Final phase of RESPA reform effective Jan. 1

WASHINGTON – Sept. 4, 2009 – The theory: Much of the recent subprime mortgage meltdown resulted from homebuyers’ inability to understand a proposed mortgage’s terms or be given enough time to digest the information. The solution: RESPA (Real Estate Settlement Procedures Act) reform, which is an attempt to give consumers an easier-to-understand format that makes comparison easy, and more time to study the complicated documents. The change includes new rules, however, that could delay – or in some cases cancel – scheduled closings.

The new rules come from different federal sources, including the Department of Housing and Urban Development (HUD), the Federal Reserve Board, and Fannie Mae and Freddie Mac. In general, there are three steps. On May 1, 2009, the Home Valuation Code of Conduct (HVCC) became effective.

On July 30, 2009, a tightening of the Truth in Lending Act (TILA) became effective. It impacts early and final mortgage disclosures, and dictates when certain fees can be charged. While the details are complicated and extensive, it generally:

• Creates wait times. By law, for example, a buyer cannot close any earlier than seven days after receiving an initial mortgage disclosure. Changes to the disclosure mandate additional wait days.

• Minimizes upfront fees. In general, a lender cannot collect any upfront fees except for a credit check prior to issuing an initial disclosure.

• Dictates appraisal delivery. In general, a homebuyer must receive his or her appraisal at least three days before closing.

• APR changes require a new disclosure. An increase of more than 0.125 percent ($500 on a $200,000 home) requires a new disclosure, and the buyer must receive it at least three days before closing.
 
On Jan. 1, 2010, the third phase becomes effective. After that date, all lenders must offer a Good Faith Estimate (GFE) in a prescribed manner. The federal goal is to empower homebuyers to place each GFE side-by-side for easy comparison. With the combined rules of all three phases, the following will be effective in 2010:

• Each GFE must focus on the annual percentage rate (APR), which includes both the mortgage interest rate and other common fees. Common fees included in the APR could be origination fees, discount points, assumption fees and processing fees.

• Buyers must receive a GFE within three days of application, and the lender cannot request supplemental information from the buyer before providing it. The GFE will be based on information provided by the buyer, such as self-reporting of income.

• Providing the buyer-submitted information is correct, the lender can change the terms of the GFE in only limited circumstances.

For real estate licensees, the changes could extend the time between contract signing and closing. Experts are advising a minimum of 30 days and, to be safe, a preference for 60 days.

© 2009 Florida Realtors®
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