New Good Faith Estimate & HUD-1 Coming Jan. 1, 2010

For the first time in over 30 years, the U.S. Department of Housing and Urban Development (HUD) has proposed reforms to the longstanding regulatory requirements of the Real Estate Settlement Procedures Act (RESPA). Looks to be much easier to read.

According to a press release issued November 12, HUD will require that lenders and mortgage brokers provide consumers with a new, easy-to-read Good Faith Estimate (GFE) that clearly discloses key loan terms and closing costs consumers pay when they buy or refinance a home.

Last May, HUD extended the rule’s comment period to June 12 to allow for more opportunity for remarks on the Department’s proposed GFE form. HUD received approximately 12,000 comment letters following the proposal of its new RESPA rule. After considering those comments, the Department made considerable modifications to its original proposal. For example, HUD withdrew a proposed requirement that closing agents read and provide a ‘closing script’ to borrowers. Instead, there will be 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 Good Faith Estimate. To facilitate comparison between the HUD-1 and the GFE, each designated line on the final HUD-1 will now include a reference to the relevant line from the GFE.

Other changes included shortening the GFE form from four to three pages and adding an instructional section to help borrowers understand their loan offer.

Also, all settlement costs on the new GFE are broken down into three categories. The first category includes charges that are not allowed to change, such as the origination charge and transfer taxes. The second category consists of services selected or identified by the loan provider such as title services and lender’s title insurance. These costs can increase up to 10% at settlement. The final category is for services the borrower can shop for, such as homeowner’s insurance. These charges are not subject to limits on price increases.

The new GFE and revised HUD-1 go into effect January 1, 2010.