Final Rule on RESPA – Part III
The Department of Housing and Urban Development (HUD) issued its final rule regarding changes to the Real Estate Settlement Procedures Act (RESPA) in November of 2008. Part I of this article covered changes dealing mostly with the Good Faith Estimate (GFE), which covers estimates of closing costs and disclosures about loan terms. Part II covered tolerances in fee changes, unforeseeable circumstances that allow for changes in fees, enforcement and cure provisions, yield spread premiums, new definition of a mortgage broker, and limits on origination fees. Part III will cover changes to the settlement statement, the closing script, average cost pricing of settlement services, use of affiliates, and technical amendments.
For the HUD-1, the line item descriptions were changed to reflect the same terminology used on the GFE. Further, the HUD-1 now includes line number references that correspond to the appropriate sections of the GFE. All of this was done to make it easier for the consumer to compare the estimated costs with the actual charges. In addition, title insurance premiums must now be split out to show the agent’s portion and the underwriter’s portion of the premium charged. Lastly, a third page was added to the HUD-1 that includes a chart comparing charges from the GFE with the same costs on the HUD-1. This additional page also includes a summarization of loan terms. These changes resulted in the elimination of the proposed closing script. The loan originator is required to provide this information in such a way as to enable the closing agent to prepare the HUD-1 as well as the additional information needed for the new third page.
If a settlement service provider uses the services of a third party on behalf of a seller or borrower where the charge for the service is not based on the loan amount or property value, then the provider may use an “average charge” for that third-party service. This allows a settlement service provider to define a class of transactions based on a period of time, type of loan, and/or geographic area. If an average charge is used, it must be recalculated every six months, and all documents used to calculate the charge must be retained for at least three years after any closing that used the average charge. Further, when using an average charge for a third party service, all transactions within the provider’s defined class must use the same average charge for that service. Finally, to ensure this method does not result in higher costs to consumers, the total amount paid to a third party servicer for a particular class of transactions may not exceed the total amount collected from borrowers in that same class.
In the rules that prohibit the required use of an affiliated service provider, HUD made some modifications to the definition of “required use” to better explain HUD’s application of the definition. The rule allows service providers to offer discounts to consumers for a bundle of services so long as the bundle is optional and that the discount from the bundle is not made up elsewhere from other charges to the consumer.
A few technical amendments were made as well that involve the transfer of servicing disclosures, aggregate accounting for escrow accounts, and the use of electronic disclosures. The transfer of servicing disclosures will not be included on the new GFEs but the language on the disclosure form has been changed to provide a more comprehensive list of the servicer’s functions. The previous regulations regarding aggregate accounting rules contained phase-in provisions that are no longer necessary and have been removed in the final rule. As to electronic methods of disclosure, the final rule makes clear that any disclosures included under RESPA regulations may be made electronically pursuant to the Electronic Signatures in Global and National Commerce Act (ESIGN) (15 U.S.C. 7001-7031).
Linda Holder practices in Granite City, Illinois where she handles real estate transactions, probate matters and business organizations. Ms. Holder is the current chair of the ABA General Practice, Solo and Small Firm Division Real Estate Law Committee.
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