RESPA Revised The Good Faith Estimate and the HUD-1 Settlement

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					RESPA Revised: The Good Faith Estimate
               and the
  HUD-1 Settlement Statement Forms
         A Panel Discussion


         David E. Cooley, Jr., Esquire
        Lynn Hargus, Regional Auditor
        Rebecca Case, Regional Auditor
                                                                                                                                        OMB Approval No. 2502-0265

                          Settlement Statement (HUD-1A)
                          Optional Form for Transactions without Sellers


 Name and Address of Borrower:                                                             Name and Address of Lender:


 Property Location: (if different from above)                                              Settlement Agent:


                                                                                           Place of Settlement:


 Loan Number:                                                                              Settlement Date:



L. Settlement Charges                                                                                              M. Disbursements to Others
 800. Items Payable in Connection with Loan                                                                       1501.
  801. Our origination charge                                             (from GFE #1) $
  802. Your credit or charge (points) for the specific interest rate chosen (from GFE #2) $                       1502.

  803. Your adjusted origination charges                                  (from GFE A)
  804. Appraisal fee to                                                   (from GFE #3)                           1503.

  805. Credit report to                                                   (from GFE #3)
  806. Tax service to                                                     (from GFE #3)                           1504.

  807. Flood certification                                                (from GFE #3)
  808.                                                                                                            1505.

 900. Items Required by Lender to Be Paid in Advance
  901. Daily interest charges from              to    @$         /day     (from GFE #10)                          1506.

  902. Mortgage insurance premium               for   months to           (from GFE #3)
  903. Homeowner’s insurance                    for   years to            (from GFE #11)                          1507.

  904.
                                                                                                                  1508.
1000. Reserves Deposited with Lender
 1001. Initial deposit for your escrow account                            (from GFE #9)
 1002. Homeowner’s insurance           months @ $          per month      $                                       1509

 1003. Mortgage insurance              months @ $           per month      $
 1004. Property taxes                  months @ $           per month      $                                      1510.

 1005.                                 months @ $          per month       $
 1006.                                 months @ $          per month       $                                      1511.

 1007. Aggregate Adjustment                                              –$
                                                                                                                  1512.
1100. Title Charges
 1101. Title services and lender’s title insurance                        (from GFE #4)
 1102. Settlement or closing fee                                          $                                       1513.
 1103. Owner’s title insurance                                            (from GFE #5)
 1104. Lender’s title insurance                                           $                                       1514.

 1105. Lender’s title policy limit $
 1106. Owner’s title policy limit $                                                                               1515.

 1107. Agent’s portion of the total title insurance premium               $
 1108. Underwriter’s portion of the total title insurance premium         $                                       1520. Total Disbursed
                                                                                                                        (enter on line 1603)
1200. Government Recording and Transfer Charges
 1201. Government recording charges                                        (from GFE #7)
 1202. Deed $                          Mortgage $          Releases $                                             N. Net Settlement
 1203. Transfer taxes                                                      (from GFE #8)                          1600. Loan Amount                        $
 1204. City/County tax/stamps          Deed $              Mortgage $                                             1601. Plus Cash/Check from Borrower      $
 1205. State tax/stamps                Deed $              Mortgage $                                             1602. Minus Total Settlement Charges $
 1206.                                                                                                                    (line 1400)
                                                                                                                  1603. Minus Total Disbursements           $
1300. Additional Settlement Charges                                                                                    to Others (line 1520)
 1301. Required services that you can shop for                            (from GFE #6)                           1604. Equals Total Disbursements          $
                                                                                                                        to Borrower
 1302.                                                                    $                                             (after expiration of any applicable
 1303.                                                                    $                                             rescission period required by law)

 1304.
 1305.

1400. Total Settlement Charges (enter on line 1602, Section N)

The Public Reporting Burden for this collection of information is estimated at 35 minutes per response for collecting, reviewing, and
reporting the data. This agency may not collect this information, and you are not required to complete this form, unless it displays a
currently valid OMB control number. No confidentiality is assured; this disclosure is mandatory. This is designed to provide the parties to
a RESPA covered transaction with information during the settlement process.


Previous editions are obsolete                                                    Page 1 of 2                                                                   HUD-1A
 Comparison of Good Faith Estimate (GFE) and HUD-1A Charges                                                    Good Faith Estimate                HUD-1A
 Charges That Cannot Increase                                     HUD-1A Line Number
 Our origination charge                                                 # 801
 Your credit or charge (points) for the specific interest rate chosen   # 802
 Your adjusted origination charges                                      # 803
 Transfer taxes                                                         #1203


 Charges That in Total Cannot Increase More Than 10%                                                        Good Faith Estimate                   HUD-1A
 Government recording charges                                           # 1201
                                                                        #1201
                                                                        #1201
                                                                        #1201
                                                                        #1201
                                                                        #1201
                                                                        #1201
                                                                        #____

                                                                                                  Total
                                                Increase between GFE and HUD-1A Charges                    $123456                    or                       %



 Charges That Can Change                                                                                    Good Faith Estimate                   HUD-1A
 Initial deposit for your escrow account                                #1001
 Daily interest charges                                                 # 901         $       2 /day
 Homeowner’s insurance                                                  # 903
                                                                        #1201
                                                                        #1201
                                                                        #1201



 Loan Terms
 Your initial loan amount is                                              $

 Your loan term is                                                                        years

 Your initial interest rate is                                                            %

 Your initial monthly amount owed for principal, interest, and            $                         includes
 and any mortgage insurance is                                                  Principal
                                                                                Interest
                                                                                Mortgage Insurance

 Can your interest rate rise?                                                   No.        Yes, it can rise to a maximum of XXX%. The first change will be
                                                                          on [DATEDATE] and can change again every [DATEDATE] after
                                                                          [DATEDATE] . Every change date, your interest rate can increase or decrease
                                                                          by XXX%. Over the life of the loan, your interest rate is guaranteed to never be
                                                                          lower than XXX% or higher than XXX%.

