Understanding RESPA Reform The session will begin at

Welcome to this training event provided by All. Regs Academy and hosted by U.

U. S. Bank Home Mortgage is pleased to offer this training for our CUSB Lenders

January 1, 2010 Changes § New and revised definitions. § Revised form of Good Faith Estimate (GFE) – cannot be altered in any way. § Revised GFE rules, including tolerances. § Revised forms of HUD-1 and HUD-1 A. § Revised HUD-1/1 A rules. Know it all. © 2009 All. Regs

Presentation Overview § What triggers the need to provide a GFE. § Fee restriction. § New rules governing issuance of and revisions to a GFE. – Tolerances on increases in charges. – Exceptions to tolerances. § Walk through of the GFE, including how to complete. – Mandatory disclosures associated with the GFE. § GFE Violations. § GFE and Truth in Lending Act (TILA) differences. Know it all. © 2009 All. Regs

Presentation Overview § Walk through of the HUD-1, including how to complete. § Analysis of disclosure of credits and fees. – Situations in which HUD-1 A may not be used. § Administrative and processing services. § Comparing the GFE and HUD-1. § HUD-1 violations Know it all. © 2009 All. Regs

Rule and HUD FAQs § HUD adopted the revisions to the RESPA rule in November 2008, and the final rule appeared in the November 18, 2008 Federal Register. § On August 13, 2009, HUD began issuing guidance on the revised RESPA rule in the form of Frequently Asked Questions (FAQs). § The FAQs appear to conflict with the RESPA rule and other laws, such as TILA, in various respects. Know it all. © 2009 All. Regs

GFE Trigger § The receipt of an application triggers the need for a loan originator to provide a GFE. § A “loan originator” is a mortgage broker or a lender. § An “application” is the submission of a borrower’s financial information in anticipation of a credit decision that includes at least six items: – – – Know it all. Borrower’s name. Borrower’s SS# to obtain a credit report. Borrower’s income. Property address. Estimate of the property’s value. Loan amount sought. © 2009 All. Regs

GFE Trigger § Additional information can be required to have an application, but there are tolerance implications. § A loan originator must provide a GFE within 3 business days of the receipt of an application. § A “business day” for this purpose remains any day on which the offices of the loan originator are open for conducting substantially all of its business operations. (U. S. Bank Home Mortgage does not recognize Saturdays or Sundays as business days. ) § The period to issue a GFE once an application is received is not revised. Know it all. © 2009 All. Regs

GFE-Related Fee Restriction § Other than a credit report fee, a loan originator may not impose a fee on a consumer before the consumer receives a GFE. – If the GFE is mailed, the consumer is deemed to receive the GFE 3 calendar days after mailing, exclusive of Sundays and Federal holidays in 5 USC 6103(a). • Note, this is the specific “business day” definition under Regulation Z. § HUD FAQ: A fee beyond a credit report fee may be imposed after a loan applicant both receives a GFE and indicates an intention to proceed with the loan covered by the GFE. Know it all. © 2009 All. Regs

GFE Initial Availability § If there are two separate loans, such as a first lien loan and a piggyback loan, two separate GFEs must be provided. § When a GFE is issued, the GFE terms must be available for at least 10 business days, except for the interest rate and the interest rate-dependent charges, and the related loan terms. § The interest rate-dependent charges are: – The credit or charge (points) for the rate chosen. – The adjusted origination charges. – Per diem (or daily) interest. § There is no minimum period of availability for the interest rate-dependent charges. Know it all. © 2009 All. Regs

U. S. Bank Home Mortgage Procedures for Issuing the Initial GFE § The Broker will be responsible for issuing the initial GFE to the borrower. § Submit a copy of the initial GFE with the Transmittal for Early TIL. – The GFE will be reviewed to insure it was issued on the proper form within 10 general business days prior to the date of the 1003, or within 3 general business days after the date of the 1003. GFEs not issued on the proper form or within prescribed timeframes will not be accepted, the broker will be notified, and the loan will be ineligible for funding. – If the GFE is accepted and the rate is locked, USBHM will insure that the loan terms in the system match those on the GFE. If not, the broker will be notified and will be required to update the system to reflect the terms disclosed to the borrower.

GFE Tolerances § If within the 10 business day-period, or such longer period that the loan originator may specify, the consumer expresses an intent to proceed with the loan covered by the GFE, the GFE is binding subject to both tolerances on charge increases and exceptions. – For purposes of the disclosure, U. S. Bank recognizes Monday through Friday, exclusive of legal Federal holidays, as business days. Know it all. © 2009 All. Regs

GFE Tolerances § There are three tolerance categories: – 0% tolerance—no charge increase permitted. – 10% bucket tolerance—charges in total may not increase by more than 10%. There is no limit on the amount a specific charge may increase except for the overall 10% cap. – No tolerance—no limit on increases in charges. Know it all. © 2009 All. Regs

GFE Tolerances § 0% tolerance: – Government transfer taxes. – Origination charge. – Credit or charge (points) for the interest rate chosen, when the rate is locked. – Adjusted origination charges, when the rate is locked. Know it all. © 2009 All. Regs

GFE Tolerances § 10% bucket tolerance: – Government recording charges. – Charges for loan originator-required services when the originator selects the specific provider. – Charges for loan originator-required settlement services, title services, required title insurance and owner’s title insurance, when the consumer uses a provider identified by the originator. Know it all. © 2009 All. Regs

