Here's a blog post about the new Good Faith Estimate. Short, succint and to the point about the new changes that went into effect on Friday, January 1st.
On January 1, 2010, the new Real Estate Settlement Practices Act (RESPA) rules went into effect. The new RESPA rules significantly change the way lenders must disclose settlement services, in particular closing attorneys’ fees, and title insurance. Generally, under the new rules, loan costs are divided into one of three “buckets”:
(1) those that cannot change from initial Good Faith Estimate (GFE) disclosure
(2) those subject to a 10% tolerance–that is, those which cannot increase by more than 10% from the GFE to the closing, and
(3) those that can change, i.e., increase without limitation.
For closing attorney fees and title insurance (which HUD now lumps together as “title services), whether the cost belongs in bucket #2 or #3 will depend on whether the lender recommended the service provider on a written list of preferred providers. If the borrower selects a provider from the list, such as a closing attorney, their charges cannot increase by more than 10% from the GFE to the closing. Thus, lenders have an incentive to recommend trusted providers whose charges are standard and predictable. If the borrower wants a particular attorney (or rarer, another title insurance provider) not on the list, those charges are not subject to the 10% tolerance and can go up (or down) by any amount.
Here is how the new GFE deals with this:
Note that lines 3 and 4 represent a huge change from prior practice for closing attorneys, particularly in my home state of Massachusetts. Now closing attorney fees must be disclosed as a single, lump sum charge, plus the cost of the required lender’s title insurance policy. HUD wanted to eliminate confusing charges for courier fees, discharge tracking fees, FedEx, etc.
From the GFE, these fees and costs are ultimately carried over on the new HUD-1 Settlement Statement, with reference to the new GFE lines:
At the closing, the borrower can now simply compare the GFE with the new HUD to ensure that the quoted charges have carried over to the closing table. Remember though that selected costs may deviate up to 10% under the tolerance rules. Also, for the first time the new HUD mandates disclosure of the closing attorney’s share, or split, of the title insurance premium.
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