Inside Houston Real Estate

In the past three months, the Department of Housing and Urban Development (HUD) has made itself visible to the industry in efforts to aid in the implementation of the RESPA final rule. Consistent with its promise to get questions answered and provide guidance, HUD representatives have been out at trade association events and featured on training Webinars and Webcasts. In addition, HUD continues to update its guidance materials, which are presented as frequently asked questions on HUD’s RESPA homepage. While these efforts have paid off for some members of the lending and title communities, HUD said it is still seeing inconsistencies and problems with the way the new Good Faith Estimate (GFE) and HUD-1 Settlement Statement forms are being implemented.

To address these issues, HUD conducted a video Webcast on March 18, titled, “RESPA 2010 Implementation Consistency.” During the presentation, Vicki Bott, deputy assistant secretary of Single Family Housing at HUD, said, among other things, that for the past few months the industry has been unclear on whether it is permissible for loan originators to use worksheets prior to issuing a GFE. Bott said HUD is allowing this practice, but cautions against certain restrictions.

In an hour-and-a-half long program designed as a follow up to HUD’s December Webinar that educated the industry on how to implement the new GFE and HUD-1 forms, Bott said while the industry is two-and-a-half months into implementation and doing a “great job,” there are some inconsistencies that must be addressed and some sections of the forms with which the industry continues to struggle.

“We really want to highlight the known implementation inconsistencies and provide guidance to the industry to correct those and move toward a consistent implementation of the GFE and HUD-1,” she said.

The contents of the Webcast mirrored discussions that took place on Feb. 18 in a meeting at HUD between HUD’s RESPA team and the nation’s major lenders.

They include:

• Inconsistencies in the implementation of blocks 1, 4 and 5 on Page 2 of the GFE;
• Inconsistencies with different investor or lender requirements of third-party originators; and
• Inconsistencies in moving the fees from the GFE to the HUD-1 at closing.

HUD also addressed the use of worksheets, prequalifications and preapprovals, loan officer compensation, administration and processing fees, originator compensation in the HUD-1, itemization of fees and credits, transfer taxes and how HUD has defined its 120-day restrained enforcement period.

Worksheet parameters

According to Bott, HUD is allowing loan originators to use worksheets in certain situations in which a consumer wants information, but isn’t ready to shop for a loan. However, she warned that if a consumer asks for a GFE and discloses the information the originator needs to complete a GFE, then a GFE must be issued.

“The customer has the decision, of ‘do I want to provide the information and get a GFE or would I rather have the generic worksheet because I’m not quite sure if I should purchase a refinance in today’s rate environment,’” Bott said.

HUD has identified two different types of worksheets some loan originators are issuing to consumers. One is a quote rate worksheet, which consumers who might not be ready to shop for a loan would use to determine if the rate was right for them. Loan originators have used this worksheet in the past few months to include general fees associated with the rate to help the consumer understand some of its costs. Bott said this particular type of worksheet is acceptable.

However, she warned that if this type of worksheet is used, it should not look like a GFE, it will most likely contain less information than a GFE, and the loan originator should make it very clear to the consumer that it’s not a GFE.

“We have seen worksheets that are called ‘Good Faith Estimates of Closing Costs.’ This could confuse the customer and definitely leave the customer to believe it’s a GFE and potentially have all the accountability around the fees that the GFE would provide. A worksheet should never be used in lieu of a GFE,” she said.

Also, if a consumer has provided elements to the loan originator that are required by the lender’s policy to generate a GFE, then the GFE, not a worksheet, must be issued.

“You can’t provide a worksheet, let the customer believe their fees are bound and then deliver the GFE at a different time during the loan process,” she said.

In addition to the worksheet not resembling the GFE, Bott advised against using the consumers “intent to move forward” as a basis for whether a worksheet or GFE is given.

“A consumer should not have to show intent to move forward to receive a GFE,” she said. “At the point the loan originator is collecting information, the determination of whether to give the generic worksheet or the GFE should not be based on the consumer’s intent to move forward with that particular originator. What it should be based on is, ‘has the originator received the information that they’ve defined to be a RESPA application that requires them then to provide the GFE to the consumer?’” she noted.

The second type of worksheet HUD is seeing being used in the industry is a comprehensive worksheet given to the consumer in conjunction with the GFE that further explains fees associated with the consumer’s transaction, such as cash-to-close and seller credits. Bott said this is acceptable by HUD as well, but warns that what the loan originator discloses in the worksheet should match the terms disclosed in the GFE.

“In other words, if you’ve quoted title in your GFE as $1,000, you shouldn’t bring it over to your worksheet that you’re using in conjunction to show cash-to-close as $500. You’re padding the GFE and you’re really telling the customer, ‘I don’t think it’s going to cost that much.’ You’ve got to keep those aligned to not confuse the customer,” Bott said.

According to Bott, a worksheet is not acceptable to use during a prequalification or preapproval process for a consumer wishing to refinance.

“Why? Because by virtue of the fact that it’s a refinance, if you have all the other elements [except the property address], the property address still exists,” Bott said. “You know [the property] is there. The customer has provided the needed information. You need to provide the GFE. As long as they’ve met all other elements that that lender requires and property address is the only one that isn’t there, you would not be able to provide a worksheet on a refinance.”

Specifics on restrained enforcement

On Nov. 13, 2009, HUD announced that for the first four months of 2010, the staff of the Mortgagee Review Board (MRB) will exercise restraint in enforcing new regulatory requirements under RESPA. The MRB instructed its staff to exercise restraint in considering actions against FHA-approved lenders who have demonstrated that they are making a good faith effort to comply with the RESPA final rule.

HUD has reiterated in speaking engagements and to the press on what this means, but no formal guidance has been issued on this.

“We wanted lenders to implement and implement with ease, without worrying about potential enforcement that could be worrisome to them as they’re trying to get RESPA right,” she said.

Bott reminded the industry that HUD’s restrained enforcement regarding the new RESPA rule covers only a lender or broker and only if they’ve implemented the new RESPA forms in good faith.

“The new forms must be used. They must be used as long as it’s a Jan. 1, 2010, forward RESPA transaction. Lenders should also be abiding by the intent of RESPA. Fee categories should be used. Tolerances should be managed too. The restrained enforcement was for those inconsistencies where we knew lenders may not know where a particular fee went and some errors may have been made,” she noted.

Bott added that during the restrained enforcement period, HUD still expects that the consumer will reap the benefits of the new GFE and HUD-1 forms. She also indicated that HUD provided for this reprieve not only for loan originators and lenders, but also for HUD, in order to give its RESPA team time to understand the inconsistencies in the industry and help it through the challenges.

According to Bott, in HUD’s next round of FAQs, which she says will be released “very shortly,” HUD will address worksheets as well as provide more guidance on its 120-day restrained enforcement period.

In part two of this series, RESPA News will cover HUD’s most recent guidance on clearing up inconsistencies in preapprovals, filling out block 1 on Page 2 of the GFE (loan originator compensation and disclosing the yield spread premium), administration and processing fees, and float to lock. Stay tuned!