RESPA's Changed Circumstances: A Texas Title Company That Can Help Get You Through It

Effective January 1, 2010 RESPA states that once the Good Faith Estimate has been disclosed to your client, it’s pretty much written in stone. But what if something does need to be changed? There are certain circumstances that you may change the numbers on your GFE.

If the following occurs, you may change your GFE:

1. Acts of God, war, disaster, or other emergency.
2. Info particular to the borrower or transaction that was relied on in providing the GFE and that changes or is found to be inaccurate after the GFE has been provided, which information may include information about the credit quality of the borrower, the amount of loan, the estimated value of the property, or any other information that was used in providing the GFE.
3. New information particular to the borrower or transaction that was not relied on in providing the GFE.
4. Other circumstances that are particular to the borrower or transaction, including boundary disputes, the need for flood insurance, or environmental problems.

In addition to these rules, RESPA goes further to say:

None of the information collected by the loan originator prior to issuing the GFE may later become the basis for a “changed circumstance” upon which a loan originator may offer a revised GFE unless the loan originator can demonstrate that there was a change in the particular information or that it was inaccurate, or that the loan originator did not rely on that particular information in issuing the GFE.

In addition, the loan originator is presumed to have relied on the borrower’s name, the borrower’s monthly income, the property address, an estimate of the value of the property, the mortgage loan amount sought, and any information contained in any credit report obtained by the loan originator before providing the GFE. The loan originator cannot base a revision of the GFE on this information unless it changed or is later found to be inaccurate.

GOOD RULE OF THUMB: GET IT RIGHT THE FIRST TIME!!

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How to Avoid Loan Closing Delays Because Of Inaccurate GFE Charges Under the New RESPA

If you are worried that getting your borrower’s Good Faith Estimate may be a near impossibility when first starting the loan process and when you don’t know all the third-party service provider’s fees, HUD allows loan originators another method that may relieve some of the guessing. Loan originators may use average charges for those third party service charges that are not based on your borrower’s property value or loan amount. HUD cites the following list of nonexclusive service charges as permissible: appraisals, credit reports, flood certificates, tax service, and recording documents. However, HUD specifically states the average charge method cannot be used for transfer taxes, interest charges, escrow reserves and insurances (including your Texas title company’s title insurance).

However, if you are going to use the average charge method, HUD requires the loan originator to document how you arrived at such average charge. A loan originator must keep documentation showing how it calculated an average charge for at least three years after any settlement for which that average charge was used.

In order to calculate an average charge, the loan originator must "define a specific class of transactions for a specific time period (not less than 30 calendar days, nor more than 6 months), for a specific geographical area, and for a specific loan type. The average charge is based on a calculation of the average amount paid for the settlement service for the particular class of transaction. HUD does not prescribe a particular method for calculating the average charge, but it must be determined in such a way that the total amounts paid by borrowers and sellers through use of an average charge will not exceed the total amounts paid to the applicable settlement service providers in the particular class of transactions." See New RESPA Rule FAQs at http://bit.ly/msSSY, p. 28-29.

What if the loan originator overcharges the borrower or seller too much when using the average charge method? Does the loan originator have to refund the borrower or seller the excess amount? The answer is no, but…the loan originator cannot retain the excess. Instead, the excess should be applied to the next average charge period, so that the next class of borrowers or sellers receive a discount on their charges that use the average charge method.

So the loan originator can use the average charge method to alleviate the guesswork in knowing the third-party service provider’s charges, so the loan originator may avoid hang-ups that would delay a closing. However, if the loan originator uses the average charge method, it best be ready to substantiate the average costs determined to their regulators.

How To Handle Proper Disclosure of the Texas Title Insurance Premium and Other Title Fees on the New Good Faith Estimate

The lender‘s Texas title insurance premium is part of the new GFE’s Block 4—Title services and lender‘s title insurance. The difference between the new and old GFE is that the new GFE requires the mortgage originator to lump in the Texas title insurance premium along with any fees for title searches, examinations, endorsements and all charges associated with the title services and settlement (closing) agent services as one single cost, whereas the old GFE required an itemization of all of these fees.

Within this lump sum cost, a mortgage originator should include the Texas title company’s delivery fees, notary fees and settlement fees since these fees are included in the definition of title services. The term “title services” is defined to include any service involved in the preparation and issuance of the title insurance policies. See 24 C.F.R. § 3500.2.

It is common practice for the title company to charge both the borrower and seller a fee for conducting the settlement. Only the charge to the borrower must be included in the total for Block 4 of the GFE. Charges that the seller pays as a matter of common practice and experience are not disclosed on the GFE.

However, the owner’s Texas title insurance and recording fees to the county will still be listed separately from the “Title services and lender‘s title insurance” lump sum cost.

Is this simpler for the borrower to understand than the way in which the old GFE addressed title fees? There is an argument that it makes Texas title insurance fees more opaque to the borrower. Come January 2010, these arguments will not necessarily matter anymore because the new GFE will be the mandated method of disclosure.

Hey Mortgage Lenders and Mortgage Brokers! Do You Know When You Are No Longer Bound To Your Good Faith Estimate?

Under the new RESPA regulations, the loan originator is bound, within the tolerances, to the settlement charges and terms listed on the GFE provided to the borrower unless a new GFE is provided prior to settlement. If a loan originator provides a revised GFE consistent with the new regulations, the loan originator must document the reason that a new GFE was provided. Loan originators must retain documentation of any reasons for providing a new GFE for no less than three years after settlement. See 24 C.F.R. § 3500.7(f) at http://bit.ly/QRYSY. But when can you provide a new GFE?

