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									June 12, 2008

Regulations Division
Office of General Counsel
Department of Housing and Urban Development
Room 10276
451 Seventh Street, SW
Washington, DC 20410-0001

       Re:      Real Estate Settlement Procedures Act (RESPA): Proposed Rule to Simplify and
                Improve the Process of Obtaining Mortgages and Reduce Consumer Settlement
                Docket No. FR-5180-P-01

Thank you for affording us this opportunity to comment on HUD‟s proposed Rule to Simplify
and Improve the Process of Obtaining Mortgages and Reduce Consumer Settlement Costs under
the Real Estate Settlement Procedures Act (RESPA).

Bank of Franklin is a community state bank with $87,000,000 in assets. As such, we offer to
customers a wide variety of first and subordinate lien loans secured by 1 to 4 family residential
real property covered by RESPA, including home purchase, refinance, home improvement and
closed-end home equity loans.

It is our strongly felt conviction that the regulated banking industry, and community [regional]
banks such as ours in particular, played virtually no part in creating the current mortgage
predicament which faces customers, creditors and regulators alike and which we believe may be
a motivating factor in HUD‟s proposal.

                                           In General

HUD‟s stated objective in proposing these revisions is to protect consumers from unnecessarily
high settlement costs by improving and standardizing the Good Faith Estimate (GFE) form,
promoting comparison shopping by consumers of loan terms and settlement costs, providing
more accurate estimates of settlement costs, improving disclosures of yield spread premiums
(YSPs), facilitating comparison of the GFE with the final HUD 1/1A, and ensuring borrowers
are made aware of final loan terms and settlement costs at closing by requiring recitation of a
specific script at closing. While we applaud and encourage an overall goal of providing more
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meaningful disclosures to consumers, we are very concerned that the proposal creates new,
expensive and unnecessary burdens on, and greater risk of liability for, lenders and loan
closers/settlement agents, risks confusing consumers in new ways, conflicts with existing and
proposed federal laws and regulation, and, in some respects, may exceed HUD‟s authority under

                                  The GFE and GFE Application

The proposal would replace the current one page suggested form with a required four page
standardized form which must be given to the applicant within three days after the lender
receives a “GFE application.” The proposal creates a new concept of a “GFE application” and
defines it as receipt of enough basic information to arrive at a preliminary credit decision,
including name and social security number, property address, gross monthly income, the house
price or borrower‟s best estimate of property value and the amount of the loan sought. The GFE
application appears to fall somewhere between a pre-qualification, common in the case of home
purchase and refinance transactions, and a complete application.

Section 5 of RESPA requires that a good faith estimate of the amount or range of charges for
specific settlement services the borrower is likely to incur be delivered along with the HUD
booklet on settlement costs by delivering it or placing it in the mail within 3 days after the lender
receives the application. We believe that HUD‟s concept of a GFE application goes beyond the
meaning of the term “application” under Section 5 of RESPA, and the proposal may exceed
HUD‟s authority under the law.

Even if HUD determines it has the authority to redefine the meaning of “application”, the GFE
application concept creates significant additional compliance issues, fails to recognize
requirements under existing federal laws and regulations and may in some instances confuse
consumers. For example, it is unclear how a GFE application is to be treated for purposes of the
Home Mortgage Disclosure Act and the HMDA-LAR, notice requirements under Regulation B
and early disclosure requirements under the Truth in Lending Act and Regulation Z. Also, in
requiring disclosure of proposed loan terms in the revised GFE form, HUD fails to recognize that
a lender is already required to give early loan disclosures in a “residential mortgage transaction”
under the Truth in Lending Act and Regulation Z. HUD‟s proposal would duplicate
unnecessarily the early disclosure of loan terms in a residential mortgage transaction and require
disclosure of loan terms in a different manner, likely confusing consumers in the process. In
addition, the proposal would extend requirements for early disclosure of loan terms to all loans
covered by RESPA which will include a variety of residential real property secured loans,
including smaller, subordinate lien loans like home equity and home improvement loans.
Neither RESPA nor the Truth in Lending Act contemplates such a requirement.

