Entries posted in February, 2010
New Rules for Mortgage Lenders and Settlement Service Providers Protect Homebuyers
Posted on Feb 19, 2010 by RobBy Deborah Higgins, INFOTRAK National Data Services
If you are planning to get a mortgage loan anytime soon, you should make sure that you understand new rules imposed this year on mortgage lenders and other settlement service providers that are designed to protect you.
Effective January 1, 2010, changes were made to the Real Estate Settlement Procedures Act (RESPA) to further assist consumers to compare offers from different mortgage lenders. These changes require mortgage lenders to provide a new standardized three-page Good Faith Estimate (GFE) providing an estimate of settlement charges based on the loan’s term, initial interest rate and monthly amount owed.
Changes to the RESPA law regulates which charges can and cannot be modified at the time of the loan settlement. Origination charges cannot deviate from the initial estimate.
Some services, such as government recording, can increase up to 10% at closing. Third party services from providers selected by the borrower (such as homeowner’s insurance) are not regulated.
Any violations of the RESPA law should be reported to the HUD Office of RESPA.
Here’s some background on settlement charges.
RESPA was first passed in 1974. Its purpose is to help consumers to better understand their choices for loan settlement services and fees and to eliminate kickbacks and referral fees that would unnecessarily increase these costs. In order to achieve these purposes, RESPA requires that a mortgage lender give borrowers certain information at specified times during the borrowing process. This information includes:
1) A Good Faith Estimate of settlement costs. This document lists the fees that the borrower will likely pay at the closing. Also, if a lender requires that the borrower use a particular settlement provider, this requirement must be disclosed in the GFE.
2) A Mortgage Servicing Disclosure Statement. This statement discloses whether or not the mortgage lender intends to service the loan or transfer it to another lender. 3) For purchase transactions only, the lender must also include a Special Information Booklet that contains information regarding various real estate settlement services and fees.
These documents must be mailed to the borrower within three business days of receiving the borrower’s loan application. If the lender declines to provide a loan, however, they are not required to provide these documents.
Before closing, the mortgage lender must also provide the following documents to the borrower:
1) An Affiliated Business Arrangement Disclosure – this document is required to be provided by any settlement service provider that refers the borrower to a provider with whom the referring party has an ownership or other beneficial interest.
2) A HUD-1 Settlement Statement – the standardized form that details all of the fees that the borrowers and sellers will be required to pay during settlement of the loan.
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