You have probably heard the buzz by now: Big changes are happening in the mortgage lending industry, triggered by new requirements under the Real Estate Settlement Procedures Act (RESPA), which governs many of the processes and procedures that mortgage lenders and brokers must follow in order to comply with the law and to ensure consumers are informed about their financial choices. We’ve put together a list of questions and answers about the changes and how they will affect you and how you obtain your real estate financing.
What are the changes that take effect January 1, 2010?
As of January 1, two of the forms used in all financing transactions will be changing. The Good Faith Estimate (GFE) and the HUD-1 Settlement form will now be standardized across the industry. The way we use these forms is also changing. All the changes are intended to make it easier for you to compare loan offers from different lenders and to make the best choice for your unique financial situation.
In the past many lenders used the GFE as a sales and marketing tool. This is no longer the case. Now when you receive your GFE, it will reflect specific loan terms and a single scenario option. The GFE’s new role is as a binding document ensuring your loan costs, barring certain changes you might choose to make. We have other ways to show you loan options and their costs side-by-side so you can make an informed decision about your financing choices.
What about comparisons to other lenders?
The third page of the new GFE form is a chart you can fill out to compare the offers you get from several lenders.
Why do I keep getting forms in the mail about my loan? I thought we were moving forward already.
The package of documents you receive are collectively referred to as “disclosures,” which are provided to allow you to review the proposed loan and its terms. You are usually asked to review the disclosures and sometimes to sign and return them. If certain elements of your loan change — including loan amount, interest rate, fees, addition or removal of a coborrower, property appraisal — then the lender is required to re-disclose the loan. It is common for lenders to re-disclose many times during the loan process and the new regulations are likely to increase the number of disclosure packages you may receive. What is important is that you understand that each disclosure package is being sent to update the terms and fees of your loan. If you have any questions about anything in these disclosure packages, you should contact me directly.
Under the revised regulations, the only fee you can be required to pay prior to receiving your disclosures is a credit report fee.
Is the GFE my loan commitment?
No. It is a Good Faith Estimate of the settlement charges for a specific loan. You decide whether to proceed with your loan after you receive the GFE. Your application will not be processed until you have received the GFE and communicated to the lender that you wish to proceed with the loan. This gives you the opportunity to look at the costs of the loan and to comparison shop with other lenders.
Do I have to use the inspection services recommended by my lender?
No, but the lender is required to provide the information about and cost for service of at least one vendor for third-party services you require where you have the ability to choose your service provider. These mostly include inspection services such as termite or roof inspection, and title services. For certain services you may choose to opt out and find your own service provider. If you do choose to opt out and select your own third-party service provider, then the lender is not bound by the requirement to provide an estimate of service costs that is no more than 10% lower than actual costs. Instead, a new GFE is issued.
Can I be charged separately for services like my roof inspection or termite inspection?
No, your lender can not charge you separately for those services. Those services must be estimated at the time of issuance of the GFE. This protects the borrower by disclosing all fees to the best of our knowledge up front and helping you compare and shop for loans.
The seller is paying part of my closing costs. Why is the full cost listed on the GFE?
All charges the borrower may incur must be listed on the GFE, regardless of whether some of those costs are paid by another party. The GFE is not intended to compute cash-to-close; rather, it is designed to display all of the costs associated with obtaining your mortgage.
How long does the GFE remain a binding document for my costs?
If you do not let the lender know that you wish to continue with the loan within 10 business days after the GFE is issued, the lender is no longer bound by the GFE. We will allow you 30 days to notify us of your intent, allowing you more time to review the options we present and to compare our programs with those of other lenders. It is important to us that you feel you are well-informed and making the best choice for you.
Remember that the new rules and regulations were instituted for the sole purpose of protecting you, the consumer, and to make it easier for you to shop for the financing that best fits your needs. If you have any questions about the changes mandated by RESPA and how they may affect your loan, please contact me. I’m happy to answer your questions and to show you the financing options available to you!Questions? Contact David Krushinsky Today!