The „approval‟ of a GFE application that triggers the issuance of a GFE may mislead consumers
into believing their loan application has been approved and a loan commitment has actually been
made. No loan offer or commitment is actually made until completion of final underwriting.
Nowhere does the GFE explain that the consumer‟s application is subject to complete
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underwriting, and the GFE even speaks of comparing the loan terms described with other loan

The proposal actually converts the current GFE “estimate” into a “commitment” with respect to
settlement costs. A lender would be required to keep the GFE “offer” on settlement costs open
for ten business days to allow the borrower to shop the terms. Barring “unforeseen
circumstances” actual costs at closing could not exceed the amounts disclosed in the GFE plus
the applicable tolerance. We believe this requirement exceeds HUD‟s statutory authority under
Section 5 of RESPA to require an “estimate” of expected settlement costs.
In describing the loan terms in the GFE, the lender is required to specify a date until which the
quoted interest rate will remain available, but until the rate is locked, the initial rate may continue
to change. In the case of the typical home mortgage purchase or refinance loan, rates change
daily, and, in our experience, few applicants lock in a rate at the time of first submitting an
application. We generally do not offer rate locks on secured by residential property other than
home purchase and refinance loans. In most cases, then, the rate quoted in the GFE will only be
available for a single day making the consumer‟s comparisons among lenders misleading. A
consumer might achieve better results by simply telephoning different lenders and checking rates
for various types of loans. An alternative might be to provide a blank chart for comparison
purposes in the HUD booklet and suggest a list of questions to ask prospective lenders to
improve the ability of consumers to shop for the best loan terms.
The treatment of yield spread premiums is potentially seriously misleading to consumers.
Despite the assumed affect on the interest rate, a loan with a high yield spread premium may
appear more attractive to a consumer because of the impact on settlement costs. That may not be
in the consumer‟s best interest.
Under the proposal, the lender is required to provide two additional loan options, one with a
higher interest rate and one with a lower rate, in a chart format in order to disclose to the
borrower the potential impact on settlement costs that may result from choosing a loan with a
different interest rate. If the borrower chooses a different loan product or a loan option with a
higher or lower initial interest rate than the one described in the GFE, the lender would be
required to provide a completely new GFE. HUD is incorrect to assume that lower or higher
settlement costs always result in a corresponding increase or decrease in the interest rate. In the
typical first lien home purchase or refinance loan where loan costs like the interest rate, points,
origination fees, loan broker fees, and YSPs are often inter-related, this assumption is more
likely to be correct, but it is not correct in the case of other types of residential real property
secured consumer loans covered by RESPA, such as home improvement or home equity loans,
where the settlement costs are largely the same regardless of the product type and there may be
no higher or lower rate options available. How would a lender complete the GFE when there are
no higher or lower rate options available?
We agree that accuracy of disclosures in the GFE in relation to final costs shown on the
HUD1/1A can be improved. A tolerance for accuracy is one possible approach, but we do not
believe that the tolerance levels established by the proposal are appropriate. First, we believe
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that setting a zero tolerance for any amount exceeds HUD‟s statutory authority under RESPA to
require an “estimate” of settlement costs.
Even if HUD determines it has that authority, government recording fees should not be placed
into the zero tolerance category. In Mississippi, recording fees can vary based on different
factors including the number of pages of the document to be recorded, the number of names to be
indexed and the location or locations of the property to be indexed. In a given loan, there could
be deeds of conveyance, prior lien or mortgage releases, and a variety of ancillary documents
such as affidavits, easements, etc. that may be required to be recorded upon closing. Even the
number of pages of the mortgage or deed of trust itself will not be known with certainty at the
time of delivery of the GFE because legal descriptions vary and are often attached in separate
pages as exhibits rather than typed into the document itself. It is not possible to predict exactly
what the final recording costs will be at least until those documents are prepared. While the
recording of additional pages or additional documents might be considered to be an
“unforeseeable circumstance”, there will still be a difference in the amounts disclosed in the GFE
and the HUD-1 which must be explained at closing. That explanation will be made more
difficult by the fact that the proposed closing script would explain to consumers that the amount
of recording fees cannot change between the time of the GFE and HUD-1.
Most third party settlement costs will fall in the 10% tolerance category. We believe the
tolerance level should be higher. For example, the cost of a survey can vary widely depending
on whether the property is located in a rural area or a developed residential subdivision. Legal
fees for document preparation, loan closing and settlement and title services vary widely
depending on the nature of the loan. A 10% tolerance for all of the charges in that category will
easily be exceeded in many instances. In addition to increasing the tolerance, if one is to be
established, HUD should also revise the proposal to include changes in market conditions as an
“unforseeable circumstance” that might justify exceeding the tolerance. Lenders will seldom
know the extent to which changes in market conditions will affect settlement costs until the
service providers actually change their prices. Finally, both the GFE and the closing script, if
one is adopted, should make it clear that charges may exceed the tolerance if the increase is due
to unforeseeable circumstances.
                                      Mortgage Application
We believe the proposed requirement to notify the borrower of rejection of the application after
final underwriting within one business day conflicts with the Equal Credit Opportunity Act and
Regulation B and that one business day constitutes an unreasonably short period of time.

