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.

The New HUD-1's "Bundled Pricing"

(This is Day 5 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 New HUD-1' Settlement Statements "Bundled-Cost" Structure

As we discussed yesterday, the new HUD-1 Settlement Statement is going to tie into the Good Faith Estimate (GFE) rather explicitly by referencing on what line of the GFE the cost will appear. Another very important (and related) feature of the new HUD-1 is a bundling or aggregating of closing costs.

Here is a comparison of how the 1100 fees are laid out today, and how they will be after 1/1/10, for an approximately $1M purchase in Northern Virginia:

--------------------------------

Old HUD:

Settlement Fee: $230
Abstract: $125
Title Binder: $95
Title Insurance $5,080
Hand-recording: $50
Courier: $60

(Total: $5,640)

-------------------------------

New HUD:

Title Services and lender's title insurance: $2,760
Owner's title insurance: $2,880

(Total: $5,640)

-------------------------------

The theory behind the change is that for borrowers to really compare apples to apples in shopping for services, they need the big picture and not be distracted by the breakdown of fees involved. This new scheme also segregates what is required for the loan (title fees and lender's title insurance) and what is optional (owner's title insurance).

Tomorrow's post will discuss the 3 "types" of charges: Those that cannot change once on the GFE, ones that can increase by no more than 10%, and those that can change.

HUD-1 as a GFE "Tie-in"

(This is Day 4 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.)

One of the important components of the new HUD-1 Settlement Statement is a "tie-in" to the lender-issued Good Faith Estimate (GFE).

The vision: A borrower sitting at the closing table with the GFE on the left and the HUD-1 on the right, going from one to the other making sure they line up. The new HUD-1 even has the appropriate GFE column number (see figure above) to help with this. Ideally, all figures match identically. More likely the HUD-1 figures will be equal to or less than those on the GFE, and must be unless they fall within a set tolerance or the vendor was selected by the borrower (more on both in a subsequent post).

Time will tell whether this does in fact create a better, more transparent experience for the borrower, or whether this just adds more time to an already lengthy, document-intensive process.

Happy Holidays!

From everyone at Mid-Atlantic Settlement Services, we wish you Happy Holidays!

We appreciate the support, friendship and business from all of our brokers, agents, loan officers, buyers and sellers.

Please note that we will be closed on December 24th, and will reopen on Monday, December 28th. Should you need any help during this time, please send an email to info[at]MASettlement[dot]com and we will respond as soon as possible.

Flickr photo by di_the_huntress

What the new GFE "isn't" -- Where's my PITI and Cash to Close?

(This is Day 3 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 new GFE doesn't tell us WHAT?

Succinctly asked by one of our readers via Twitter DM, "Why the [expletive deleted] doesn't the new GFE have a PITI # on it?"

We can't really address the "why," but we'll clarify the "what" and offer what we think will be a workaround by lenders.

Traditionally, lenders have used the GFE for multiple purposes. The spirit of the first still survives: Provide borrowers with an estimate of costs inherent in getting the loan. But many lenders amended their own form to include an estimated "Funds Needed to Close" figure, as well as the total Principal, Interest, Taxes and Insurance (or, "PITI") monthly payment line itemization. For a borrower, these are *crucial* figures - maybe the two most important numbers in the entire transaction. Yet, they don't appear on the GFE.

At least three lenders we work with will be providing their own "Closing Cost Worksheet" or something similar. It will include the GFE figures for closing costs, but will also spell out precisely how much money the borrower will need to bring to closing, and what their total monthly payments will be (including the all important interest and taxes).

As an agent, what does this mean to you?

When working with buyers, make sure they are asking their lenders about this. Don't expect that the GFE will contain this info. Know exactly what information the GFE conveys (look here), and what it doesn't convey, and make sure your client gets the answers in some other format!

(Revised 12/22/09 at 5:19PM)

Tomorrow we will discuss the HUD-1 as a "tie-in" to the GFE.

The Good Faith Estimate (GFE) as an "estimate"

(This is Day 2 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.)

Lenders used to provide the GFE at various times in the process, and on various GFE forms (each had their own). While all loan officers and mortgage brokers endeavored to thoroughly and accurately reflect all fees (and the good ones typically did) on the GFE, they were not bound by it. This changes the first of the year.

Effective 1/1/2010, the GFE:

- Will be a common form, regardless of lender. All will use this form.

- Will not be issued until the borrowers have identified a property, but will be issued within 3 days of the borrower having done so.

- Will, subject to some tolerances and changes in circumstance (to be discussed later), tie to the final HUD-1 Settlement Statement and be an accurate reflection of costs inherent in getting the loan.

- Will encourage shopping and comparison of various vendors and loan programs.

This is a shift in policy and practice. The devil - as always - is in the details, and we will monitor closely how this new change in philosophy converts to change in practice. Stay tuned!

12 Days of RESPA Reform: Day 1

We've all heard the news: The new RESPA rules, including new forms and practices surrounding the Good Faith Estimate (GFE) and the HUD-1 Settlement Statement, start January 1st, 2010. To help get us ready for the new changes, we'll be posting one article a day between today, December 20th, and the end of the year. Each will be tagged "RESPA Reform" so you can easily access all of them on page later.

The blog post topics are planned as follows (subject to change):

1. Intro
2. Nature of GFE as an "estimate"
3. Need for a "cash needed to close" document from lender
4. HUD-1 as a "tie-in" to GFE
5. HUD-1's "bundled-pricing" as a better cost comparison
6. The 3 types of costs
7. Identified/Recommended vendors v. Buyer-selected vendors
8. The Shopping Cart
9. Online Resources: Helpful links we've found for the new RESPA rule
10. Title Insurance: Standard v. Enhanced Coverage
11. Enforcement of Rule Changes
12. Commissions as a dollar amount rather than a percentage

We hope this is helpful! If you don't want to check back every day, feel free to subscribe via RSS or email on the front page.

Photo Friday: Annapolis, Maryland

Christmas, Navy and Shopping are all represented well in Annapolis, MD. This photo was taken on Main Street looking from the Public Dock towards Church Circle by Annapolis area TSR Maren Strom.

Photo Friday: Centennial Park in Howard County, MD

Here's a picture of Centennial Park in Howard County, MD taken by our own Laurie Nice. Hard to believe this is December!

Company Holiday Party Today: Front Desk Switchboard Turned Off at 3PM

Just a friendly reminder that today (12/9) is Mid-Atlantic Settlement Service's employee holiday party. At 3PM this afternoon, our front desk switchboard will be closed down. Customers can still access the directory via the Operations Center 800 number, and can call direct dial numbers, but our team players will be having some good holiday fun. Should you absolutely need to reach us today after 3PM, feel free to call my line (443-541-1199) and I if I don't get your call right away I will get the message to the appropriate team player to assist you.


HAPPY HOLIDAYS FROM ALL OF US TO ALL OF YOU!

Photo by Muffet on Flickr

Photo Friday: Fells Point in Baltimore

This picture was taken by Baltimore County TSR Kathy Donovan. The location is Henderson's Wharf in Fells Point, Baltimore, MD.