GFE & RESPA Changes
On January 1 2010, the Department of Housing and Urban Development (HUD) implemented a sweeping overhaul and reform to the Real Estate Settlement Procedures Act (RESPA). RESPA is designed to help homebuyers be better shoppers during home mortgage processes. RESPA requires that consumers receive specific federal disclosures at various times throughout the mortgage process and bans kickbacks that increase the cost of the services provided.
Click Here for a COPY OF HUD’s POWERPOINT PRESENTATION
The changes include:
- A new standardized Good Faith Estimate (GFE) form that will explain the terms and estimated costs of your loan.
- Limits on how much your lender can increase some of your settlement costs, so you won’t be surprised by inflated costs at closing.
- An improved settlement statement (HUD-1) that will compare final costs to initial good-faith estimate.
A GFE is already required but the forms were not standardized and difficult for borrowers to understand. Different lenders may not list the same costs in the same way and the form may not fully disclose all of the important terms of your loan.
The new GFE will clearly detail the terms of your loan, including your interest rate and monthly payment, whether your rate and principal balance can increase, and if so, by how much, and whether your loan has a prepayment penalty or balloon payment. It also will consolidate your costs into categories and display a total of the estimated charges on the first page.
The plan is HUD’s response to a study that found many homeowners didn’t understand key terms of their own mortgage. The study concluded that clearer disclosures could help borrowers recognize loan costs, which would help them understand their loan and make better-informed decisions.
HUD’s consumer testing found that consumers were able to select the lowest cost loan more than 90 percent of the time when the proposed new form was used–a huge improvement over the typical situation. Consumers also said they liked the enhanced disclosures.
