The new RESPA (Real Estate Settlement Procedures Act) regulations that were published on November 17, 2008, are going into effect January 1, 2010. These changes were primarily enacted to protect borrowers against excessive loan fee charges, and to make it easier for borrowers to understand their key loan terms and to determine the exact charges they are responsible for paying at closing. Such terms include:
Loan term.
Interest rate and whether it is fixed or variable.
Whether there is a pre-payment penalty should the borrower choose to refinance at a later date.
If there is a balloon payment.
Total closing costs.
Good Faith Estimate (GFE) and HUD-1 Regulations
HUD, the primary agency for enforcing RESPA laws, is requiring that loan originators (lenders and mortgage brokers) must provide borrowers with a standard Good Faith Estimate that specifically discloses all their key loan terms and closing costs. Closing agents (including title companies) must provide borrowers with the revised HUD-1 settlement statement. It will now be easier for borrowers to compare their GFE with their HUD-1 Settlement Statement because each designated line on the final HUD-1 will make a reference to the appropriate line from their GFE.
Borrowers can shop around and compare loan products quicker and easier as well. HUD estimates that consumers will also save as much as $700.00 at closing under the new regulations as a result of the elimination of many junk fees that lenders and closing agents were charging borrowers such as fees for courier, wiring, notary, photocopying, postage, overnight delivery, document preparation and document review.
The new regulations affect mortgage loan transactions and not cash transaction. However, cash buyers are also provided with a HUD-1 closing statement a few days before closing by the closing agent to determine their closing fees. Cash buyers should request a closing statement if it is not provided. These new regulations will help prevent lender fraud and make it easier for borrowers to shop for competitive loan products. For more information on the new regulations, visit the HUD website at http://www.hud.gov/offices/hsg/ramh/res/resparulefaqs.pdf.
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