GFE Tolerance Exceptions § There are three exceptions that permit a loan originator to revise a GFE without regard to the tolerances: – Changed Circumstances. – Borrower-requested changes. – Newly constructed homes. § With a changed circumstance or borrower-requested change, only the charges affected by the changed circumstance or borrower-requested change may be increased. Know it all. © 2009 All. Regs

GFE Tolerance Exceptions § Changed circumstances include: – Acts of God, war, disaster or other emergency. – Information regarding the borrower or loan relied on in providing the GFE that changes or is found to be inaccurate. – New information regarding the borrower or loan. § Changed circumstances do not include: – Market price fluctuations. – Any information collected before the GFE is provided that is later found to be inaccurate – Oops, my bad. Know it all. © 2009 All. Regs

GFE Tolerance Exceptions § The exceptions for changed circumstances and borrower-requested changes operate the same way. § If there is a changed circumstance or borrowerrequested change, within 3 business days the loan originator may: – Deny the loan (if applicable). – Issue a revised GFE, revising only the applicable charges. § HUD FAQ: When a broker and lender are involved, the 3 business day-period begins to run when either the broker or lender learns of the changed circumstance or borrower-requested change. § The general “business day” definition applies. U. S. Bank does not recognize Saturday as a general business day. Know it all. © 2009 All. Regs

GFE Tolerance Exceptions § The newly constructed home exception is available when settlement is expected to occur more than 60 days after the GFE is provided. § In such a situation, the loan originator may provide along with the GFE a separate, clear and conspicuous disclosure stating that at any time up until 60 calendar days before closing the originator may issue a revised GFE. § HUD FAQ: If a use and occupancy permit has been issued for the home prior to issuance of the GFE, then the home is not considered to be under construction and the transaction would not be a new home purchase for purposes of the exception. Know it all. © 2009 All. Regs

GFE Tolerance Exceptions § If a loan originator provides a revised GFE based on the changed circumstance or customer-requested changes, it must document the reason(s) that a new GFE was provided and retain the documentation for no less than 3 years. Know it all. © 2009 All. Regs

U. S. Bank Home Mortgage Procedures for Changed Circumstances § For each Changed Circumstance, the Broker must provide the following to USBHM within 3 general business days of notification of the Changed Circumstance: – Copy of the Revised GFE issued to the Borrower – Transmittal for Revised Good Faith Estimate Form – Written documentation supporting the changed circumstance § USBHM will review the documentation for validity and, if accepted, will issue a corrective TIL (if needed. ) If not acceptable, the broker will be notified that the loan is not eligible for funding; or is eligible for funding at the terms of the last accepted GFE. § Rate locks constitute a Changed Circumstance.

GFE Form Substantially Changed § The new GFE form is 3 pages with 13 main sections. § Transition: – If the new GFE form is used, the new HUD-1/1 A form must be used. – The new GFE form cannot be altered in any way. – If the existing GFE form is used, the existing HUD-1/1 A form must be used. – The existing GFE can be issued through December 31, 2009. – The existing HUD-1/1 A must be used for loans closed on or after January 1, 2010 if the existing GFE was used. – What if the existing form of GFE was issued before January 1, 2010, and after January 1, 2010 the GFE is revised? Know it all. © 2009 All. Regs

GFE Format § The revised rule states that a GFE may be provided by hand delivery, by placing it in the mail or, if the consumer agrees, by fax, email or other electronic means. § If the GFE is sent to the customer by electronic means, U. S. Bank Home Mortgage will consider it to have been placed in the mail for purposes of calculating customer receipt date. Know it all. © 2009 All. Regs

GFE—Page 1 § Transaction identification section. § Purpose section. § Shopping for your loan

GFE—Page 1 § Line 1: Insert the date and, at your option, time through which the interest rate and rate-dependent charges are available. – No minimum period is required. § Line 2: Insert the date through which all other charges are available. – 10 business day minimum period. § Line 3: Insert the rate lock period. § Line 4: Insert the deadline to lock the rate before settlement, if applicable. Know it all. © 2009 All. Regs

GFE—Page 1 § HUD FAQ: If rate is locked when an initial or revised GFE is issued, complete Lines 1, 3 and 4 “with the information that corresponds to the locked rate”. – Line 1: Insert date lock expires. – Line 3: Insert lock period. – Line 4: If rate is already locked, enter “NA” § HUD FAQ: If a lender does not offer a rate lock, enter “Not Applicable” or “NA” in Lines 1, 3, and 4. Know it all. © 2009 All. Regs

GFE—Page 1 § HUD FAQ: If the interest rate is locked after the GFE is issued, a revised GFE must be issued to reflect the rate lock. § HUD FAQ: If a revised GFE is provided based on a changed circumstance or borrower-requested change, Line 2 must be completed by entering a date a least 10 business days from the date the revised GFE is provided. Know it all. © 2009 All. Regs

GFE—Page 1 § Summary of loan terms and escrow account information. § Summary of charges from page 2 of the GFE. § Result is that page 1 sets forth the availability of the GFE terms, and summarizes the loan and the settlement charges. Know it all. © 2009 All. Regs

