NEW GFE/HUD effective Jan 1st

I just received a visit from a local title company who recently attended a training seminar on preparing the new HUD statements effective
Jan. 1st. 2010. I have heard about the new statements and the new GFEs from reading, but I have not heard anything from my lenders yet.

The title company tells me HUD has already made the ruling regarding YSP, and in fact it must be shown as a credit towards the borrowers closing costs. Can anyone else confirm this is a done deal? I had heard they were considering this, but I was not aware it was already effective.

If it is effective, why is the Fed Reserve and Congress still trying to eliminate YSP?

Any information would be helpful, thanks in advance.

Unfortunately the blame can not be laid on Congress this time. Here is the link from the Federal Reserve. Thay can enact rules without Congress or the Administration having any input.

http://www.federalreserve.gov/newsevents/press/bcreg/20090723a.htm

Thanks Paul... I am not blaming Congress. I am well aware of the FED's ability via TILA as well as I posted that link weeks ago. My question has to do with the Department of Housing & Urban Development (HUD). I am being told they have already made a ruling stating YSP must be credited back to the borrower effective Jan. 1.

Can anyone confirm this?

If this is so, then I stated why would Congress and the Fed still be drawing up there own plans to curb or eliminate YSP?

The short answer to your question is yes the YSP for brokers is lumped into the Origination charge shown on page 2 of the new GFE.  There will only be one fee shown for origination.  It includes most items in the 800 section that goes to the lender along with YSP if you are a broker.  Right under this lump sum are three boxes and one of them shows a credit of XXX dollars against the lump sum because the lender is paying that to the broker.  The adjusted amount is pulled over to page one.  Everyone needs to start getting trained on this.  Lots of changes in how we will do business in the future.  There are lots of other issues that we all need to be aware of.

The new GFE is 3 pages long and it is dramatically different than what we are used to using.  Here is the 43 page FAQ's on how to fill it out http://www.hud.gov/offices/hsg/ramh/res/resparulefaqs.pdf

New GFE http://www.hud.gov/offices/hsg/ramh/res/gfestimate.pdf

The GFE and HUD have to match up with very little room for tolereance.  Page 3 of the HUD is comparison between the GFE and final HUD.  Take a look

New HUD 1 http://www.hud.gov/offices/hsg/ramh/res/hud1.pdf

New HUD 1A http://www.hud.gov/offices/hsg/ramh/res/hud1-a.pdf

Bryan,

Thanks a million!!!

Bryan, I have googled the ysp disclosure on new gfe and there are many different answers. Having been in the business for 14yrs. I think the current gfe and HUD are just fine the way they are. Why mess with something that has served us well. The gfe and HUD didn't cause the mortgage meltdown. But anyway, where I am confused is if the ysp is $10,000 and is lumped in with the closing costs and then credited in the box below it for the same exact amount, how do I get paid? I'm reading this as a total wash and I get nothing? And what if I'm picking up closing costs? Where is that shown? This new gfe needs a lot of improvement. Maybe you could share some insight. An example would be ysp $10,000 and closing costs $2000. Thanks 

Bill, unfortunately we have no choice in using this form.  There are many issues with it but it's something we are all going to need to figure out how to use. 

Bill Smith:

But anyway, where I am confused is if the ysp is $10,000 and is lumped in with the closing costs and then credited in the box below it for the same exact amount, how do I get paid? I'm reading this as a total wash and I get nothing? And what if I'm picking up closing costs? Where is that shown?

Let's assume that you are receiving $10,000 YSP and not paying any closing costs.  You put $10,000 in Block 1 and then $10,000 below and carry 0 forward to page 1 as the borrower isn't paying you directly but you still receive your YSP from the lender.  If you are paying $2,000 of the buyers costs then you would put $12,000 in that box which would result in a negative -$2,000 being carrid forward to page 1 which will offset closing costs in that amount.  The following is from the FAQ's link

Q:

How does a loan originator show a ―no cost‖ loan on the GFE?

Since I originally posted HUD has updated the FAQ's a couple of times,  So now there are 51 pages of FAQ's to explain this new 3 page GFE along with the new HUD 1.  Here is a link to HUD's power point presentation http://files.ots.treas.gov/48207731.pdf    I would suggest spending some serious time on this power point as well as the FAQ link and then frequently checking for updates.  Any chance that you get to sit in on presentations on this subject should be taken advantate of so that you can get your mind around this whole thing. 