                                           HUD 1/1A
We agree that the proposal to organize information on the HUD 1/1A in a manner that makes
comparison with the GFE easier would be helpful to consumers. We also agree that the proposal
to combine the lender or broker service charges into a single category on both the GFE and
HUD-1/1A is helpful to lenders and still provides meaningful cost disclosure to consumers. The
requirement to break out and disclose the title insurance agent‟s commission is unnecessary and
provides the consumer with no useful information at closing. We believe consumers will be more
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concerned about the total cost, and, unless the title agent is also the one preparing the HUD 1/1A,
that information will be difficult for the preparer to obtain.
                                          Closing Script
We believe HUD has no statutory authority to require the use of the proposed closing script. We
do not believe a mandatory form of closing script is necessary and requiring will add new,
substantive burdens to both lenders and settlement agents and will ultimately increase closing
costs. The script requirement would mandate preparation and delivery to the consumer of yet
another set of paper documents for closing that largely duplicates disclosures already given in
writing elsewhere. The additional time involved in preparing the script and reading it at each
closing will, over time, result in an increase in fees charged by lenders and settlement agents.
We believe that the additional burden and cost is particularly unjustified for RESPA covered
loans other than first lien home purchase and refinance loans which typically are larger in
amount with higher settlement costs. We are also concerned that a mandatory script may restrict
future innovation in mortgage loan products since the script may not fit all situations. Finally,
the proposed rule offers no suggestion as how a lender or settlement agent should handle
closings that are completed by mail or some other method other than in person.
                                       Costs and Benefits
We believe HUD may be underestimating the projected costs of compliance with the proposal
should it be adopted. We have not been able to estimate the costs in the period of time we have
had to consider the proposal. However, we know that programming and software upgrades
would be necessary as well as replacement of forms. Training would be necessary for personnel
responsible for preparation of these new documents. Additional time would be involved in the
preparation of documents and closing of loans. The additional time required and a portion of the
expense that this would incur would no doubt be passed on to the consumer. Compliance with
the proposal will necessitate re-programming multiple computer programs since the systems
used for originating secondary market loans are different from those used for portfolio loans such
as home improvement and home equity loans. HUD should factor into its cost analysis the fact
that many lenders who currently charge nothing for a GFE will likely begin computing and
passing on to consumers their actual costs in preparing it.
                                           In Summary
We urge HUD not to adopt the concept of a GFE application as a trigger for the GFE or any
requirement that the GFE include disclosure of loan terms. We believe that if adopted as
proposed, the GFE application trigger and required early disclosure of loan terms will add
significantly to the cost and time for processing all loans covered by RESPA and especially on
smaller and subordinate lien loans such as home equity and home improvement loans, and may
result in higher origination fees and/or rates to consumers particularly on loans other than home
purchase or refinances of purchase money. While use of a standardized GFE form may be an
improvement, we believe the GFE should remain an “estimate” of closing costs only, not loan
terms, and any tolerance for accuracy should be set at a more reasonable level. We believe that
any change in the application process and trigger time for disclosures may require additional
legislation and should, at the very least, be proposed in conjunction with the Federal Reserve
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Board so that lenders are required to give and consumers may receive one set of complete and
co-ordinated and complementary disclosures. We further urge HUD not to adopt the closing
script requirement.

Thank you for this opportunity to comment.

Very truly yours,

Linda E. Osborne, VP
Compliance Officer
Bank of Franklin
P. O. Box 606
Meadville, MS 39653
Ph: 601-384-2305

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