GFE—Page 1 § HUD FAQs: – Initial rate is the interest rate applicable on

GFE—Page 1 § HUD FAQs: – For the initial monthly payment, show the higher of (a) principal, interest and mortgage insurance or (b) accrued interest for first regularly scheduled payment, plus mortgage insurance. – All loans must be shown as monthly payment loans. Know it all. © 2009 All. Regs

GFE—Page 1 § HUD FAQ: – For a loan with a conditional preferred rate feature, such as a lower rate while the borrower is employed by the lender, enter “unknown” in the blank for when the rate may first change. – If the interest rate is locked after the GFE is issued, the loan terms summary in the revised GFE must be based on the locked rate. Know it all. © 2009 All. Regs

GFE—Page 1 § HUD FAQ: – Based on a recent Fed interpretation, with an FHA loan the requirement to pay interest through the end of the month when a prepayment occurs on a date that is not the installment due date is not a prepayment penalty. Know it all. © 2009 All. Regs

GFE—Page 1 § HUD FAQ: – The blank for the monthly amount owed is the monthly payment of principal, interest and mortgage insurance that is disclosed in the summary of your loan section. Know it all. © 2009 All. Regs

GFE—Page 2 § Page 2 of the GFE identifies settlement charges in various categories. § HUD FAQs: – Paid outside of closing (POC) items are not separately itemized or designated on the GFE. – If the seller will pay fees typically paid by the borrower, the fees are still included in the GFE as being paid by the borrower. – Except for title charges, fees that typically are not charged to the borrower and are typically charged to a third party, such as the seller, do not have to be included in the GFE. Know it all. © 2009 All. Regs

GFE—Page 2 § Block 1: Enter all broker and lender compensation. – This includes all lender and broker fees and compensation, including broker compensation paid by the lender. § HUD FAQs: The “our origination charge” item includes processing and administrative fees, which includes application, processing, administration, underwriting, document preparation, wire, lender inspection, loan handling and other miscellaneous fees, even if paid to a third party. Know it all. © 2009 All. Regs

GFE—Page 2 § Block 2, Box 1: This is an optional box that may be used in transactions that involve only a lender. – Apparently, a lender may elect to include in Block 1 the credit or charge for the rate chosen and then check Box 1 to reflect that it did so. – But, while the instructions indicate a lender may take this approach, the instructions also provide that a charge (points) for the rate chosen may not be included in Block 1. Know it all. © 2009 All. Regs

GFE—Page 2 § Block 2, Box 2: This box is checked to show a credit for the rate chosen, which would include a yield spread premium. If the Box is checked: – The dollar amount of the credit and the interest rate must be entered in the blanks. – In Box 2, the dollar amount of the credit must be entered as a negative number. Know it all. © 2009 All. Regs

GFE—Page 2 § Block 2, Box 3: This box is checked to show a charge (points) for the rate chosen. If the Box is checked: – The dollar amount of the points and the interest rate must be entered in the blanks. – In Box 3, the dollar amount of the charge must be entered. Know it all. © 2009 All. Regs

GFE—Page 2 § Block 2, Box 2 and 3: GFE instructions provide that either Box 2 or Box 3 must be checked, because there cannot be a credit or charge in the same transaction. Potential interpretations: – Credits and charges are offset to produce a net credit or charge. – You cannot have a yield spread premium and discount point in the same transaction. § HUD FAQ: There may not be a credit for a yield spread premium and charge for discount points in the same transaction. Know it all. © 2009 All. Regs

GFE—Page 2 § Block A: The net of Block 1 and Block 2. § Example for initial GFE: $100, 000 loan with no points, 1. 5% lender fees and broker yield spread premium of 2%. – Block 1: $3, 500 our origination charge ($1, 500 lender fees plus $2, 000 yield spread premium). – Block 2: -$2, 000 credit (the yield spread premium). – Block A: $1, 500 your adjusted origination charges (Block 1 less Block 2). Know it all. © 2009 All. Regs

GFE—Page 2 § Example for initial GFE: $100, 000 loan with 2 points, 1. 5% lender fees and broker fee of 1%. – Block 1: $2, 500 our origination charge ($1, 500 lender fees plus $1, 000 broker fee). – Block 2: $2, 000 charge. – Block A: $4, 500 your adjusted origination charges (Block 1 plus Block 2). Know it all. © 2009 All. Regs

GFE—Page 2 § 0% tolerance applies to: – Our origination charge. – Your credit or charge for the rate chosen, while the rate is locked. – Your adjusted origination charges, while the rate is locked. § This means that: – The origination charge may not increase. – While the rate is locked, the credit for the rate chosen may not decrease and the charge for the rate chosen may not increase. – While the rate is locked, your adjusted origination charges may not increase. Know it all. © 2009 All. Regs

GFE—Page 2 § HUD FAQs: – When a no cost loan covers both the origination charge and some or all of the third party charges, then the credit in Block 2 must equal the origination charge plus the applicable third party fees. • This will result in Block A disclosing a negative number. – A temporary buy-down fee is a charge for the interest rate chosen. – If the rate is locked after the GFE is issued, Block 2 and Block A in the revised GFE must be based on the locked rate. Know it all. © 2009 All. Regs

GFE—Page 2 § Tolerances: – The origination charge is subject to the 0% tolerance. – When the interest rate is locked, the credit or charge for the rate chosen and the adjusted origination charges are subject to the 0% tolerance. § HUD FAQ: Apparently HUD is working on a FAQ to address this section when a revised GFE is issued based on a rate lock. Know it all. © 2009 All. Regs

