HUD Revises RESPA Rules, Adopts Standard Good Faith Estimate
The U.S. Department of Housing and Urban Development on Wednesday announced it will now require lenders and mortgage brokers to provide consumers with a standard three-page Good Faith Estimate (GFE) that discloses key loan terms and closing costs. HUD estimates its new regulation -- one that has been hotly contested on both sides -- will save consumers about $700 at the closing table. Changes in the housing market and increases in home foreclosures demanded HUD action, secretary Steve Preston said in announcing the revised regulatory requirements of the Real Estate Settlement Procedures Act, or RESPA. "It has been a long road but today we can finally announce a better way to buy homes in America," said Preston. "Consumers need and deserve to know what they're getting themselves into before they sign on the dotted line. After carefully considering the concerns of consumers and the different businesses in the housing sector, we have developed an approach that empowers the average family to shop for the most appropriate loan to meet their needs." HUD proposed in last March several reforms to the longstanding RESPA, including improved disclosure of the loan terms and closing costs consumers pay when they buy or refinance their home. The proposals met stiff resistance from industry groups, who said the proposal would hurt the mortgage market. In the middle of August, more than 240 lawmakers in the House of Representatives sent a letter to Preston lobbying for a withdrawal of the proposed rule, amid blistering criticism from various trade groups whose members would be affected. “We believe that RESPA reform cannot be resolved in one sweeping change without considering and appreciating the many moving parts of a residential real estate transaction,” American Land Title Association president Gary Kermott said in testimony to key members of the House of Representatives earlier this year, regarding the changes that have now been made into law. The Mortgage Bankers Association had also opposed many of the proposed changes to RESPA, suggesting that HUD's proposal be withdrawn to better coordinate changes with the Federal Reserve. That's not to say HUD didn't make concessions. While considering the approximately 12,000 comment letters in response to the proposal of its RESPA rule, HUD made considerable modifications to its original proposal, Preston said. For example, HUD originally proposed a closing script read by settlement agents at the closing table, which was eventually discarded in favor of a new page on the HUD-1 Settlement Statement that allows consumers to easily compare their final loan terms and closing costs with those listed on their GFE. HUD will require the new standardized GFE and HUD-1 for mortgage loans closed beginning January 1, 2010. "We have carefully considered the concerns expressed from every corner of the mortgage market in developing this rule," said federal housing commissioner Brian Montgomery. "I am convinced that we successfully balanced the needs of consumers with those in the business of homeownership. None of us can lose sight of the fact that millions of Americans simply don't understand all the fine print of their mortgages and this, in many respects, is at the heart of today's mortgage crisis." See the new, standard GFE form. Write to Diana Golobay at email@example.com.