RESPA Reform and How it Affects You

So, 2009 is in the past and 2010 has started. Several things happened in 2009 that will forever impact the mortgage and real estate industry going forward. Specifically, an item called RESPA Reform.

As the mortgage industry continues to implement changes that help provide customers the essential information and adequate time to understand their home purchase or refinance options, it is the goal of all mortgage lenders to keep consumers and real estate professionals informed.

Several months ago, we introduced many to the Home Valuation Code of Conduct (HVCC) and the Housing and Economic Recovery Act (HERA) requirements that took effect July 30, 2009. In November, we again sought to educate many about the new home lending settlement statement and its impacts that will be seen as of January 1, 2010.

What exactly is RESPA and how is it to be reformed? RESPA stands for the Real Estate Settlement Procedures Act and was enacted by the U.S.Department of Housing and Urban Development (HUD) with the intent to help protect borrowers applying for home financing by standardizing the industry. Furthermore, RESPA provides for a more thorough explanation and disclosure of key loan terms and settlement charges.

This is done by implementing revisions to both the Good Faith Estimate (GFE) and the Settlement Statement (HUD-1). This includes a side by side chart ( on the new page 3 of the HUD-1) to help compare the estimated charges shown on the GFE with the actual charges at closing; and it requires that fees not increase between the issuance of the GFE and closing except under limited circumstances.

The objective of the new changes was to assist the new home buyer in making better choices regarding their mortgage lending options, all the while, mandating that lenders stand behind their initial estimates by requiring the lender to absorb any overage in final fees that exceed the greater of 10% initially disclosed on the GFE.

Now, don’t get overly excited here. While the new procedure offers greater protection from those shady lenders and brokers that like to participate in a slight of hand or bait and switch, there will be the occasion that fees may increase. RESPA explains that an allowable fee increase can only be charged to the borrower if it occurred due to what HUD refers as a valid changed circumstance. For example, if the borrower chooses to make a significant change to his or her loan (such as a loan product or term change) or if a full review of the appraisal results in discovery that a survey is required, this constitutes a valid change circumstance and the associated fee increase can be charged to the borrower. Another example is in the event a power of attorney (POA) is needed for a borrower who cannot attend a closing.

In the end, while you may or may not agree with the new RESPA change, it is what it is. HUD is trying to protect borrowers from those in the real estate industry that are not looking after their clients best interests. Like any change, it is difficult to swallow in the beginning, but as time passes, it will become common practice and everyone will forget “how it used to be.