Ignoring Pressure From Mortgage Industry, HUD Unveils New GFE Form

WASHINGTON — The Department of Housing and Urban Development Nov. 13 issued long-awaited rules to reform the Real Estate Settlement Procedures Act requirements.The changes-controversial and the first in more than 30 years-are meant to improve disclosure requirements for mortgage settlements and to help consumers weed out high-cost loan offers.Refusing to bow to enormous pressure from the mortgage industry and from Capitol Hill, the lame-duck HUD issued the final rule. Because of its 2010 implementation date, it could still be in contention as the final rule faces substantial industry opposition.CUNA Senior Assistant General Counsel Jeffrey Bloch indicated that HUD was committed to finalizing the rule before the end of the Bush administration. At the time the final version of the form was announced, HUD Secretary Steve Preston said changes in the housing market and increases in home foreclosures demanded action.The proposal to change the form generated enormous response. HUD received 12,000 comment letters, including from CUNA, NAFCU, hundreds of lawmakers and members of the real estate and mortgage industries.In fact, at one point, 240 members of the House of Representatives signed a letter asking HUD to scrap its proposal for reform because of the enormous amount of criticism and to work with the Federal Reserve Board to craft a new rule.HUD declined to do so, saying it needed to move fast to help homebuyers. “The current housing finance situation has dramatically highlighted the need to move forward responsibly and expeditiously with measures to help American homebuyers,” HUD Assistant Secretary Sheila Greenwood said in response to the letter.For the first time, HUD will require lenders and mortgage brokers to provide consumers with a standard three-page good faith estimate that clearly discloses key loan terms and closing costs.CUNA applauded HUD’s decision to incorporate several of its suggestions. Bloch said some of the changes are good news for credit unions. Dropped from the rule is the cumbersome requirement that would have made settlement agents read a closing script of disclosures to a borrower at the closing table. He explained that CUNA opposed this provision for a number of reasons, including that borrowers might view the verbal reading as an implication that they are incapable of reading the form themselves and the presumption that all borrowers preferred to receive the information in this manner.CUNA was also successful in obtaining a longer timeframe to correct potential RESPA violations. HUD originally proposed 14 days. The final RESPA rule gives lenders 30 days to make the corrections.CUNA said it was also satisfied with the now three-page length of the form. Bloch said the organization opposed going from the one-page form to the HUD’s proposed four-page form as that would be confusing to borrowers.NAFCU voiced reservations about the new form and its requirements. The organization said it has serious concerns about the rule’s lack of consistency with the Truth in Lending Act, the failure to adequately address concerns raised about tolerances in the differences between GFE disclosures and final costs, and treatment of yield-spread premiums as credits.HUD’s new three-page GFEincludes an instructional page, which aims to help borrowers better understandtheir loan offer.The form now consolidates closing costs into major categories to prevent junk fees and to display total estimated settlement charges prominently on the first page so the consumer can easily compare loan offers.HUD will specify the closing costs that can and cannot change at settlement. If a fee changes, HUD will limit the amount it can change.To help borrowers compare their GFE with their HUD-1 Settlement Statement, each designated line on the final HUD-1 will now include a reference to the relevant line from the GFE allowing borrowers to easily compare their estimated and actual costs.The new form also requires that lender payments to mortgage brokers be disclosed in a more meaningful way. Yield-spread premiums paid by wholesale lenders to mortgage brokers must be fully disclosed to borrowers on the new form.“These premiums are directly tied to the higher interest rates that borrowers pay,” HUD Secretary Preston explained in a statement. Consumers deserve to understand this and they need to get credit for essentially paying these premiums.”Mortgage brokers consider the disclosure to be unfair to them because mortgage bankers don’t have to disclose service release premiums-commissions earned after the loan is closed.The National Association of Mortgage Brokers announced its disappointment with the new final requirements, explaining that the ultimate goal of a simplified mortgage process was not accomplished in the rule. The NAMB told its members via a statement on its Web site (www.namb.org) that it would continue to analyze the impact of the changes.The Mortgage Bankers Association’s chief operating officer, John A. Courson, said, “We are disappointed that HUD did not coordinate more closely with the Federal Reserve as the Fed implements its own improve-ments under TILA. As we have said many times,these two efforts ought to be undertaken together to ensure that the new guidelines and disclosuresactually make the loan process simpler and more transparent for borrowers.”“We also believe that HUD should provide greater clarity concerning the new requirements on disclosure of broker fees tied to the interest rate selected by the borrower,” Courson continued.HUD estimated that the new requirements for the GFE will save borrowers nearly $700 per closing.The form will be required starting Jan. 1, 2010.–[email protected]