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RESPA REFORM - More Paperwork, Better Buyer Protection?

Hey, folks, from Chicago!

Often times, change, in virtually any form, is tough for some to take.  Some constituencies always complain!

Civil Rights Legislation! Fair Housing!  Health Care Reform!  You name it!

For every individual singing praises on one side of the fence, there seems to be three others damning it to hell!  Always, it has been this way!

Time then passes, the rules get tweaked, and folks learn to live with the new procedures.

But, in the meanwhile, folks HATE change!

The latest thing to change:  RESPA rules.  New Good Faith Estimate Forms. A New HUD-1 Settlement Statement.

It's all meant to make things more transparent for the buyer.  Avoid surprise charges and "junk fees" at closing.  Make the process more transparent.

But many on the lending side of the ball decry the new rules, although most Real Estate Practitioners have known they are coming since early 2008!

As reported by Real Estate Columnist Mary Ellen Podmolik in the Chicago Tribune, the latest forms, to be required paperwork in all Real Estate Transactions beginning this Friday, New Year's Day, will require a new, easier-to-read Good Faith Estimate of Closing Costs to be provided by the Loan Originator shortly after the buyer makes application for a new loan.

On the new form, key loan terms must be provided in detail.  Any pre-payment penalties or a balloon payment must also be clearly called out.

Each line item on the new, now-multi-page Good Faith Estimate will track back to the borrower's Settlement Statement, or HUD-1 form, at closing.  Specific charges may not change between the creation of the Good Faith Estimate and the closing, while others can increase by a maximum of 10%.

Here's a link to the HUD Website, outlining new rules and providing samples of required new forms.

Loan Originators must also provide at least one alternate for key closing services, items such as title insurance, and a plat of survey.  HUD feels this practice will make comparison shopping for these required services much easier, and save the new homebuyers as much as several hundred dollars in closing costs.

As one might expect, not everyone in the lending industry is embracing the changes.

Some Lenders argue that many of the customary fees will now be aggregated, instead of being separately identified as line items.  Such fees will include underwriting fees and processing charges, previously separated and individually identified.  Also, Real Estate Compensation will no longer be spelled out on HUD-1 Settlement Statements, as it was before.

Also, they contend that the price-change caps might not apply if the borrowers select their own closing service providers, rather than the ones selected by the loan originators themselves.

Finally, in IL, effective January 1, 2010, borrowers will no longer be able to pay high down payment amounts - greater than $50,000 - with cashier's checks at the closing table. 

Under new IL "Good Funds" Legislation, such large amounts must soon be paid by direct bank wire, to reduce losses from fraudulent cashier's checks.  (Here in IL, an exemption will be made for Title Company Checks representing the positive proceeds from the buyer's immediate prior sale).

Some lenders do not have the latest computer software in place to create and print the new required forms, despite the long notice for enactment of the new rules.  HUD plans to be more liberal in their enforcement of the new RESPA Provisions for the first couple of months of 2010, but all lenders will be expected to enact the changes promptly.

Will the new process result in greater transparency to home buyers?  Less cost?  A more streamlined closing process?

Naysayers say, "NO!"  Likely, however, some improvement is likely to a basic system that has not been re-worked in over 35 years.

Please see our post today via BlogChicagoHomes.com.


Comment balloon 4 commentsDean Moss • December 28 2009 12:10AM
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