GFE—Page 2 § Block 3: Includes each service required by the originator for which the originator will select the provider, or require the borrower to choose from a list of providers approved by the originator. – Enter each service and the charge for each service, with the total in Block 3. – Additional lines may be added if needed to show all charges. § The items in Block 3 are subject to the 10% bucket tolerance. Know it all. © 2009 All. Regs

GFE—Page 2 § Block 4: Enter the total for all title services, premiums and endorsements (but not owner’s title), regardless of who selects or pays for the title provider. § HUD FAQs: – Title services include: • The charge for conducting the settlement. • Processing and administrative services, such as document delivery, preparation and copying, wiring, and notary. § The amount in Block 4 is subject to the 10% bucket tolerance, if the consumer uses a title provider identified by the loan originator. Know it all. © 2009 All. Regs

GFE—Page 2 § Block 5: Enter the total for owner’s title premiums and endorsements, regardless of who selects or pays for the title provider. – For non purchase transactions, you may enter “NA” or “Not Applicable”. – Unless you know the consumer wants enhanced coverage, provide the quote for basic coverage • HUD has indicated that if the consumer later indicates that he or she wants enhanced coverage, this would be a changed circumstance. § The amount in Block 5 is subject to the 10% bucket tolerance, if the consumer uses a title provider identified by the loan originator. Know it all. © 2009 All. Regs

GFE—Page 2 § Block 6: Includes each service required by the originator for which the originator will permit the consumer to shop for the provider. – Enter each service and the charge for each service, with the total in Block 6. – Additional lines may be added if needed to show all charges. § If you allow the borrower to shop for the provider of one or more services in Blocks 4, 5 or 6, you must provide the consumer with a written list of providers for the applicable services along with the GFE. § The items in Block 6 are subject to the 10% bucket tolerance, if the consumer uses providers identified by the loan originator. Know it all. © 2009 All. Regs

GFE—Page 2 § HUD FAQ: If a government loan program requires a borrower to select from “approved” service providers, such as HUD approved housing counselors, for a service, the service must be disclosed in Block 6 (unless the loan originator will select the provider). – HUD does not address if the loan originator’s list of providers for the applicable service must list one, more than one or all of the providers on the government list. Know it all. © 2009 All. Regs

GFE—Page 2 § HUD FAQs: With regard to the requirement to provide a list of providers when you allow a borrower to shop for any services in Blocks 4, 5 or 6: – The inclusion of a provider on the list is a referral to the provider. – You must identify providers who are likely available to provide the service. § Potential industry reactions to the HUD approach. – The 10% bucket tolerance applies if the lender selects the provider or the consumer selects a provider identified by the loan originator. – Loan origination system vendor efforts. Know it all. © 2009 All. Regs

GFE—Page 2 § Block 7: Enter the total estimated recording charges. Do not enter transfer taxes. – The amount in Block 7 is subject to the 10% bucket tolerance. § Block 8: Enter the total estimated transfer taxes. Do not enter recording charges. – The amount in Block 8 is subject to the 0% tolerance. Know it all. © 2009 All. Regs

GFE—Page 2 § Block 9: Enter the total required escrow or impound deposit at closing, taking into account the aggregate adjustment. – Indicate if the required escrow or impound deposits are for all property taxes, all insurance and any other specified items. – If deposits are required for some, but not all, property taxes or insurance, do not use the “all” box. • Check the “other” box and identify the applicable taxes or insurance. – The amount in Block 9 may change without limit. Know it all. © 2009 All. Regs

GFE—Page 2 § Block 10: Enter the total per diem (or daily) interest. – In the blanks, enter the amount of interest for each day, the number of days and the estimated settlement date. – HUD FAQ: If the interest rate is locked after the GFE is issued, Block 10 in the revised GFE must be based on the locked rate. § Block 11: Includes each type of required hazard or similar insurance, such as flood insurance and earthquake insurance. – Enter each required insurance and the premium for each insurance, with the total in Block 11. Additional lines may be added. § The amounts in Blocks 10 and 11 may change without limit. Know it all. © 2009 All. Regs

GFE—Page 2 § Block B: Enter the total of the estimated charges that appear in Block 3 through Block 11. § Block A + B: Enter the sum of Block A (Your adjusted origination charges) and Block B. § Of course, the amounts in Block A, Block B and Block A + B on page 2 must match the corresponding amounts on page 1 in Block A, Block B and Block A + B. Know it all. © 2009 All. Regs

GFE—Page 3 § This section explains the tolerances to the consumer. § The loan

GFE—Page 3 § This section is intended to show the relationship between the interest rate and closing costs. § The loan originator must complete the left column based on the loan covered by the GFE. § The loan originator does not have to complete the other two columns. Know it all. © 2009 All. Regs

GFE—Page 3 § The loan originator does not enter any information in the shopping chart. HUD intends that consumers can use the chart to compare loans. § The final section notes that the fees the lender may receive at settlement will not change the loan or the charges paid at settlement. Know it all. © 2009 All. Regs

