RESPA Changes Are Here


All REALTORS® should know that there are going to be substantial changes in RESPA, and soon! HUD has drastically changed the Good Faith Estimate ("GFE") that it requires all lenders of federally related, residential mortgages to prepare. The revised GFE is three pages long; the first page is a summary of the loan terms and settlement costs. The second page is designed to disclose the lender's and/or mortgage broker's loan origination charges as well as other charges the consumer is likely to encounter at settlement. The third page includes a trade-off table and a shopping cart that is designed to make it easier for consumers to compare loan packages.

The revised GFE includes an identification and explanation as to how Yield Spread Premiums ("YSP") affect the overall cost of the loan. A YSP is the payment a lender makes to a mortgage broker for originating a loan with an above-par interest rate. YSP can benefit a borrower who cannot pay the entire upfront settlement fee at closing. HUD determined that a YSP can only benefit a borrower if they have enough information to understand that the reduced settlement charges will be offset by a higher interest rate – they will benefit short term with lower settlement charges, but pay long term with higher interest rates.

HUD learned through seven rounds of testing that the current iteration of the form, the one that MUST be used as of January 1, 2010, allowed consumers to correctly identify the lowest cost loan approximately 90% of the time. The National Association of Mortgage Brokers sued HUD in an effort to stop, or at least delay, the implementation of this revised GFE arguing that requiring only mortgage brokers to disclose the YSP, and not requiring lenders to disclose fees earned from selling mortgages on the secondary market created an anti-broker bias. In a lawsuit that was decided July 29, 2009, however, the Federal District Court for the District of Columbia determined that HUD took the necessary precautions to ensure that the consumers were well and truly educated without creating a bias for or against any segment of lenders – after all, one of the principle goals of the RESPA revisions was to ensued competition in the market place. In fact, HUD's research showed that when the shopping cart is completed on page 3, consumers chose broker-originated loans slightly more often than selecting loans from direct lenders.

What does this mean for you, the practitioner? It seems as though the obstacles that were being thrown to delay the implementation of the RESPA revisions have been over come. The National Home Builders Association lawsuit was withdrawn, the National Association of Mortgage Brokers lost their law suit, and some of the most pertinent (to RESPA) amendments to the Truth in Lending Act are now in place. Change is upon us… Change is here!