 39

HUD – 1/1 A Itemization • HUD-1/1 A has been modified to allow comparison of charges on the GFE • The HUD-1/1 A lines in Section L refer to the corresponding block numbers on the GFE • Terminology in the HUD-1/1 A has been modified to be more consistent with GFE terminology 3/17/2018 40

Comparison Chart 3/17/2018 41

Questions & Answers Jonathan W. Cannon jcannon@buckleysandler. com Buckley. Sandler LLP 1250 24 th St. NW, Suite 700 Washington, DC 20037 202. 349. 8063 3/17/2018 42