GFE and Prequalifications § HUD FAQs: – An application is as defined in the revised RESPA rule, and RESPA does not address preapprovals. – If a loan originator issues a GFE, the originator is deemed to have received the six minimum items of information that constitute an application. • The items include, among others, the property address and an estimate of the property’s value. § Revised rule: No fee other than a credit report fee may be imposed before the consumer receives and (per HUD interpretation) accepts the GFE. § Effect on pre-qualifications and pre-approvals. Know it all. © 2009 All. Regs

GFE and Changed Circumstances § As noted above, a changed circumstance permits a loan originator to revise the effected charges without regard to the tolerances. § HUD FAQs: HUD advises that the following do not constitute changed circumstances: – A mortgage broker issues a GFE that the lender does not accept and the lender does not receive the application within 3 days of the date the broker received the application. – A GFE is issued without identifying a property address and the property address is later identified. – A mortgage broker issues a GFE based on one lender’s loan products and origination fee, but places the loan with another lender. Know it all. © 2009 All. Regs

GFE and Changed Circumstances § HUD FAQs: HUD advises that the following “could be considered” changed circumstances: – Parties are added to or removed from title or the property is moved into or out of trust. – It is determined that a party will be using a POA to sign, which may require additional work and fees. – Additional documents (such as releases) are discovered that must be recorded causing an increase in government recording fees. Know it all. © 2009 All. Regs

GFE and Changed Circumstances § HUD FAQs: HUD advises that the following “could constitute” changed circumstances: – A GSE, FHA or mortgage insurance program changes and the originator did not have notice of the change prior to issuing the GFE. – The property address provided by the applicant is not the correct legal address. – It is determined that the property use may change, such as from owner-occupied to rental property. – AVMs are commonly used for the property type and loan amount, but the AVM results for the transaction are “no hit, ” necessitating the use of a more expensive valuation method. – The borrower’s credit score changes. Know it all. © 2009 All. Regs

GFE and Changed Circumstances § HUD FAQs: HUD advises that the “particular facts of each situation must be examined” to determine if the following constitute changed circumstances: – The borrower does not proceed to closing quickly upon final approval or does not act diligently in providing information to the lender. – The loan does not close by the close date in the original purchase agreement or construction agreement provided to the lender. – The vendor originally selected to perform a settlement service goes out of business or stops offering the service. Know it all. © 2009 All. Regs

GFE and Changed Circumstances § HUD FAQs—The “blender” FAQ: – Q. Credit policy is required to change after the GFE is issued due to regulatory changes such as fees charged by government agencies for recording fees or taxes change after the GFE is issued. – A. This could constitute a changed circumstance if the loan originator did not have notice of the regulatory change prior to issuance of the GFE. § Two situations were presented: – Credit policy is required to change after the GFE is issued due to regulatory changes or supervisory guidance. – The fees charged by government agencies for recording fees or taxes change after the GFE is issued. Know it all. © 2009 All. Regs

GFE Violations § A violation of the GFE requirements will constitute a violation of RESPA Section 5. § Currently, there are no express damages or penalties for violations of RESPA Section 5. – HUD has asked Congress to change this. – RESPA violations often trigger state law violations. § An originator can cure a tolerance violation at or within 30 calendar days after closing. § The curing of tolerance violations will be addressed in greater detail later in the presentation. Know it all. © 2009 All. Regs

GFE & TILA Disclosure Rules Know it all. © 2009 All. Regs

Consequences of RESPA Definition of an Application § HUD chose a complicated definition of an “application”: – The delay allows the consumer to shop for credit, but without a GFE. – The GFE can be delayed until the purchase agreement is about to expire and it is too late to shop for credit. – The rule also makes it difficult if not impossible for a broker to recover costs for an appraisal and AUS from the consumer because these fees cannot be imposed until disclosures are provided. Know it all. © 2009 All. Regs

Consequences of RESPA Definition of an Application § HUD included a “wild card” in the items needed to have an application – “any other information deemed necessary by the loan originator. ” – The lender may believe that the broker does not have a proper application, did not provide disclosures in good faith, and illegally collected fees. – If the lender thinks the broker collected fees too early, the consumer cannot get a loan because no loan can be made that will avoid a TILA and RESPA disclosure violation. – Remember that the broker has to provide the GFE and the lender has to provide the estimated TILA disclosures before any fees are imposed. Know it all. © 2009 All. Regs

Differences Between RESPA and TILA Loan Term Disclosures § The GFE and the HUD-1 may show different interests rate due to different buy downs. – The GFE loan term disclosure assumes that you provide a disclosure of the initial interest rate that affords the consumer a lender credit (used to pay the broker fee or closing costs). – Seller contributions are ignored when preparing the GFE. Hence, any seller funded temporary buy down is not disclosed in the loan terms. – The HUD-1 shows the actual interest rate, which will include the effects of a lender credit and a seller temporary buy down. These buy downs are not separately disclosed – There is no mention of the seller contribution for the buydown in the HUD-1 because the seller payment does not go toward closing fees. Know it all. © 2009 All. Regs

Differences Between RESPA and TILA Requirements § HUD has three different categories of costs, some of which have no limits, some have a ten percent tolerance, and some which cannot change from the amount disclosed in the GFE. § RESPA prohibits redisclosure when tolerances will be violated. § HUD expects a closing to occur and fees to be refunded to satisfy tolerances. Know it all. § TILA permits a 0. 125% tolerance for the estimated APR, which has no relation to the HUD tolerances. Under ordinary circumstances, no other disclosed term has tolerances. § TILA requires redisclosure when APR tolerance is violated. § FRB expects lenders to delay the closing to “get it right” and afford the consumer a reflection period for accurate disclosures. © 2009 All. Regs

