Before the new RESPA rules became effective, we wrote a 12-part series on them. As helpful as that may have been, we are now close to 3 months into actually closing transactions under these new rules. I have been keeping notes on the issues we've been seeing with the intentions of writing a post when I saw a tweet that asked that question. So, here we go...
Q: What kind of issues have you seen with the new HUD lately, if any? I'd love to know, thanks!
A: This is still very much a transition period for all of us. Although the new changes went into effect January 1st, some of the new rules are subject to interpretation or leave the lender some different options for handling a particular matter. Here is a quick list of issues we are currently working through. So what can an agent do? The biggest thing an agent can do to make this process go as smooth as possible is to strongly encourage that their title agents over-communicate with lenders. Understanding the lenders and talking through the disclosure issues will help mitigate any potential delays at closing. So, on to the specific issues...
Itemization of the 800 and 1100 series charges: Historically the HUD-1 Settlement Statement had an itemized breakdown of the various fees charged by lenders (in the 800 section) and title companies (in the 1100’s). A primary change of the new rule is to abandon this itemization in favor of “bundled” costs so that borrowers can compare whole apples to whole apples. Lenders, however, still want to see that breakdown. In some cases they need the breakdown to calculate APR or to show a state regulator or investor that may require itemization. As such, many title companies have been asked to either (A) itemize the fees to the left of the buyers’ column and “roll up” to line 1101, or (B) provide a separate addendum which breaks them out. Since the rule specifically forbids itemization on the HUD-1 (pages 45 and 47 on the New RESPA Rule FAQs), many title companies are creating a separate addendum to accompany the HUD-1 that gets sent to the lender for approval.
Confusion regarding the “Settlement Provider List” and the placement of fees on Page 3: When a loan officer permits a borrower to shop for third-party settlement services (such as a title company), the LO must provide the borrower with a written list of settlement services provider (s) on a separate sheet of paper. Whether the title company is on that list dictates where the title costs go on Page 3 of the HUD-1: In the “Charges That in Total Cannot Increase More Than 10%” box or in the “Charges That Can Change” box. So what’s the problem? As a title company, we don’t always know if we’re on the written list – the lender needs to tell us (another example of the importance of over-communication as noted above). The GFE does not tell us. As such, it is common for us to send a HUD for approval, and then be told we have our fees in the wrong box. This does not cause any major issues, but can add a little time to the approval process.
The “new look” of the HUD: Agents are used to the old HUD-1, plain and simple. In time, this HUD-1 will cease to be called the “New” HUD-1, but in the meantime there is a learning curve. The best thing an agent can do is to request a preliminary HUD as soon as possible in the process to understand where everything is and what it looks like!
When does a lender cure a tolerance violation? The lender has two options for curing a tolerance violation: Either at closing (via a HUD-1 credit) or within 30 days after settlement. Naturally, lenders are not all consistently doing the same thing. Some cure via credit at closing, some cure within 30 days via check. For an agent, it’s important to know that the lender can choose either option, and that we may not know which option they select until the day of closing when the tolerance violation is discovered.
Like any change in procedure, there has been an adjustment period for all of us involved in the real estate transaction. The adjustment period will likely continue for a bit. At some point, as mentioned above, the “new” GFE and HUD-1 will lose the “new” status and just be the GFE and HUD-1. Until then, we just handle each transaction individually, follow the new rules, and seek guidance from HUD where the rules are not perfectly clear (they have been extremely responsive to questions). For anyone interested in reading up more on these topics, the New RESPA Rule FAQs document (link here) is a great resource. Use Adobe’s “search” function to search keywords to get answers to your questions. You can also email me at Derek[dot]Massey[at]MASettlement[dot]com.