I sat through a 90 minute presentation yesterday on the new RESPA (Real Estate Settlement Procedures Act) guidelines that are due to take effect January 1, 2010.  If I were a betting man, I would wager that not too many home buyers or home sellers have ever heard of RESPA or even care that it exists.  However, it has major importance for title companies and lenders.  RESPA is really a set consumer protections that are supposed to help standardize the home buying process and protect the home buyer from being bamboozled by unscrupulous lenders or title companies.

Currently, lenders can provide Good Faith Estimates to prospective home buyers that are truly estimates.  They don’t take into consideration changing interest rates or whether someone has “locked” in their rate or are letting it “float”.  There are lots of fees that come up at the last minute causing all kinds of headaches. It really did need to get tightened up a little.

New Requirements for Lenders and Title Companies

The new RESPA rules compel lenders to provide a highly detailed and almost exact estimate of the home buyer’s costs within three days of the home buyer making an application for a loan.  This is different from the “pre-approval” letter that a lot of lenders provide to home buyers before they have found a specific property to purchase.  The clock starts ticking when the home buyer has said, “This is the one.” and starts the process to complete the purchase of the home.

The good thing about the new Good Faith Estimate is that is spells out in pretty clear fashion the costs involved in buying a house.  The home buyer can still ask the home seller to contribute to those costs in order for the sale to go more smoothly and, in that way, it’ll help home sellers, too.  The new Good Faith Estimate will also allow the home buyer to shop for the best mortgage.

So far. So good.

The Unintended Consequence

The way things stand now, mortgage companies and banks all compete. Title companies all compete.  Some have better pricing than others.  Some have enhanced services like providing a settlement officer at the location most convenient to the home buyer.  The title company and the mortgage company worked together to make sure that the real estate transaction was completed by the contractually agreed upon settlement date but they never got together on pricing.

Now, because of the new RESPA rules, the lender will need to know, to the penny, exactly what the title company costs are going to be so they can put it on the Good Faith Estimate.  These costs need to be right or, if they’re not, the lender may end up eating the difference.

What is already happening is that title companies are wining and dining mortgage companies in order to get on the lender’s “approved” list.  Basically, the home buyer will apply for a mortgage and, when talking to his or her loan officer, will find out that they will need to use Title Company ABC or the lender will not be responsible for any costs variation on the Good Faith Estimate. In other words, go with my guy or take your chances.

Where Your Realtor Comes In

Realtors have always kinda been at the center of the real estate home buying process.  The Realtor interacts with his or her client the most and has a pretty good idea of what the home buyer’s situation, wants and dreams.  An experienced Realtor will also know the lenders and title companies that will get the job done.

That’s important.  There are lots of people out there that will promise the moon and the stars but not be able to deliver when it comes down to the final wire.

So, now, more than ever it’s good to have a strong relationship with an experience Realtor to help guide you through the new maze of Federal rules as they relate to the home buying process.  Making the decision to buy a home was tough enough. There is also:

• Obtaining a mortgage,
• selecting a home to live in,
• negotiating the terms of the sale with the listing agent and home seller,
• selecting a title company that can assure a smooth transfer of title from the home seller to the home buyer,
• selecting home inspection companies and working through the negotiations for repairs based on the home inspection,
• getting home owner’s insurance,
• transferring utilities…

…you get the picture.  It isn’t easy and HUD just made it a little more complicated.