Differences Between RESPA and TILA Redisclosure Requirements § There will be cases where new or revised TILA disclosures are required, but a new or revised GFE is not, and vice versa. – For example, if the consumer wants to switch an application from a fixed rate to an ARM loan, new TILA disclosures have to be provided and a new application must be taken to determine when the three day rule is triggered. However, HUD would only permit a revised disclosure, not new disclosures. – The demarcation of when new disclosures must be provided starts when either the lender or broker receives the request to switch loan products, even though the other party might have provided the GFE originally. Know it all. © 2009 All. Regs

Differences Between RESPA and TILA Redisclosure Requirements § RESPA permits redisclosure of affected terms only § Redisclosure permitted for limited circumstances, not for market condition § Redisclosure locks in all fees for 10 more days § Redisclosure expected after interest rate lock § No waiting period is required before closing § No penalty for failing to redisclose Know it all. § TILA permits changes in any and all terms § Redisclosure expected when market conditions change § Seven business day delay in closing not repeated § No need to redisclose when interest rate locks § Three business day review period before closing § Statutory penalty up to $4000 for failing to redisclose © 2009 All. Regs

Interested Party Contribution Limits § RESPA requires lumping together the YSP and lender contributions as general credits. Seller and broker credits, and borrower deposits are not designated for specific fees. – This is going to make it very difficult to determine which credits impact the finance charge and APR disclosures, and which do not. Know it all. © 2009 All. Regs

Interested Party Contribution Limits § The seller credits, together with lender and broker credits, will exceed secondary market limits on “interested party contributions” and may scuttle closings. – In a no fee loan, the lender contribution on line 802 of the HUD-1 may exceed 6% of the loan balance. – The secondary market does not differentiate between HUD’s “phantom” credits and real money contributed by sellers and brokers. Know it all. © 2009 All. Regs

Differences Between RESPA and TILA Disclosure of Creditors § TILA requires disclosure of the “creditor” on the TILA disclosure. The creditor is the party to which the loan is initially payable. § RESPA requires the disclosure of the “lender”, which is the table funding investor in brokered loans. – The borrower has no dealing with the investor and will be confused by the introduction of the investor on the settlement statement. Know it all. © 2009 All. Regs

Differences Between RESPA and TILA Review Periods § TILA has a 7 business day waiting period between initial disclosures and closing. – This seven day period is not repeated if the TILA disclosure is revised. § RESPA requires a 10 business day period for locking in closing costs, and the period must be repeated if circumstances change and/or a revised GFE is issued. – If the lender or the broker learns of changed circumstances, a new GFE must be provided within three business days of either party learning of the change in circumstances (each party is charged with knowledge available only to the other party). – The ten day lock period for fees is repeated Know it all. © 2009 All. Regs

RESPA Fee Disclosures § RESPA requires disclosure of all fees as borrower paid fees (unless the borrower never pays the fee in that community). § Whether or not the borrower pays a fee, the seller pays the fees, the broker pays the fees, or the fees are never charged, is totally irrelevant to required disclosures of fees in the GFE and the HUD-1. § If the broker, or a third party, pays for costs the borrower would ordinarily incur in a refinance loan, you cannot use a HUD-1 A (there is no 200 Section to disclose the credit). Know it all. © 2009 All. Regs

RESPA Payment Schedules § RESPA requires disclosure of a monthly principal and interest payment, whether or not the borrower is making monthly payments, and whether or not the payment includes principal or not. – RESPA mandates that the lender use a crude extrapolation of the actual payment to give the borrower a rough estimate of an equivalent monthly payment. – Biweekly loans, and loans that require quarterly interest payments and annual principal payments have to be disclosed as monthly approximation (and labeled as accurate) under RESPA. Know it all. © 2009 All. Regs

Completing the HUD-1 Settlement Statement Know it all. © 2009 All. Regs

HUD-1 Page 1: Identifications Fm. HA now RHS Who is your lender? § The lender named in Section F is the party funding the loan, which may or may not be the lender named in the note. The table funding lender is the “lender” for the HUD-1, not the broker on the note. § One “type of loan” designation changed. Know it all. © 2009 All. Regs

HUD-1 Page 1: The Transaction § The 100 and 400 subsections of Parts J and K have not changed. § Closing agents may still offer separate settlement statements to the buyer and seller showing only their part of the transaction. § Technical and inadvertent errors, and tolerance violations, may be corrected and a revised HUD settlement statement be provided within 30 days of closing. Know it all. © 2009 All. Regs

HUD-1 Page 1: Credits and Debits § Seller credits (also called seller concessions or seller contributions) go on lines 204 -209 and 506 -509 as a credit to the borrower and a payment by the seller. § Deposits held by the broker are shown as payments to the broker on line 501, instead of being included as part of the broker commission on page 2. § Second mortgage loan net disbursements must be shown on lines 204 -209 (the lender is named and the loan amount is shown in parentheses). Know it all. © 2009 All. Regs

HUD-1 Page 1: Credits and Debits § Borrower POC payments (e. g. application fees) are shown on lines 204 -209 as credits. § Real estate broker credits must name the individual giving the credit (not the company). HUD did not provide any guidance on how to determine who contributes this credit or whether the name of the broker, the salesperson, or the clerk writing the check is on the HUD -1. This also conflicts with state laws. Know it all. © 2009 All. Regs

