Yesterday, I attended my second workshop on new RESPA (Real Estate Settlement Procedures Act) guidelines for mortgage companies and title companies.  The long and short of it is that the Department of Housing and Urban Development (HUD)  is requiring lenders to provide a Good Faith Estimate (known ans a GFE)  to potential home buyers/ borrowers within three day of a formal application for a mortgage.  This Good Faith Estimate is supposed to be able to show, in a clear and understandable way, what the specific costs are for obtaining a mortgage.

So far, so good.

The challenges arise from the fact that a lot of the costs of purchasing a house are not the lender costs.  There are the title company fees and the transfer and recordation fees required by the State and County where the house in being purchased.  However, the lender is the one that will be responsible for getting things right..  The real confusing part of all this is that certain costs shown on the Good Faith Estimate can be within 10% of the final costs shown on the settlement sheet (HUD-1) at settlement.  Other costs must be correct to the penny and still other costs don’t have any control over whether they are even close.

On top of all of this, if the home buyer /borrower decides to use a different title company from the one used to ascertain costs on the Good Faith Estimate than all bets are off and the lender is completely off the hook for everything.  Not that it matters anyway because there are no penalties if the lender gets it wrong.  Yes, if some of the costs are more than 10% off (on the upward side), the lender is mandated to "make it right" within 30 days of settlement.  However, if they don’t, well…..maybe a letter to your Congressperson will help.

The Day of Settlement on Your New Home

As confusing as the Good Faith Estimate may be it doesn’t hold a candle to the “new and improved”  HUD-1.  This is the sheet that shows all the costs associated with the purchase and sale of the house — what the home buyer has paid and what the home seller has paid. Before January 1, 2010, the HUD-1 was not the easiest document ot read but, with the help of the settlement attorney, you could at least see what money went to what fee.  Now, there is all kinds of strange calculations and the numbers are shown as aggregate (the sum of smaller numbers) totals or broken into different sections.

In short, it’s confusing as hell for a seasoned professional such as myself.  I can’t imagine what it’s going to be like for the first-time home buyer who is nervous and anxious anyway.  It’s all completelyb new and even for people who have owned a few houses will wonder what the hell happened.

The Swinging Pendulum

This is all a reaction to the wild real estate bubble we had in the early 2000s.  Lots of people cried “Foul!” when the home they bought lost a ton of value or the mortgage product they took out to buy the home all of a sudden became unaffordable because of adjusting interest rates.  Of course, a lot of the misbehavior from the early part of the 2000s has led to the massive wave of foreclosures and short sales.  No doubt. Reform was needed.

This type of reform is a type of overkill and, undoubtedly, will cause more grief than relief.  But, it’s here and we have to deal with it.  So, Realtors, lenders and title companies are doing their best to learn and comply with the new RESPA regulations.  HUD is actually allowing 40 days for everyone to get up to speed.  I don’t know that it will help.  Even if the real estate professionals involved in the  process get a handle on what’s going on, the home buyer is still going to be confused.  After all, we [the real estate professionals] do all this for a living.  We see it many, many, times.  The home buyer sees it once about every seven years or so.

In fact, the HUD Frequently Asked Questions about the changes now runs 52 pages — take a look here!

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