Blog of the Mortgage

Last August (2008 - 11 months ago - can you believe it?)

The CA DRE introduced new GFE requirements.

What's great to know is that California DRE is once again light years ahead of the over all Industry when it comes to disclosure. HUD is requiring a new GFE starting as of 1-1-2010.

I have included a copy below along with an article and some excerpts from it.

Here is the paragraph I typed up a year ago as a reminder:

Essentially, you now have to be absolutely certain that the MLDS (Mortgage Loan Disclosure Statement) that you use is correct to the product you are originating.
If you don't and the DRE audits your files originated (disclosures signed) after the 15th of August, 2008. Well, mostly you're going to have a paperwork and follow-up nightmare!
So, make sure you've downloaded and read the following 3 MLDS updates/Variations. Make sure your LOS (Encompass or Point) are updated and include these in all of your disclosure packets going forward.

1. MLDS 882 - Loan Description - Fixed product
2. MLDS 883 - GFE fee breakdown for RESPA
3. MLDS 885 - Loan description & Fee breakdown for Interest Only/ARM feature loans

Nice to know that the DRE is keeping us on our toes. At least now, hopefully, our customers can't argue ignorance at the note they signed at closing. Either way, an educated consumer is happier consumer.

Please be sure the proper form is in your submission package and the YSP is updated to reflect, to the penny, your lock and anticipated rebate $$

Regarding the NEW HUD GFE -

download new form above.

Required January 1^st, 2010

These excerpts are from an article posted here: RESPA News Monthly, May 2009, 5/29/2009

Why a new form?

"...Why did HUD deem it necessary to create a new Good Faith Estimate, especially at a time when the mortgage industry has expressed an overwhelming concern regarding the plethora of recent regulation?

According to Phil Schulman, partner of Washington, D.C.-based K&L Gates, the answer lies in the hands of the consumer.

"The whole idea of RESPA reform, expressed by then President Bush and the principals at HUD who were there at the time, was a desire to get consumers a more transparent, clearer and more accurate settlement transaction," noted Schulman in a GFE instructional Webinar produced by October Seminars and presented by RESPA News on April 14, 2009.

Schulman said the number one consumer complaint in a real estate transaction is that when the consumer gets to the closing, the dollar figure the lender originally told them they would need at closing is different from the actual dollar amount the consumer has to come up with at the closing table.

HUD issued a final RESPA rule on Nov. 17, 2008, which includes the new GFE and HUD-1 among other RESPA changes. The rule went into effect Jan. 16, 2009, and HUD is giving the industry until Jan. 1, 2010 to implement the new forms and train staff.

The new GFE represents the first significant change in RESPA in nearly 17 years. HUD took the 2-page GFE used for years and made it a 3-page form. The main differences between the new and old GFE form are 1) standardization of the form, 2) grouping of fees and 3) tolerance for variations from the GFE amounts at settlement. Overall, the new form is a standardized document that gives loan terms and an estimate of settlement charges.

Step-by-step through Page 1

On Page 1, the form contains six sub-headings, with four of the six sections requiring information.

1^st sub-heading: The Purpose of the GFE form, including additional resources for the consumer such as HUD's Web site, www.hud.gov/respa, HUD's Special Information Booklet on settlement charges and Truth in Lending disclosures.

2^nd sub-heading: Shopping for your loan, is also copy for the consumer: "Only you can shop for the best loan for you. Compare this GFE with other loan offers, so you can find the best loan. Use the shopping chart on page 3 to compare all the offers you receive."

3^rd sub-heading: Important Dates, requires four pieces of information the lender must reveal to the consumer.

"Right up front, the consumer is told, these are the operative dates. These are the dates you want to circle on your calendar, in terms of your closing transaction," noted Schulman.

Box number one: The date the interest rate on the GFE is good through.

According to Schulman, there are no restrictions to this date. "The interest rate can be good for a day, it can be good for a week, it can be good for 15 minutes. Whatever period of time the interest rate is good for, unless of course, there's a lock, is put in this first box," he said.

Box number two: The date the estimate for all other settlement charges is available through.

Schulman said HUD requires that these charges be good for a minimum of 10 days, unless there are changed circumstances. For example, if today is May 2, then the date the lender would put on this line would be May 12.

The third and fourth pieces of information in the "Important Dates" section pertain to locking the interest rate. The form states that if you do lock, you have to go to settlement within X number of days to receive the locked interest rate and you must lock the interest rate at least X days before settlement.

"If you do decide to lock, you can't lock 30 seconds before closing or six months before closing," Schulman said. "Your interest rate lock must be at least X, maybe it's 10 days, maybe it's five days before settlement."

4^th sub-heading: On Page 1 is titled, Summary of your loan. Schulman applauded HUD for creating this section.

"Basically, you're telling the consumer right up front, look, you're borrowing $275,000 for the term, which is 30 years. Your interest rate is going to be 5.5 or 6 percent. Your monthly mortgage payment for principle and interest is going to be $2,150. Is the interest rate going to rise? No, this is not an adjustable rate mortgage," Schulman offered as a hypothetical.

Within this summary section, there is a "yes-no" question to answer regarding the balance of the loan rising.

"If it's an adjustable rate mortgage, the answer would be yes. You'd check off the box, yes, and you would indicate the amount that it could rise and the maximum amount throughout the history or the life of the loan that it could rise," Schulman explained. He added that if there are any pre-payment penalties or balloon payments, then the lender would provide that information to the consumer in this section as well.

5^th sub-heading: on Page 1 is Escrow account information. This is where the escrow information is disclosed to the consumer to answer the question of whether or not money needs to be set aside for taxes and insurance.

"Consumers are told here that some lenders require that you escrow money for property taxes and other property-related charges, usually homeowners' insurance," Schulman said. This money is in addition to the consumer's monthly mortgage payment for principle and interest, he added.

6^th sub-heading: on Page 1 is the Summary of your settlement charges. This is where the lender would put the adjusted origination charge, which is broken down and figured on Page 2 of the GFE, and the charges for all other settlement services, which are also detailed and figured on Page 2.

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As I get parts two and three I will share these with you. Its early but then again it's also only 6 months away. So, make sure your Encompass/Point LOS has these forms updated for you (yes, I know, you're going to have to pay for more upgrade licenses).

Every Lender will start sending out e-mails on this beginning in October to prepare everyone for a January 1^st implementation.

Luckily: You have me in your corner looking out for you well in advance and delivering valuable, educational information in a timely manner :) ...