Bryan, thanks for the quick reply. With the no cost loan scenario which of the 3 boxes would be checked and for what dollar amounts? Thanks

Bill Smith:

Bryan, thanks for the quick reply. With the no cost loan scenario which of the 3 boxes would be checked and for what dollar amounts? Thanks

Let's assume that you have $10,000 YSP, $1,000 Lender Fees (UW, etc),  then Box's 3-11 total $4,000 and you want to do a no cost loan.  On page 2 you would put $11,000 in Item 1 and $15,000 in Item 2 the middle block which starts out You receive a credit of $15,000.... so $15,000 carries to the column on the right.  $11,0000 - $15,000 = -$4,000 which goes in Block A Your Adjusted Origination Charges.  So the bottom of page 1 looks like this:

A Your Adjusted Origination Charges                  -$4,000

B Your Charges for All Other Settlement Services   $4,000

A + B Total Estimated Settlement Charges            $0

On a purchase transaction mine will never show $0 on the front page.  The seller customarily pays for Owners Title insurance in the states that I work in.  I have never seen a buyer pay for this and there is no place to reflect seller credits on this GFE (or down payment or total monthly payment) but in HUD"S FAQ's it says

Q:

 Do loan originators have to provide a price for Owner‘s title insurance on the GFE?

Hud says that the goal of the new GFE is to make it clearer to the consumer so that they can more easily shop for a loan.  Only a governmental agency could believe that including a charge that consumer will never pay for clarifies the situation.

Bryan, Thanks 

I primarily do refi's and your info is very helpful. 

Been using the new GFE for a couple weeks so I'm ready to go when it's required.  I've been hearing around the industry that this could get delayed do to the confusion, anyone else hearing anything?

Gregg Smith:

Been using the new GFE for a couple weeks so I'm ready to go when it's required.  I've been hearing around the industry that this could get delayed do to the confusion, anyone else hearing anything?

This is what I received last week.  It only references what HUD will be doing.  Will the enforcement divison of each individual state go along with this too?

Under the new rules, HUD said it will require lenders and brokers to provide customers with a standard good faith estimate (GFE) disclosing key loan terms and closing costs on and after January 1. Closing agents will also be required to provide borrowers a new HUD-1 Settlement statement comparing borrowers’ final and estimated costs. As long as lenders, brokers and settlement service providers are making good faith efforts to adhere to the new rules, HUD will exercise constraint in enforcing the rules during the initial four months of 2010

Here's a link to the FAQ's Rules starting 1/2010. It does state YSP has to be shown as a credit to the borrower, the days of floating borrowers are ending. So if you float a borrower and your YSP goes higher vs the GFE the borrower will get the difference not the broker see #17. Am I also reading #23 right you have to get information such as soc. sec. #'s before a GFE is provided? What about prelim. GFE's we send to borrowers as a first look.  Any thoughts on this?



http://www.hud.gov/offices/hsg/ramh/res/resparulefaqs.pdf

Gregg Smith:

What about prelim. GFE's we send to borrowers as a first look. 

I presume you are referring to sending information to prospects who do not have a specific property in mind or under contract. These prospects are interested in obtaining information on costs, payments, preapproval, etc. before they purchase a property and before applying for a loan on that property.

Here is the FAQ on that specific situation:

10) Q: How may applications under a preapproval program as defined by Section 203.2(b)(2) of Regulation C be treated?
       A: For the purposes of RESPA, "application" is defined at 24 CFR § 3500.2(b). The RESPA rule does not address preapprovals or the information required in relation to preapprovals. The Federal Reserve is responsible for promulgating, interpreting and enforcing Regulation C.

Simply put, there is no requirement to provide a prospect a GFE until they apply for a loan on a specific property.

Gregg Smith:

you have to get information such as soc. sec. #'s before a GFE is provided?

An originator is not required to get information such as soc. sec. #, property address, etc prior to issuing a GFE. Although, if an originator issues a GFE prior to receiving those items it is presumed that they have them. So if you issue a GFE before the customer has a contract or property in mind or has given a complete application the GFE can not change except as provided in the new rules:

23) Q: May a loan originator issue a GFE if the loan originator has not received one of the six pieces of information included in the definition of an application (borrower‘s name, borrower‘s monthly income, borrower‘s social security number, property address, estimate of the value of the property and mortgage loan amount sought)?
A: An application includes information the loan originator requires the borrower to submit in anticipation of a credit decision. If a loan originator issues a GFE, the loan originator is presumed to have received all six pieces of information.

