RESPA rule changes keep mortgage costs in check

As a result of newly implemented revisions to the Real Estate Settlement Procedures Act, homebuyers should never again be surprised with unexpectedly high costs at closing - and if they are, it will hit lenders' bottom lines.

"The borrower's going to know exactly what they're getting," said Bart Evans, vice president of residential lending at Springfield First Community Bank.

In the past, and especially during the subprime frenzy, borrowers sometimes discovered that the closing costs quoted in their good-faith estimates rose by hundreds of dollars by the time of the actual closing.

For example, a buyer might discover at the closing table that the promised interest rate on the loan had expired, and the broker had added a $500 fee to extend it. Now, under RESPA revisions, all key information must be disclosed up front, including what brokers make on the deal.

"I've had people come into my office many, many times and say, 'I went down and talked to so-and-so, my credit score's 750, why are they charging me two points?' I think those questions are going to be answered, because they're going to know exactly what this person's making off of this loan," Evans said.

Good-faith accountability

With the RESPA changes, if good-faith estimates are off by more than 10 percent, the lender - not the borrower - must pay the difference.

If a lender says closing costs are $1,500 and the borrower shows up for the closing and those costs are actually $1,800, the borrower is only liable for an additional 10 percent of the good-faith estimate - in this example, $150 - and the lender would pay the remaining $150.

"Banks and brokers are going to be held accountable for what we tell the borrower up- front, and also it's really an advantage to the customer," Evans said.

Each good-faith estimate must include the same information, allowing the consumer to use those estimates to make apples-to-apples comparisons and shop for the best deal.

"The new good-faith estimate actually has a place where you can add other loans from other places and really put (all loan options) on paper," Evans said.

The good-faith estimate form has grown from one page to three and clearly discloses key loan terms and a final closing cost. There is an instructional page aimed at helping borrowers better understand their loan offers. While the form provides room for the lender-to-lender comparison, it actually does less itemizing of closing costs. But Evans said that's not necessarily a bad thing.

"The old good-faith estimate itemized everything out for them; it said, 'Here's exactly what you're paying for your appraisal, your credit report, your flood determination,'" he said. "The new good-faith estimate just gives you a total number."

While providing less detail would seem counterintuitive from a customer perspective, Evans noted that itemization could vary from lender to lender and broker to broker, and true costs sometimes got lost in the fine print, only to show up in full force at closing.

The lack of itemization up front simplifies the process: The home buyer gets a bottom-line figure up front. "Then, when you get to the closing, it's going to be itemized out for you," Evans said.

Also, timeframes and constraints must now be clearly spelled out. Interest rates may change daily, but good-faith estimates must have clearly stated expiration dates.

The length of the offer is up to each lender, but it must be clearly communicated to the borrower.

"Once we all get used to how they're doing it, which is probably going to be three or four months down the road, it's better for us and better for our customer," Evans said.

A learning curve

The revised RESPA rule was actually effective as of Jan. 16, 2009, but with a one-year transition period. Although the revised regulations took full effect at the beginning of 2010, the U.S. Department of Housing and Urban Development announced in November that it would delay RESPA enforcement by its Mortgage Review Board for the first four months of 2010 to give affected parties the time to adjust.

"We will work with those who are making an honest effort to work with us as we implement these important new consumer protections," said HUD Secretary Shaun Donovan in a Nov. 13 news release. "While we will not delay implementation of RESPA's new requirements, we are sensitive to the concerns of the industry as it integrates these new rules into their day-to-day business practices."

Mortgage lenders and brokers are not the only ones affected. Title companies and Realtors also must adapt to the new rules.

Lincoln Land Title presented a free RESPA education program Dec. 17 by Mary Schuster, a member of the American Land Title Association's RESPA Implementation Task Force.

Schuster gave a three-hour presentation on how the 2010 RESPA changes affect the customer, the Realtor, the lender and the broker, and how changes for each affect the others. She also detailed the new forms to be used and where each line item from the old HUD form goes on the 2010 HUD form, said Kelly Jones, president of Lincoln Land Title.

"We opened it up with invitations to any and all of our customers," Jones said, adding that approximately 140 people attended representing every aspect of the business.

Banker Evans was there. "You hardly ever see lenders in training; its the last thing they want to do," he said. "But I think this really woke people up. We were all very attentive to it because we know it's a big change."

Overall, he added, the changes are not a bad thing.

"You want your good-faith estimate to be very close because you want that customer to come back to you," Evans said. "We build our reputation on referrals, and you want that customer to be satisfied when they close that they got exactly what they wanted."[[In-content Ad]]