HUD-1 Page 1: Adjustments § Lines 210 to 303 and 510 to 603 have

HUD-1 Page 2: Broker Commissions § Only the portion of the commission net of the earnest money deposit is shown on page 2 in the 700 series. § Percentages used to calculate commissions are no longer disclosed. Know it all. © 2009 All. Regs

HUD-1 Page 2: Origination Fees § The “origination charge” is a lump sum adding lender and broker fees. Add “**” to designate that the origination fee may be deductible for income tax purposes. § The YSP and any other lender credits are shown as a negative number on Line 802. § In a no fee loan, the lender makes up phantom origination and discount fees for line 801, and issues an equal credit on Line 802. Know it all. © 2009 All. Regs

HUD-1 Page 2: Origination Fees § Only fees that are paid by the seller and never paid by the borrower are included in the seller’s column. § Fees paid by the seller and broker at or before closing (pursuant to negotiations) for services required by the lender are shown as borrower paid fees, and a credit is given in the 200 series (seller paid fees are also shown in the 500 series). Credits for fees paid before closing are also shown on page 1 of the HUD-1. § Third party admin. and processing fees are not shown as POC items. Know it all. © 2009 All. Regs

HUD-1 Page 2: Origination Fees § Appraisals, credit reports, flood searches, tax service, surveys required by the lender, and governmental loan program charges, such as VA, FHA, Rural Housing Service, or state bond loan programs, are not “admin. or processing” costs or origination fees, and are shown as separate borrower charges and not as part of the “origination fee” in the 800 series (don’t ask me why). § Services are shown in the 800 series if the borrower picks a provider identified by the lender, but in the 1300 series if the provider was not identified by the lender. Given that the lender must list the available providers, the lender violates RESPA if the borrower picks someone off list. Know it all. © 2009 All. Regs

HUD-1 Page 2: Insurance & Escrow § The 900 and 1000 series have not changed, except HUD hard coded the Aggregate Adjustment on line 1007. § The aggregate adjustment has not changed. § MIP cannot increase from the GFE. § All other charges in these sections are not subject to any limits on changes from amounts in the GFE. Know it all. © 2009 All. Regs

HUD-1 Page 2: Title Fees § Line 1101 includes the lender’s title premium, closing fee, wire and fax fees, title doc prep charges, title search fee, overnight delivery fee, notary fees, surveys fees required by the title company, and other title and closing agent admin. and processing fees. These fees are not separately itemized. § Line 1101 includes room rental fees and other “add-on” title agency charges, such as for loans closing after 6 PM. § The closing fee, survey fee, lender’s title premium, and owners title premium are broken out as POC items. Know it all. © 2009 All. Regs

HUD-1 Page 2: Title Fees § The portion of the premium retained by the title agency and underwriter are disclosed as POC items. § Survey fees are included in line 1101 and placed on a line after 1108 as a POC item if the survey is required by the title agency to issue the policy. Surveys required by the lender are disclosed in the 800 series, unless the borrower selected a surveyor that was not identified by the lender (in which case the survey goes in the 1300 series). Know it all. © 2009 All. Regs

HUD-1 Page 2: Title Fees § Other third party fees, such as independent contractor notary fees and title plat fees, are shown as POC items on lines 1109 -1112. § Title fees are generally subject to the 10% tolerance. Know it all. © 2009 All. Regs

HUD-1 Page 2: Government Charges § Line 1201 is the total of the government recording charges. Examples of such charges include but are not limited to: – state and local fees for recording the deed, mortgage, deed of trust, releases, and – any other instrument or document recorded to preserve marketable title or to perfect the lender‘s security interest in the property. Know it all. © 2009 All. Regs

HUD-1 Page 2: Government Charges § There is a 10% aggregate tolerance for recording fees and fees for services from providers identified or required by the lender or broker. § The transfer taxes, however, must be absolutely correct. Know it all. © 2009 All. Regs

HUD-1 Page 2: Borrower Selected Services § These are services the borrower shops for, such as home inspections, that (i) the lender requires but does not dictate who can provide the service (and does not identify the provider chosen by the borrower), or (ii) the lender does not require. § A list of all such services and the available providers must accompany the GFE. § The fees for these services can change at any time without causing a violation. Know it all. © 2009 All. Regs

HUD-1 Page 2: Disclosing Points § Discount points that might be deductible are shown in the margin at the bottom of the second page(where you would ordinarily put a signature block) on the bottom of the second page of the HUD-1. § Note that HUD-1 instructions say that line 801 cannot include points. HUD contradicts itself in the FAQ. § The amount on IRS Form 1098 is disclosed below line 1400. Know it all. © 2009 All. Regs

HUD-1 Page 3: Origination Fees § The third page of the HUD-1 is all new. The lender is responsible for providing all information needed by the closing agent to complete this page. § Note that broker and lender fees cannot increase (they can decrease), and that the credit from the lender to the borrower cannot increase. HUD should have said this fee cannot change. § The amount paid to the broker need not correspond to the amount in line 802. § Do not confuse transfer taxes with recording fees – the former cannot change from the amount disclosed in the GFE, and the latter are subject to an aggregate 10% tolerance. Know it all. © 2009 All. Regs

