The U.S. Department of Housing and Urban Development (“HUD”) has just made a broad change to how loan terms and closing costs are provided to consumers.  By adopting certain long-awaited revisions to the Real Estate Settlement Practices Act (“RESPA”), a standard Good Faith Estimate must be presented to consumers, and a revised HUD Settlement Statement will allow for easy comparison at closing of the actual costs with those in the Good Faith Estimate.

Loan originators are required to provide consumers the Good Faith Estimate three days after the receipt of necessary information from the consumer.  The regulation will require that the consumer must be willing to “proceed” with the loan offer before the loan originator can require verification of information provided by the consumer, most notably tax information.  The new Good Faith Estimate not only allows the consumer to review the estimated charges, but also facilitates comparative cost shopping between different loan offers.

The Good Faith Estimate is intended to more clearly disclose the term of the loan, whether the interest rate is fixed or variable, pre-payment penalties, balloon payments, and total closing costs.  Yield Spread Premiums will also be disclosed more directly and prominently.

HUD tested for any potential bias the new Good Faith Estimate might generate against brokered loans, and the results indicated that consumers picked the lowest cost loan 90% of the time regardless of whether it was originated by a broker or the lender.  HUD estimates its new regulation, by improving upfront disclosure of charges, will save consumers nearly $700 at the closing table. 

Probably most importantly to lenders, the new regulation provides a 30 day window from the closing date for corrections of potential violations and repayment of any amounts overpaid.

While the new forms are not required until January 1, 2010, the effective date of the final rule is January 16, 2009.  HUD has provided a twelve-month compliance period for all the aspects of the final rule.  To view the new documents and the final rule, please take advantage of the links below.

If you have any questions on this information, please contact Mr. Gail C. Hersh, Jr., Esq.

Gail C. Hersh, Jr. is an Associate in the Cincinnati office of Weltman, Weinberg & Reis Co., L.P.A., practicing in the Real Estate department.  He can be reached at (513) 333-4020 or via email at ghersh@weltman.com.

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