Has anyone read yet the new HUD rules. It appears that they were written for Mtg. Brokers but lenders seem to be included as the GFE and HUD, etc. are being revised. Does everyone envision these rules to apply to all lenders as well as mortgage brokers including the Guaranteed Packaging of Services?

I have only gotten through the first 20 or so pages of 80 total. However, I can guarantee you 100% that these rules are intended to apply to all lenders, not just brokers.

Well, I am on page 31 of 80! I too believe that these rule changes will be all encompasing. See: III. This Proposed Rule (A)(2):.....The GFE would inform borrowers that they have the options to pay settlement costs: (1) Through cash payments at settlement, (2) by borrowing additional funds to pay settlement costs, (3) by paying settlement costs through a higher interest rate and higher monthly payment, or (4) by lowering the interest rate and monthly paytment by paying discount points. These options are available in loans from oringators other than brokers.
To me this applies to all lenders, not just brokers.

I think that many lenders taking a first look at the proposal think it applies only to Brokers. I heard that exact comment in a meeting. I think, however, it will effect all of us, not just brokers.

And Yes, here I am again as Anonymous. Have had problems with this all day and don't know why. BWest

After discovering that the actual proposal STARTED on page 30 and went through page 47 or 48, it was a lot more do-able. Yes, the new rules apply to mortgage lenders. I actually see some opportunity there, particularly for banks and lenders with affiliate relationships who can work together to "package" services that will beneift both the client and the bottom line. I have asked my mortgage folks to read it and give me some feedback on how this will impact them so we can write a comment letter. I just hope HUD does more than propose this time ... I'd like to see some of this actually happen. I think it means more up-front work for us initially, but I vote for anything that will make the GFE process better and the HUD-1 easier to understand!
Leslie

Is there ANY chance that the new rules can address the ridiculous situation of providing the taxes and insurance on the GFE for a junior lien loan?

Instead of having to ASK the applicant what they pay each year for taxes and insurance just so we can put that amount on the GFE, why can't we simply say: "You must continue to pay the property taxes and hazard insurance premium on your home."

I think THAT disclosure would make a whole lot more sense to people instead of "Property Taxes - $3,000 (POC)" Most people don't understand until we VERBALLY tell them "Oh, you just have to continue paying your property taxes like you've always done" and our customer responds with something like "Well DUH!" (HUD spelled backwards...)

In reply to:

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After discovering that the actual proposal STARTED on page 30 and went through page 47 or 48, it was a lot more do-able.

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Yes, but there is a lot of background information in the first 30 pages that helps explain some of the "why" behind this proposal - which you are going to be called upon to do within your organization. Don't skip it - you'll be glad you read it when you later have to explain it to your mortgage lending division head.

Jim,
I didn't skip it ... I read every darn word on all 80 pages! However, I just thought that if anyone was pressed for time (who isn't?) it would be helpful to know where the real "meat" was. You can always go read the rest on your day off or on your vacation while relaxing at the beach! (just kidding!)
Bonnie, your suggestion makes a lot of sense. I see a comment letter in your future!
Leslie

If you want HUD to make that change as part of this rulemaking, then send a comment letter to that effect. I wouldn't hold out too much hope, though. HUD has repeatedly indicated they believe that data should be on the GFE and HUD-1.

I noticed that HUD has time to propose new disclosures on the GFE, but they don't seem to have time to revise the Servicing Disclosure Statement to comply with changes made to RESPA in 1996 as part of EGRPRA (Economic Growth, Recovery, and Paperwork Reduction Act). We will including that in our comment letter, too.

yes, I think we all need to comment on the fact that having to actually list an amount for a junior lien is too burdensome. There should be no reason that we can't just list or preprint somewhere on the GFE that "If your loan is a subordinate lien, you are required to keep adequate hazard insurance in place for this loan". We have so many technical errors where our lenders do not list it on the GFE or they forget to put POC next to it. It would seem a sentence could take care of this.
Also I am reading through this and understand that the new GFE and HUD will be revised and that lenders can now bundle services if they want and not provide a GFE, but the mtg. compensation part is still confusing. It seems to say that any payment from a lender-- other than payment for par value--be reported on the GFE the mtg. broker gives as a lender payment? Does that mean anything over par must go to the borrower and not the broker and does the bank pay the borrower or the broker. This is a confusing part. But any compensation other than this would show up as an origination fee for the Mtg. Broker.????? Does everyone else read this the same way???

To pbrinker. What changes are you referring to regarding the Mortgage Servicing Disclosure Statement as it relates to the EGRPRA???????

BWest:
When I first login, I get a message saying that what I put was incorrect and that the login screen will return. Once it returns, I put my username and password in again, then it works. Try that.

The changes to the RESPA statute that were part of EGRPRA did away with the requirement that you disclose a three year history of the amount of loan servicing you actually transferred and allowed you to replace that with a simple statement that says you have transferred the servicing of RESPA loans in the past. This statutory change has never been implemented in HUD Regulation X, which still requires the 3 year history.

