Welcome to Acronym Week! RESPA, HUD, and the GFE – Oh My!
There are some changes afoot in the way loan disclosure and closing cost statements are made.
The Department of Housing and Urban Development decided to try to make understanding your loan costs a little bit easier for the average consumer. Tried to make it easier to shop for a loan. Tried to make it easier to understand when the costs you were charged don’t match what was told to you up front.
Whether they succeeded or not, well, you be the judge. Either way, these new rules are in effect and you should understand what is going on.
This week, we’ll dive into these new documents and the new rules, so that you’ll understand what you see when you get a Good Faith Estimate from a lender (or GFE, in industry lingo), and so that your closing cost statement makes sense – that’s the “HUD-1″ you get from the escrow officer at the end that breaks down all the charges and credits to everyone. We’ll gather the loan officer’s viewpoint and the escrow officer’s opinion as well, so that we understand how these changes impact just about everyone in the transaction.
But first – some background.
RESPA – the Real Estate Settlement and Procedures Act – is a law regulated by HUD (the department of Housing and Urban Development). RESPA was created in 1974 to regulate, among other things, the disclosures you get when you get a residential mortgage loan, and has rules about economic relationships between entities involved in getting that loan – potentially relationships between a title insurance company and a lender, or appraisal bureau, or credit reporting service.
So HUD created an update to RESPA that took effect at the start of 2010. The objective was to encourage consumers to shop for the best loan, to disclose loan information in an easy-to-understand format, to make comparisons easier from up front cost estimates and actual costs, and to limit cost variances on certain items from the up front estimate to the final figure.
All lovely goals.
The big disclosure documents affected by the RESPA update are the Good Faith Estimate and the HUD-1 Settlement Statement. I’ll show you examples of both during the week, but generally a Good Faith Estimate, or GFE, is what your lender gives you when you apply for a loan that explains the interest rate and costs associated with that home loan. The HUD-1 Settlement Statement is an itemization of closing costs for both a buyer and seller that you see at the end of a transaction, produced by the Escrow Officer. These list the final costs for the home sale, and should more or less match the costs that were quoted to you at the beginning.
Still with me? Good. Tomorrow we’ll look at the new Good Faith Estimate…