According to the new RESPA FAQs updated October 7, 2009 (pgs. 13–14) at http://bit.ly/msSSY, HUD lays out the following scenarios indicating when a loan originator is no longer bound by the GFE provided to the borrower:

i) A mortgage broker issues a GFE that a lender does not accept and the lender does not receive the application within three days of the date the broker received the application.
A: This does not constitute a changed circumstance.

ii) If a GFE is issued without a property address, the later identification of a property address.
A: If a loan originator issues a GFE without identifying a property address, the subsequent identification of the property address is not considered a changed circumstance.

iii) The borrower does not proceed to closing quickly upon final approval or does not act diligently in providing information to the lender.
A: The particular facts of each situation must be examined to determine if the facts constitute a changed circumstance.

iv) GSE, FHA or Mortgage Insurance program changes.
A: This could constitute a changed circumstance if the loan originator did not have notice of the GSE, FHA or other mortgage insurance program change prior to the issuance of the GFE.

v) The property address provided by the applicant, turns out to not be the correct, legal address.
A: This could constitute a changed circumstance.

vi) After the GFE is issued, parties are added to or removed from title or the property is moved into or out of trust.
A: These situations could be considered changed circumstances.

vii) During or as part of the transaction, it is determined that the property use may change, such as from owner-occupied to rental property.
A: This could constitute a changed circumstance. It should be noted that business purpose loans are not covered by RESPA. See 24 C.F.R. §3500.5.

viii) After the GFE is issued, it is determined that a party will be using a POA to sign, which may require additional work and additional fees.
A: This could be considered a changed circumstance.

ix) Credit policy is required to change after the GFE is issued due to regulatory changes such as fees charged by government agencies for recording fees or taxes change after the GFE is issued.
A: This could constitute a changed circumstance if the loan originator did not have notice of the regulatory change prior to the issuance of the GFE.

x) The loan does not close by the close date in the original Purchase Agreement or Construction Agreement provided to the lender.
A: The particular facts of each situation must be examined to determine if the facts constitute a changed circumstance.

xi) The vendor originally selected to perform a settlement service goes out of business or stops offering the service.
A: The particular facts of each situation must be examined to determine if the facts constitute a changed circumstance.

xii) AVMs are commonly used for the property type and loan amount requested, but the AVM request comes back with a ―no hit, necessitating the use of a more expensive valuation method.
A: This could constitute a changed circumstance.

xiii) After the GFE is issued, it is determined that an additional service such as an additional pest, structural or other inspection, upgraded appraisal, certification, survey or other requirement is required by the loan originator in connection with the transaction.
A: This could constitute a changed circumstance.

xiv) The borrower‘s credit score changes.
A: This could constitute a changed circumstance.

xv) A mortgage broker issues a GFE based on one lender‘s loan products and origination fees, but places the loan with a different lender.
A: No, this would not constitute a changed circumstance.

RESPA Changes: Are You Ready For Some RESPA?

At this point, I am sure you have at least heard new rules regarding Good Faith Estimates and HUD Settlement Statements are on the way. If you are like most people, you are probably waiting for your company superiors to funnel the information to you or your team, which you will probably receive right before the Christmas holiday—which means you will retain maybe 1% of what your training covers.

In a perfect world, everyone at your company would jump on board, read the rules and inculcate them into their brain. I mean, what’s the worst that could happen if you don’t learn the new rules??? Well, how about a “tolerance violation”? Let’s face it: Anything with the word “violation” can’t be good for you. However, as usual in life there are consequences for not following the rules; and just as usual, many companies do not take the time to train up their employees to avoid such costly mistakes. Honestly, it is worth the time to read and understand what challenges you, your team or your company might be facing if you do not follow the new RESPA guidelines.

For example, did you know a loan originator will no longer be able to charge any fees prior to issuing a Good Faith Estimate except a credit report? Only after the applicant receives the Good Faith Estimate and acknowledges an intention of proceeding with the loan indicated in that particular Good Faith Estimate can you, as lender or mortgage broker, collect fees beyond the cost of a credit report for origination-related services.

How about the fact that the lender is responsible for ascertaining if the Good Faith Estimate has been provided by its mortgage broker? If the Good Faith Estimate is not provided in 3 business days, then the lender is in violation of Section 5 of RESPA, not just the mortgage broker.

Being that I am a settlement agent and familiar with the following scenario, this is one of my favorites. If a loan originator pressures a settlement agent into lowering their fees to reduce the charges, or otherwise “cover the difference,” as a condition of receiving future referrals of business, it may be considered a potential violation of RESPA Section 8(a). A complaint can be filed at RESPA and ILS if this is violated.

I realize not everyone wants to read a litany of rules, but you should check out the Q & A page, which gives a good overview of the new rules effective January 1, 2010 at http://bit.ly/19W3d3.

May 2010 be your best yet!

A Good Texas Title Insurance Premium Calculator

With the new Truth-In-Lending regulations in effect, the more accurate you can make your Good Faith Estimate, the more time you save getting your client to closing and the more streamlined the process. The Texas title insurance premium can be a difficult calculation to get right when setting up your GFE. Lenders want various endorsements in addition to the basic title premium. Additionally, if you are facilitating a refinance transaction for a borrower, they may be eligible for the R-8 refinance credit, which could greatly decrease their cost of title insurance. Use MyTexasTitle.com's Texas title premium calculator for an accurate cost of Texas title insurance. Get your Good Faith Estimates right the first time. Go to: http://www.mytexastitle.com/index.php?p=calc.