About two years ago, the U.S. Department of Housing and Urban Development revamped the HUD-1 Settlement Statement and the Good Faith Estimate (GFE). Among other things, the forms were shortened and some “tolerances” were added to decrease the incidences in which figures on the HUD-1 differed too much from what was originally estimated on the GFE. The changes required HUD to provide a lot of training to everyone involved in the settlement process, including real estate practitioners.
Now, here we are two years later, and these same two forms, the HUD-1 and the GFE, are the subject once again of a revamping, this time by the Consumer Financial Protection Bureau (CFPB). In part, the agency needs to make changes because by law it’s required to harmonize the Truth in Lending Act (TILA) disclosures with the settlement forms.
NAR is still looking at CFPB’s proposed changes, which are detailed in an 1,100-page rule. You read that right: 1,100 pages. So, it’ll take some time to get a good picture of exactly what the agency is proposing. But, at this point, it looks like CFPB is trying to do too much, and already NAR sees some potential trouble spots.
First, the agency left it unclear who is supposed to fill out the proposed combined settlement form. Is it the lender or the closing agent?
Second, the agency has left it ambiguous what kinds of things can derail the closing with a three-day delay. Building in a three-day delay sounds good for consumers in theory, because if there is a big discrepancy in what they were told in the loan estimate and what shows up in the settlement form, they should have time to review that. But if the delay is triggered by something minor, then the closing will get snagged at the 11th hour for little purpose, and no one wants that.
Third, the sheer breadth of changes has to have a disruptive effect on closings as lenders and title agents and even practitioners figure out what has changed and what hasn’t. And is that a good thing to be dealing with now, when the housing market is still trying to recover and other big rules—like the qualified mortgage (QM) rule—are still waiting to drop? (QM is intended to set minimum underwriting standards for lenders to prevent them from originating loans to borrowers who lack the ability to repay.)
It might just be too much right now.
In any case, CFPB is taking public comments until Nov. 6 on most of the rule. It’s worth your time to familiarize yourself with the main changes and share your thoughts with the agency. CFPB has a reputation for being good about asking for and considering public input, so consider taking advantage of this opportunity to share your thoughts.
By Robert Freedman, Senior Editor, REALTOR® Magazine
In this video how-to, you’ll find a page-by-page walk-through on what goes where.
The new Good Faith Estimate and HUD-1 settlement form have been in effect since January 1. The federal government’s intention was to make it easier for your customers to understand what they were getting when they applied for mortgage financing. The government also wanted to minimize the surprises to your customers when they get to the closing table and see very different (read: higher) charges on the HUD-1 than what was included on the GFE. Has the government succeeded?
Happy New Year, everyone!
As usual, we’re ringing in the new year with a lot of unfinished business (health care reform, financial institution reform, and so on). One thing that was finally settled, however – after years of debate — was the federal government’s changes to the Good Faith Estimate and HUD-1.
Not so fast. It’s hard to find people in the real estate business, particularly mortgage brokers, who are happy with the changes. Wes Cordeau of Houston wrote to me in response to an article in REALTOR® Magazine:
“Unfortunately, the new GFE does not address two points of major importance: 1) How much to close and 2) How much is the monthly payment? In fact, the new GFE addresses closing costs in such a way as to confuse the borrower immensely, because it addresses the costs as ‘Total Settlement Charges” and does not include some important offsets, yet makes us include items that are historically paid by the seller. On page 1, it addresses the monthly payment in two sections–one concerning only principle, interest, and mortgage insurance and the other addressing only payment of escrows for taxes and property insurance. This is more confusing to the consumer! Everyone in this business understands that taxes, insurance, and HOA fees can can add hundreds to the monthly payment, yet they’re not addressed clearly in the GFE.
The fact that a three-page document has 42 pages of explanatory handouts and 51 pages of FAQs (four per page) tells me that this is the most ill-designed form I have ever seen!”
Although I haven’t experienced the forms as a consumer, having listened to Phil Schulman’s 90-minute explanation at NAR in San Diego (worth the time; you can access it at REALTOR.org’s RESPA page), I agree with Wes that the “simplified” forms raises as many questions as answers. Yes, the language is generally more clear, but I wish HUD had done some focus groups with consumers and real estate practitioners before they gave the forms the green light.
What do you think? Are the new GFE and HUD-1 an improvement over what we had before? Or are they going to cause new problems and delays at the closing table? What changes would you recommend?
Note: REALTOR® Magazine on Jan. 13 completed a video walk-through of the new GFE and HUD-1. Watch the how-to video to get a better understanding of how the forms are to be filled out.
By Sarah Trzepacz, Content Strategist, REALTOR.org
Expert Phil Schulman drew an over-capacity crowd to his session on HUD’s recently issued final RESPA rule. During the session he described changes in the six main components of the rule, identified winners and losers in the latest round of amendments, and walked the crowd through the new GFE and HUD-1 forms.