24) Q: Are loan originators permitted to process a loan without all six pieces of information included in the definition of an application?
A: Yes. Loan originators may process a loan after they have issued a GFE and the borrower has received the GFE and has decided to proceed with the loan. It is presumed that, prior to issuing a GFE, a loan originator has received all six pieces of information.

8) Q: Are the following sufficient to establish "changed circumstances" consistent with 24 CFR § 3500.7(f)?
....
ii) If a GFE is issued without a property address, the later identification of a property address.
     A: If a loan originator issues a GFE without identifying a property address, the subsequent identification of the property address is not considered a changed circumstance.

Interestingly enough an incorrect address could be considered a "changed circumstance."

v) The property address provided by the applicant, turns out to not be the correct, legal address.
     A: This could constitute a changed circumstance.

Thanks Harlan, so we can use the old style GFE as a prelim. prior to the application?

Any input on my question to # 17.

Gregg Smith:

so we can use the old style GFE as a prelim. prior to the application?

I think that anything that is provided prior to a GFE should be clearly labeled sample and not include any borrower specific information so that there is no chance of confusion.  Whether you use the "old" GFE or a spread sheet shouldn't matter (my opinion).

As far as #17 you are correct that there is no opportunity to earn more once you have set your fee, because the fee it is to include any YSP, unless you are a banker.  If you are a banker then you don't have to disclose YSP and can receive the upside.   

I agree with Brian. Giving a prospect information regarding costs prior to an application -- down payment, monthly payments, cash to close, closing costs, prepaids, etc. -- should not be a problem, but should not be labeled a Good Faith Estimate or GFE. Only one GFE should be given -- the one required by the new RESPA regulations. And in my opinion, that GFE should not be given until after the prospect applies for a loan on a specific property. According to the information in the FAQs from HUD there is no prohibition in giving the new GFE prior to the prospect finding a property, but when the new GFE form is provided to the prospect it is assumed that they have provided the six items that HUD says defines an application under RESPA. Therefore giving the new GFE turns a pre-application into an application as defined by RESPA. This affects the TIL Act regulations. TIL regulations say that the TIL requirements for the timing of disclosures use the RESPA definition of application. It could be intepreted that a TIL disclosure should be provided....etc., etc., etc......

On page 8, #19 and page 18, #3 of the link that was provided it looks like if you don't lock in the rate when filling out the GFE and leave the important dates as n/a you should then be able to change anything pertaining to rate, and origination charges later on. When you are near to closing you would then do a revised GFE with the final numbers.

19) Q:  If a GFE has been provided and the interest rate has not been locked, can the loan originator provide a revised GFE when the borrower later locks the interest rate?
       A:  If a borrower who has been provided a GFE later locks the interest rate and there are any changes to interest rate dependent charges or loan terms, a revised GFE must be issued.

The charge for origination services are not interest rate dependent. So this doesn't mean a broker can change the amount they are charging to originate unless there are "changed circumstances." Market movement is not a "changed circumstance." Only the credit or charge for the interest rate and interest rate dependent charges may be changed if the loan floats. The YSP is an interest rate dependent credit to the borrower. So the borrower would pay more or less depending on whether the YSP was higher or lower, but the originator would still receive the same amount that they were charging the borrower for in the original GFE to originate the loan -- again unless there were what are strictly defined as "changed circumstances." See GFE - Changed Circumstances starting on page 13.

As for the charge for origination services, the originator is bound by the amount disclosed in the GFE for at least 10 days or a longer time frame if the originator so chooses. So if the prospect decides to accept the terms of the GFE and proceed with the loan within 10 days, or such longer time that the originator put in the GFE, the originator is bound by the amount included in the GFE for origination charges until closing unless, as pointed out above, there are "changed circumstances."

but the originator would still receive the same amount that they were charging the borrower for in the original GFE to originate the loan -- again unless there were what are strictly defined as "changed circumstances." See GFE - Changed Circumstances starting on page 13.

Harlan - I have read the Changed Circumstances section a number of times and I can't see any Changed Circumstances that will allow for an Origination Charge that exceeds what was shown on the original GFE.  I do see that some other charges could change due to Changed Circumstances.  I would be interested to know if you see a situation where the Origination Fee could increase?