The New HUD-1: Where is the commission percentage?

(This is the final post in a series called "The 12 Days of RESPA Reform" which ran from December 20th through today. For a full list of RESPA topics, check here.)

Historically, the HUD-1 Settlement Statement showed the total percentage of commission in the 700 section of the HUD. This practice reflects a simpler time when the seller paid X% of the sales price to list and sell her home. Current practices in the real estate industry, however, have made the calculation of the commission (and representation of it as a percentage) a bit more complex. With the proliferation of buyer agency, broker flat fee commission charges, and a host of other business changes, representing commission as a simple single-digit percentage number is less effective.

The change:

The new HUD-1 eliminates the percentage used to compute the sales commission. The total amount of the commission to each real estate broker or agent will be shown on lines 701 and 701. The amount of the commissions disbursed at settlement will be shown inside the columns on line 703.

This concludes our "12 Days of RESPA" series. For a recap of all topics between December 20th and today, check here. As always, if you have any questions, please reach out to any of us or comment below. Thanks for reading!

New RESPA Changes: Timing of Enforcement

(This is Day 11 of 12 in a series called "The 12 Days of RESPA Reform" which will run until December 31st. For a full list of RESPA topics, check here.)

The revised RESPA rules that have not already gone into effect will become effective on January 1, 2010. As we announced here, however, HUD has agreed to "exercise restraint in enforcing" these provisions for the first 120-days of 2010.

What is the impact of this delay on use of the new Good Faith Estimate and HUD-1 Settlement Statement?

As of today, there should be no delay in implementation of the new forms or practices, but where there is a failure by a lender to adhere to these changes during this 120-day period, there may be some leniency in enforcement. There are still some practical considerations to be worked out, and provided a lender is exercising good faith in becoming compliant, HUD may elect not to enforce with a heavy hand.

Fee Tolerances and Owner's Title Insurance

(This is Day 10 of 12 in a series called "The 12 Days of RESPA Reform" which will run until December 31st. For a full list of RESPA topics, check here.)

As discussed here, owner's title insurance premium is subject to a 10% fee tolerance if charged by a title company identified or selected by the lender. To provide this figure (and all other title-related charges) on the Good Faith Estimate (GFE), it is assumed that the lender has already reached out and received that settlement providers' fees.

Which owner's policy is being issued?

Over the past 10 years, many title agents have made available the enhanced coverage policy. Title insurance companies like First American and Chicago Title will, for additional premium, protect the buyer from claims that the traditional ALTA policy did not (such as post-policy forgeries, neighbor encroachments, lack of actual, physical access, etc.). The additional premium charged varies from underwriter to underwriter.

So which type of policy will the lender be quoting? The point of the new RESPA change is to give the borrower an apples-to-apples comparison of fees. Will borrowers be comparing multiple GFE's with different types of coverages quoted? How will they know which coverage - standard or enhanced - is being quoted?

This from page 26 of the New RESPA Rule FAQs (Hat tip to the anonymous commenter below):

Q: If a borrower was quoted a basic owner‘s title insurance policy, but
requests an enhanced owner‘s title insurance policy or an endorsement to the owner‘s title insurance policy, should the loan originator issue a revised GFE?

A: If the borrower requests an enhanced owner‘s title insurance policy or an endorsement to an owner‘s title insurance policy after the loan originator issues the GFE, the loan originator may choose to treat such
a request by the borrower as a changed circumstance. The loan originator may then choose to provide a revised GFE to the borrower to disclose the increased charges. If the increased charges do not exceed tolerances, the loan originator may opt not to issue a revised GFE.

Q: Should the loan originator quote the charge for a basic owner‘s title insurance policy or an enhanced owner‘s title insurance policy on the GFE?

A: The GFE is a disclosure of charges the borrower is likely to incur in connection with the settlement. The loan originator should quote the rate for a basic owner‘s title insurance policy. If the borrower chooses an enhanced owner‘s title insurance policy before the loan originator issues the GFE, the loan originator should quote the rate for an enhanced owner‘s title insurance policy.

There are a lot of "may's" and "should's" in the answers above, so we will be monitoring the situation once the new changes kick in. Will the lenders be quoting standard premiums? How will the type of policy quoted be communicated? As we work through these logistics, agents are well-advised to understand that there are two types of owner's title insurance policies with different costs, and to make sure the buyers are asking which policy is being quoted on the GFE before selecting a provider.