To rely to the request for pbrinker: If memory serves me correctly, the EGRPRA (law) basically said that the Servicing Disclosure could be one sentence. Something like "we plan to keep your loan" or "we plan to sale your loan." This could have been added to the GFE and did not need to be a separate document. As you know, the regulation was never changed.

I also remember that RESPA was supposed to overhauled completely by this law. I know a Federal Reserve examiners from Kansas City that was assigned to work with HUD in D.C. after this EGRPRA. She told me on several occasions that HUD wouldn't give her the time of day.

You are correct that HUD did not finalize its 1997 Section 6 transfer of servicing proposed rule, but it was addressed in this proposed rule. "Additioanlly, the Department plans to finalize the 1997 Section 6 transfer of servicng proposed rule; however in the meantime the Section 6 language in the statute may be provided in conjuction with the GFE." [67 FR 49137]

Now that HUD has given its "permission" will you begin using the Section 6 language prior to the 1997 rule becoming final?

Is this saying that you can't charge a yield spread premium or that if the yield spread premium is too much, you have to give the overage to the borrower. How do you determine the par value of a loan????

Huh???? Did this response belong in another thread?

Elaine, do you have a date for that Federal Register release? It makes for an easier search.

It is in the July 29th proposed rule.

Try this:

http://www.hudclips.org/sub_nonhud/cgi/pdf/18960.pdf

This is a rough draft of the comments for my newsletter (to be published next month after I think about this more):

HUD Trek X, the Undiscovered Loan Fee, or "Hi, I'm From HUD, and I'm Here to Help You (Again)"

Some of you will remember the last time that HUD proposed a major change to Regulation X to require the mortgage banking industry to operate as HUD thought it should. Congress shot down that proposal almost five years ago. Now, HUD is back with its new and improved proposal, having unwrapped the shroud of secrecy from its latest invention, " Simplifying and Improving the Process of Obtaining Mortgages To Reduce Settlement Costs to Consumers ." Already, I see your eyes rolling. I have to give HUD credit for trying. The 1997 proposal to disclose mortgage broker fees was reminiscent of a blind man trying to describe an elephant by examining its tail. This time, HUD also examined the hind quarters.

What is so wrong with this proposal? Let us count the ways:

1. HUD proposes to allow mortgage lenders and mortgage brokers to charge a fee for preparing the Good Faith Estimate of Settlement Costs (GFE). However, most mortgage lenders try to simplify the closing disclosures required by the Truth in Lending Act by eliminating the Itemization of Amount Financed. This is permitted under Footnote 40 of Regulation Z, 12 CFR 226.18(c) (the GFE may be substituted for the Itemization of Amount Financed). Section 11 of RESPA prohibits a lender from charging a fee for providing any disclosure required by the Truth in Lending Act. Hence, lenders who are trying to streamline closing disclosures cannot charge a fee to defray the cost of providing the GFE. Any mortgage broker who charges a fee for preparing the GFE is likely to disqualify the applicant from receiving a loan from any major lender.

2. HUD believes that mortgage broker fees do not need to change much from the time that the GFE is provided. I cannot tell you the number of times that a subprime lender crams down the mortgage broker's fee so that it can take a bigger share of the loan fees and still stay under the HOEPA thresholds found in Section 32 of Regulation Z . The mix of mortgage broker and mortgage lender fees will change just prior to the closing.

3. HUD thinks that borrowers can really shop for third party fees, such as appraiser fees and title insurance premiums. HUD believes that it is not controlling prices by allowing consumers to shop for services. When lenders control who the consumer may choose for third party services, prices will be controlled for 30 days (absent an act of God or war). The reality of the marketplace is that borrowers can shop for fees only from service providers on the lender's or investor's approved list. Lenders and investors will require settlement service providers to sign contracts requiring 90 days lead time for changes in rates to avoid the 30 day prohibition against changes in fees after a GFE is provided to the consumer. Settlement service providers will add a cushion to their fees, knowing that any cost increases must be absorbed by the service provider.

4. HUD believes that closing costs should not increase significantly from fees quoted in the GFE. HUD believes that mortgage lenders and mortgage brokers are so attuned to the closing process that non-government third party fees should never exceed estimates by more than ten percent for required service providers. HUD states at 69 FR 49150 (middle column), "State and local recording charges, stamps, taxes are also generally well known to loan originators or, where necessary, can readily be calculated based on the loan amount or estimated precisely, on a pro rata basis, based on a projected settlement date." The borrower bring to the closing a power of attorney for a spouse, a divorce decree, death certificate, or a deed that needs to be recorded to clear title. Recording fees are never known until the closing. Title commitments often reveal past due taxes, new assessments, tax liens, construction liens, etc., that need to be paid to clear title at the closing. Suppose the borrower proposes to pay off an extra debt or two. Overnight delivery fees for loan pay offs will double. Homeowners insurance premiums jumped more than 10% after 9/11. If the borrower cancels a closing, document preparation costs double. You never know what a loan servicer will charge to provide a payoff statement prior to the closing (unexpected "fax fees" can run $50 or more). Closing costs will increase dramatically as title agents and closing attorneys are required to compare the original GFE and calculate fee caps for each fee listed on the settlement statement. I anticipate that this proposal may change after a few Senators and Congressmen have their closings canceled and the loan commitments revoked because it is illegal to charge out of pocket fees that significantly exceed estimates.

