New HUD Forms: Good Faith Estimate and Mortgage Package Offer - Part 1
More tips on RESPA law, guidelines and violations for real estate agents and loan originators from former HUD investigator and RESPA expert, Dr. Gary Lacefield.
This week’s video begins a discussion of the new HUD/RESPA forms for Good Faith Estimate and Mortgage Package Offer. Dr. Lacefield reviews the rules and tolerances for these new items. Part 1 of 2.
View the RESPANewsUpdate.com video here. This educational video and the RESPANewsUpdate.com website were created by WebCasting.com, based in Dallas, Texas. This video is provided for free, compliments of Warrantech Advantage Home Warranty Program.
For more about Dr. Lacefield, visit RiskMitigation.net or GoGetRealEstate.com/Get/GLacefield.
New MPO and GFE Forms to Learn and What They Mean to YOU - Part 1
At HUD’s RESPA reform roundtables in 2005 the department released draft versions of two new forms it had developed in 2004. They included a redesigned Good Faith Estimate (GFE) form and a newly-developed Mortgage Package Offer (MPO) form.
Gary Cunningham, deputy assistant secretary for Regulatory Affairs and Manufactured Housing, gave an overview of the forms and described their components. The Good Faith Estimate in the 2004 revised form, included on the first page of the GFE borrower information, is a summary of loan terms and a summary of total estimated charges. The second page includes origination charges (including yield spread premium and discount points disclosure), short descriptions of the settlement charges and a total for all the estimated charges. The third page includes a description of tolerances, a “teeter-totter” chart describing the effect of higher or lower interest rates on the settlement charges, and an explanation of how long the costs provided in the GFE would remain unchanged. Finally, the fourth page of the form consists of a shopping page that allows consumers to easily compare different loan offers.
Regarding tolerances, Cunningham noted, “In 2002, HUD proposed to establish different tolerances for various categories of settlement services. But in 2004, HUD would have simplified the tolerances. The originator’s charge would still have been fixed, but instead of other third party charges each having a 10 percent tolerance, the sum of those charges would have had a 10 percent tolerance.” Also, any adjustments to the settlement costs, such as YSPs, lender’s charges or discount points, could not change the offer after the buyer locked in the interest rate, he said.
Cunningham then elaborated on the different ways YSP disclosures were treated in the 2002 proposed rule and in the changes considered in 2004. “In 2002,” he noted, “YSP and discount points would have been disclosed as ‘interest rate dependent payments.’ In 2004, they were the ‘credit or charge for the specific interest rate chosen.’ Also, in the GFE contemplated in 2004, section 2 for brokers shows a charge or credit by a check in the second or third box. The amount of charge or credit was contemplated to be determined based on the par rate for the loan,” Cunningham explained, adding, “The amount in section 1 for brokers would have included all fees received for loan origination, including any payments from the lender to the broker.”
Jim Nabors, president of the National Association of Mortgage Brokers (NAMB), then asked if the service release premium from the lender would be disclosed here. Cunningham responded, “Yes,” but another HUD official disagreed, indicating that there was still some confusion on that point. Cunningham continued to explain the form, saying “A lender can choose a charge or credit for the interest rate in section 2, or include the charge or credit in its service charge in section 1. If the lender included all in the service charge, then the lender would check the first box in section 2 and enter zero on the right.” Also, “If the lender entered zero in section 2, then the amount in section 1 equaled ‘Your Adjusted Origination Charges,’” he said.
Ann vom Eigen, legislative and regulatory counsel for the American Land Title Association (ALTA), wanted to know if there would be cost itemization of settlement service charges on the GFE. Cunningham said that there would not be. Consumer groups took a strong disliking to the new GFE format, saying, “We are concerned that this form does not meet the need of consumer protection. This form is almost out-of-date with the marketplace.” Cunningham then suggested that further discussion of the GFE be held until later, and launched into an outline of the new Mortgage Package Offer (MPO) form.