(Revised 12/29 at 3:45 PM to incorporate comments made below)

Tomorrow's brief post will be on the enforcement of the new changes.

RESPA Resources: Helpful Links for the New RESPA Changes

(This is Day 9 of 12 in a series called "The 12 Days of RESPA Reform" which will run until December 31st. For a full list of RESPA topics, check here.)

The purpose of this blog series was to break down the new RESPA changes into small, digestable pieces. Changes like this can be overwhelming - we wanted to make it just plain "whelming." ;)

If you want to dig deeper, and likely you do, here are some good places to go:

1. The HUD RESPA page is likely the best for detailed explanations of the new changes. More specifically...

a) Settlement Cost Booklet for borrowers

b) RESPA in plain English (Powerpoint)

c) RESPA Rule FAQ document

d) The new Good Faith Estimate (GFE)

e) The new HUD-1 Settlement Statement (HUD-1)

2. REALTOR Magazine / REALTOR.org published a breakdown of the changes in April, 2009 here.

3. Housingwire.com published this over a year ago when the changes were announced.

Do you have any other sources you've been using to stay abreast of the new rules? Let us know, we'll add it here!

Tomorrow: Standard v. Enhanced Coverage Title Insurance

New Good Faith Estimate: "The Shopping Cart"

(This is Day 8 of 12 in a series called "The 12 Days of RESPA Reform" which will run until December 31st. For a full list of RESPA topics, check here.)

At the heart of the new GFE and HUD-1 scheme is encouragement of borrowers to shop for loans and the services therein. To this end, HUD actually added a feature to the GFE to prompt borrowers to compare loans from various lenders.

Whether and to what extent borrowers utilize this feature is anyone's guess, but the Shopping Cart does remind borrowers that there are many aspects of a loan which can affect them financially, and that they do have the ability to shop and compare.

Tomorrow's post will be a list of links we've found to be helpful as we research this new change.

New RESPA Rules: Written List of Providers

(This is Day 7 of 12 in a series called "The 12 Days of RESPA Reform" which will run until December 31st. For a full list of RESPA topics, check here.)


As we discussed yesterday, loan costs are divided into one of three categories: (1) those that cannot change from initial GFE disclosure, (2) those subject to a 10% tolerance, and (3) those that can change. For title fees, whether the cost belongs in bucket #2 or #3 will depend on whether the lender "identified" the settlement service provide on a written list. In short, where the lender identified the particular settlement service provider, they are subject to the 10% fee tolerance.


Some more points regarding the "identifying" of the settlement service providers:


- If a loan originator is to allow borrowers to shop for third-party settlement services, he is to do so via a written list of providers.


- A borrower does not need to select a company from this list, but if she does the tolerance applies.

- If a borrower selects a company not on the the written list, the tolerance does not apply.

- A loan originator may include an affiliated business on the written list of providers, but must also provide the "affiliated business arrangement disclosure."


Source: HUD.gov's "New RESPA Rule FAQs"



Tomorrow's topic will be "The Shopping Cart"....

The New Good Faith Estimate (GFE): Fee Tolerances

(This is Day 6 of 12 in a series called "The 12 Days of RESPA Reform" which will run until December 31st. For a full list of RESPA topics, check here.)

The teeth behind the new disclosures are the Fee Tolerance provisions imposed on lenders. There are 3 categories of fees that permit a limited variance from the time of disclosure on the GFE to the HUD-1 at loan closing. The 3 categories and the permitted tolerances (as taken directly from the new Good Faith Estimate) are as follows:

The first group (the no tolerance group) are mainly made up of origination charges - those fees that the lender imposes to provide the loan.

The second group (the 10% group) are mainly settlement fees, provided the borrower uses the title company the lender identifies.

The third group (the "fees can change" group) are primarily fees charged by companies that the borrowers have chosen on their own which the lender has not identified (plus some other fees the lender either has little control over or cannot estimate at time of origination).

This provision is probably the biggest change of them all, and the one that will require the most explanation during loan origination and settlement. It is highly recommended that agents review the new GFE before it is rolled out in January, and read this FAQ document provided by HUD.

Tomorrow we will dig deeper into the distinction between "lender-identified" providers and those the borrower chooses on their own.