5. HUD thinks that the HUD-1 is a "familiar" document and is loathe to change it. It is only familiar to lenders and closing agents. The average homeowner has no clue what the document says, or where the "bottom line" is located. How many of us have canceled a closing because the borrower brought a check for the "closing fees" listed at the bottom of the second page of the settlement statement instead of the amount listed at the bottom of the first page of the settlement statement. How many borrowers ask why they are paying split real estate commissions listed on the HUD-1. Ask ten commercial loan attorneys to interpret the HUD-1, and you will get 20 different answers. At least with the current system, you can point to the numbered line on the GFE and HUD-1, and explain to the borrower that he or she really is expected to pay the lender's closing fee, and that it did not go up after the application was submitted. What consumer is going to be able to compare the new GFE to the HUD-1 and figure out whether the closing fees are too high?

6. Guaranteed Mortgage Package Agreements (GMPA) sound like a great idea if a mortgage broker wants to prevent a loan applicant from shopping for another loan. Just low ball the consumer, and tell them 30 days later that you cannot find a lender to sign the GMP. By that time, the consumer's purchase agreement is expiring, and the consumer will be forced to take a higher cost loan.

7. HUD would require a lender using a GMPA to provide a copy of the consumer credit report to the consumer upon request. Virtually all contracts with credit bureaus prohibit this. What happened to the clause in the Constitution prohibiting the government from passing any law that impairs a valid contract?

8. Under the GMPA rule, any entity providing a service in the package can pay or receive a kickback. Referring parties need only provide some "service" to the borrower or the lender for the transaction to earn a referral fee. In other words, when your car dealer or insurance agent shows up as a settlement service provider, you know it is because he sent you to the lender and is receiving a referral fee. The "application plus five services" de minimus services rule to receive a mortgage broker fee appears to be out the window.

9. There is no private right of action under RESPA for violation of the proposed rule. HUD cannot change 12 USC 2514, to allow a federal cause of action for additional violations of RESPA. HUD therefore invites the public to sue lenders and brokers under state laws for violations of the proposed rule. The invitation is not necessary. Class action attorneys cannot wait until this rule is final so they can challenge the legitimacy of the rule and the clarity of the new GFE (or the lack thereof). We may find that each judge will determine what needs to be itemized in the GFE to satisfy state laws instead of lumped disclosures provided under HUD regulations.

10. HUD stated in the preamble to the proposal that it would delete the Servicing Disclosure Statement from the regulation, and that "in the meantime the Section 6 language in the statute may be provided in conjunction with the GFE." If HUD is changing its regulation, it should make the change in the the actual rule. I have never heard of a final rule change implemented through a clause in the preamble to a proposed rule change.

11. When is HUD going to allow electronic disclosures and settlement statements? Why doesn't HUD recognize that the GMPA, a contract under state laws, can be provided electronically under federal E-sign laws and the Uniform Electronic Transaction Act?

12. HUD has no authority to control prices for settlement services. In our last newsletter, we quoted extensively from the court decision in Boulware v. Crossland Mortgage Corporation , in which the court indicated that Congress conisdered and explicitly rejected a system of price controls for settlement service fees. How can HUD dictate limits on increases in third party settlement services when Congress expressly rejected any limits on fees?

Some of the mortgage industry trade groups announced their support for HUD's proposal when the ink was barely dry. This proposal does solve several nagging issues, but it introduces a host of other issues at the same time. We suggest that you comment to HUD regarding this proposal (feel free to cut and paste our comments) so that HUD will 'get it right' the first time HUD prints the final rule.

I am amazed at how many times HUD's proposal misses the goals of RESPA. I am further AMAZED at how they have managed to trip over Reg Z, Reg B, Fair Housing (their own regulation) and HMDA to say nothing of contract law. The proposal interferes with existing and "well established" regulatory procedures ranging from calculating the amount financed to providing adverse action letters.

We plan to have a comment forum on BOL so stand by. Also, Issue #11 of Compliance Action will have a full analysis of this hideous proposal.

You are too late. ALTA did a comprehensive review before the proposal left Congress. The review is at http://www.alta.org/govt/issues/02/alta_67fr49134.pdf

How can I subscribe to the Compliance Action newsletter? It sounds like it has more good information.

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