HUD-1 Page 3: 10% Tolerance § This section includes all of the fees disclosed in Section 3 of the GFE (some of which are noted on the HUD-1) § Recording fees are lumped with the Section 3 fees inn the GFE. § Aggregating all of the fees and providing a 10% tolerance for the sum gives everyone a little breathing room – some fees can be higher or lower without causing a violation. Know it all. © 2009 All. Regs

HUD-1 Page 3: 10% Tolerance § Keep in mind the following: – Title insurance premium disclosures are subject to a tolerance, but hazard, earthquake and flood insurance premiums have no limit. – Fees paid by sellers, brokers, and the lender that are disclosed as borrower paid fees are subject to the 10% tolerance (do not ask why). Know it all. © 2009 All. Regs

HUD-1 Page 3: Insurance & Escrow § These are fees that can change. These fees are from the 900, 1000, and 1300 series. § Note: Title fees cannot increase unless the borrower asks for additional coverages (then you have a changed circumstance). Know it all. © 2009 All. Regs

HUD-1 Page 3: Loan Terms § Loan terms at the bottom of page 3

HUD-1 Page 3: Loan Terms § There are no controversies in the first two items on page 3 of the HUD-1: – The loan amount is the note amount – no controversy. – The term must be in years, but you can include a fraction or decimal if the HUD-1 is completed for a loan modification that has a remaining term that is not in whole years – no controversy. Know it all. © 2009 All. Regs

HUD-1 Page 3: Loan Terms § Keep an eye out for the following: – The initial interest rate is not necessarily stated in the note. HUD wants the rate to reflect any temporary buy downs, which is not the borrower’s legal obligation. – The initial monthly payment is stated in the note, unless the seller is making partial payments. If the seller is making partial payments, the payment amount is the net payment by the borrower, not the borrower’s legal obligation. Know it all. © 2009 All. Regs

HUD-1 Page 3: Loan Terms § Keep an eye out for the following: – The change dates and caps are in the note, but HUD does not permit disclosure of more than one rate cap. – In some loans, the rate cannot decrease after the first change date. HUD expects the rate to increase or decrease at each change date. – This disclosure fails to take into account interest rate floors. Know it all. © 2009 All. Regs

HUD-1 Page 3: Loan Terms § Keep an eye out for the following: – The amount that the interest rate can increase may not be the same as the amount that the interest rate can decrease. – The maximum payment amount should be calculated in the same manner as the ARM program disclosure maximum payment amount – the rate may increase or decrease by so many percentage points. Know it all.

HUD-1 Page 3: Loan Terms § Keep an eye out for the following: – Instead, HUD instructs us to show that the interest rate may increase or decrease by a certain percentage (e. g. an increase in the interest rate from 4% to 5% is a 25% increase in the interest rate). Know it all. © 2009 All. Regs

HUD-1 Page 3: Loan Terms § Pre-payment penalty tips: – FHA loans no longer have a “prepayment penalty” in the eyes of TILA and RESPA. – The maximum prepayment penalty is usually percentage of the loan amount – assume that the prepayment occurs five minutes after the closing. Know it all. © 2009 All. Regs

HUD-1 Page 3: Loan Terms § Tips on Balloon Payments: – The balloon payment may be less than scheduled if prepayments were made. – Disclose the maximum balloon payment shown in the payment schedule disclosed under TILA. – Years may include a fraction or a decimal for loan terms that are not whole years. – The balloon date (the maturity date) is stated in the note. – Ignore conditional and mandatory rights to refinance. – Disclose interim balloon payments required by the note. Know it all. © 2009 All. Regs

HUD-1 Page 3: Loan Terms § Tips on escrow items: – Include all escrow items in the disclosure. – This disclosure does not warn borrowers that escrow payments may increase or decrease. The disclosure should state that the initial monthly escrow payment is $______. Know it all. © 2009 All. Regs

HUD-1 Page 3: Loan Terms § Interpretation Pending: – The disclosure will be misleading when the initial lender does not require an escrow account, but the investor that purchases the loan two weeks later does require an escrow account. Does the settlement agent have an obligation to issue a revised HUD-1 when this occurs? Can the investor establish an escrow account if it is not initially disclosed here? Know it all. © 2009 All. Regs

U. S. Bank Home Mortgage Procedures for Loan Closing § Complete the Closing Request Form and fax to your assigned Operations Center. § The Closing Request will be reviewed against the last GFE accepted by USBHM and the loan terms in the system, to insure that the loan terms match. § In preparing the HUD-1 items for the Settlement Agent, USBHM will review the settlement charges: – Review of Service Providers used against the Service Provider list to determine if 10% tolerance applies – Review all fees against the last GFE accepted by USBHM to determine that fees match and/or are within prescribed tolerances.

U. S. Bank Home Mortgage Procedures for Loan Closing § In the event that fees are out of tolerance: – USBHM will request that the settlement agent change the fees on the HUD-1 accordingly – Funds wired will be adjusted to match the revision – This may result in reduced compensation to the broker

HUD-1: Final Thoughts § You can addendum page instead of placing information in the margin. § Tolerances for MDIA and RESPA are different issues and are calculated differently (and separately) § There are no penalties under RESPA for violations, but the state can fine parties for RESPA violations Know it all. © 2009 All. Regs