Editorial
Front Page - Friday, October 23, 2009
Women’s Council learns about changes with Good Faith, HUD-1
Samara Litvack
At a recent meeting of the Women’s Council of Realtors, Karen Flores, of Cornerstone Community Bank, and Nina Boss, of Century Title, led a discussion on upcoming changes with the Good Faith Estimate and the HUD-1 forms.
“We’re going to have a disclaimer right off the bat,” said Boss. “We’re all learning right now. It’s going to be a learning experience when this goes into effect Jan. 1, but it will be some major changes in the banking industry and to the closing statement. It may take a little more time at the closing table and it may even take three days extra as a redisclosure if there are any changes at the last minute.”
Boss turned the floor over to Flores, who began with changes regarding the Good Faith Estimate.
“Let me expand on that disclosure statement,” said Flores. “If there’s anybody sitting in here who’s had training on this, if you’re like me you will continue to get training because it’s one of the scariest revisions to the mortgage industry that I’ve seen. If you’re there and in your training have learned or understand something different than the way I present it today, jump up and let me know.”
The revision for the Good Faith Estimate came about partly as a result of the mortgage meltdown, said Flores, but more so because consumer advocacy groups wanted borrowers to better understand the opportunities available to them, what they were signing up for and whether the products they were purchasing were the best use of their money.
While many who attended the meeting will not be involved on the front end of the process, Flores said it was crucial for them to understand the provisions in the Good Faith Estimate because they may affect their ability to close loans.
One of the first provisions Flores mentioned was the definition of an “application,” which she defined as “a submission of a borrower’s financial information, which shall include a name, monthly income and a social security number to obtain a credit report; the property address; an estimate of the value of the property; the mortgage loan amount sought; and any other information deemed necessary by the loan originator.”
“It doesn’t necessarily have to be in a written form,” she said. “It can be in an oral form. But once we receive this information, it triggers on the lender’s end responsibility to provide these upfront disclosures.”
Realtors, she added, need to be well aware that unless a buyer is paying with cash, 48-hour closings are a thing of the past. Under the new provisions, any closing requiring a loan from a financial institution cannot be closed before seven days.
“When they come to me for disclosures, if I give everything to them in person and they acknowledge the receipt of the truth in lending, only then can I accept money for an appraisal from them,” Flores said. “If I have an application that I take over the Internet, over the telephone, over the fax and I fax or e-mail or mail those disclosures back to them, that’s considered a mailed application and for disclosure purposes, we have to wait three days for them to give the check to me in order for them to review the information. And I can’t order the appraisal before the fourth day.”
All of this is designed to give the consumers an opportunity to shop around for goods and services, as well as absorb the information they’re given at the time of application.
“The Good Faith Estimate is no longer a two-page legal disclosure,” she said. “It’s a three-page, 8 1/2 by 11 disclosure. And each of the sections are designed to give the consumer information, again, to shop for goods and services.”
She pointed out which numbers in the Good Faith Estimate cannot change from the initial application and disclosure to closing, which have a 10 percent tolerance and which have no fluctuation restriction.
“I’m not wise in the ways of homeowners insurance so I can only give an estimate of what I think the homeowner’s policy will be on a purchase,” she said. “And until I have the actual homeowner’s policy and a refinance, I’m not going to know that either.
“But if you go to closing and there’s any kind of variance between that no tolerance section and what’s on your HUD-1, then there’s going to have to be either redisclosure and possibly delay the closing for three days or somebody’s going to have to eat the difference.”
The revisions also note “change circumstance,” which includes a variety of things that could happen that makes the information first laid out in the Good Faith Estimate change by the closing.
If a change circumstance occurs, she said, the lender must disclose to the customer again with a Good Faith Estimate, wait three days because of the new Truth in Lending and then go to closing.
“If you have a change and you go to closing, the RESPA rules say that at the closing table you can disclose the changes in that Truth in Lending, sign the form and be good to go,” she said. “But if those changes affect the Truth in Lending and change what the APR is on the loan within a certain tolerance, then you have to redisclose, wait three days and close.”
As confusing as this sounds to real estate professionals, Flores asked those in attendance to imagine how confusing it sounds to the consumer. For that reason, she specifies that how the lender structures the sale of the loan will depend on the information that is disclosed to the customer.
“There’s going to be much confusion all the way around and some of these issues are still being addressed,” she said. Frequently asked questions and answers are available at www.hud.gov.
The HUD-1, Flores said, is designed to be used in conjunction with the borrower’s Truth in Lending so they can compare the differences at the closing table. With that, she turned the floor over to Boss.
“It’s important to go over that Good Faith first because a lot of items on that Good Faith are going to carry over to our HUD-1,” Boss said.
To make things simpler, Boss said the HUD-1 changes mean the consumer will get one figure from the lender and one figure from the title companies. The main difference, she said, will be the credits listed. If the seller is paying closing costs, for instance, that will show up as a credit on the front of the HUD-1 as opposed to being listed on the back, as it has been.
Boss also reinforced the idea that certain numbers must match up between the Good Faith Estimate and the HUD-1 with no variance, including origination fee, processing fee, admin fee and any other fee a lender charges that is not a third-party fee.
After a question and answer session with members of Women’s Council, Boss and Flores agreed that revisions to these processes are long overdue. And while now may not be the ideal time for such drastic changes to the industry, the changes are indeed coming.
“It’s not something that just came about last month,” said Boss. “They’ve been talking about this for a while.”
In closing, Boss mentioned that Tennessee Land Title is going to have two all-day seminars on these changes, one on Nov. 16 in Knoxville and one on Dec. 11 in Nashville.
Boss and Flores also noted that they are also available to anyone interested in having them come speak at their offices regarding the changes.
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