 Even if you make payments on time, can your loan balance rise?                 No.        Yes, it can rise to a maximum of $[AMOUNT].

 Even if you make payments on time, can your monthly                            No.        Yes, the first increase can be on               and the monthly amount
 amount owed for principal, interest, and mortgage insurance rise?        owed can rise to $[DATEDATE].
                                                                          The maximum it can ever rise to is $[DATEDATE].

 Does your loan have a prepayment penalty?                                      No.        Yes, your maximum prepayment penalty is $[AMOUNT .

 Does your loan have a balloon payment?                                         No.        Yes, you have a balloon payment of $[AMOUNT] due in
                                                                          XXX years on [DATEDATE].

 Total monthly amount owed including escrow account payments                    You do not have a monthly escrow payment for items, such as property
                                                                          taxes and homeowner’s insurance. You must pay these items directly yourself.

                                                                                You have an additional monthly escrow payment of $[AMOUNT]
                                                                          that results in a total initial monthly amount owed of $[AMOUNT]. This includes
                                                                          principal, interest, any mortgage insurance and any items checked below:
                                                                                Property taxes                                 Homeowner’s insurance
                                                                                Flood insurance



Note: If you have any questions about the Settlement Charges and Loan Terms listed on this form, please contact your lender.


Previous editions are obsolete                                           Page 2 of 2                                                                       HUD-1A
                                                                                                    OMB Approval No. 2502-0265


                      Good Faith Estimate (GFE)


 Name of Originator                                                  Borrower
 Originator                                                          Property
 Address                                                             Address


 Originator Phone Number

 Originator Email                                                    Date of GFE



Purpose                    This GFE gives you an estimate of your settlement charges and loan terms if you are approved for
                           this loan. For more information, see HUD’s Special Information Booklet on settlement charges, your
                           Truth-in-Lending Disclosures, and other consumer information at www.hud.gov/respa. If you decide
                           you would like to proceed with this loan, contact us.

Shopping for               Only you can shop for the best loan for you. Compare this GFE with other loan offers, so you can find
your loan                  the best loan. Use the shopping chart on page 3 to compare all the offers you receive.

Important dates            1. The interest rate for this GFE is available through                       . After this time, the
                              interest rate, some of your loan Origination Charges, and the monthly payment shown below can
                              change until you lock your interest rate.
                           2. This estimate for all other settlement charges is available through                         .
                           3. After you lock your interest rate, you must go to settlement within    days (your rate lock period)
                              to receive the locked interest rate.
                           4. You must lock the interest rate at least    days before settlement.

Summary of                  Your initial loan amount is                         $
your loan                   Your loan term is                                                            years
                            Your initial interest rate is                                                 %
                            Your initial monthly amount owed for principal,
                            interest, and any mortgage insurance is             $                        per month
                            Can your interest rate rise?                        c No c Yes, it can rise to a maximum of       %.
                                                                                       The first change will be in             .
                            Even if you make payments on time, can your         c No c Yes, it can rise to a maximum of $
                            loan balance rise?
                            Even if you make payments on time, can your         c No c Yes, the first increase can be in
                            monthly amount owed for principal, interest,               and the monthly amount owed can
                            and any mortgage insurance rise?                           rise to $           . The maximum it
                                                                                       can ever rise to is $          .
                            Does your loan have a prepayment penalty?           c No c Yes, your maximum prepayment
                                                                                       penalty is $                                 .
                            Does your loan have a balloon payment?              c No c Yes, you have a balloon payment of
                                                                                       $                    due in    years.
Escrow account              Some lenders require an escrow account to hold funds for paying property taxes or other property-
information                 related charges in addition to your monthly amount owed of $             .
                            Do we require you to have an escrow account for your loan?
                            c No, you do not have an escrow account. You must pay these charges directly when due.
                            c Yes, you have an escrow account. It may or may not cover all of these charges. Ask us.

Summary of your
settlement charges          A Your Adjusted Origination Charges (See page 2.)                             $


                            B Your Charges for All Other Settlement Services (See page 2.)               $


                            A + B Total Estimated Settlement Charges                                     $

                                                                                                Good Faith Estimate (HUD-GFE) 1
Understanding               Your Adjusted Origination Charges
your estimated              1. Our origination charge
settlement charges             This charge is for getting this loan for you.
                            2. Your credit or charge (points) for the specific interest rate chosen
                               c The credit or charge for the interest rate of            % is included in
                                   “Our origination charge.” (See item 1 above.)
                               c You receive a credit of $               for this interest rate of         %.
                                   This credit reduces your settlement charges.
                               c You pay a charge of $                for this interest rate of        %.
                                   This charge (points) increases your total settlement charges.
                               The tradeoff table on page 3 shows that you can change your total
                               settlement charges by choosing a different interest rate for this loan.

                            A        Your Adjusted Origination Charges                                          $

                             Your Charges for All Other Settlement Services
Some of these charges       3. Required services that we select
can change at settlement.      These charges are for services we require to complete your settlement.
See the top of page 3 for      We will choose the providers of these services.
more information.              Service                                       Charge




                            4. Title services and lender’s title insurance
                               This charge includes the services of a title or settlement agent, for
                               example, and title insurance to protect the lender, if required.

                            5. Owner’s title insurance
                               You may purchase an owner’s title insurance policy to protect your interest
                               in the property.

                            6. Required services that you can shop for
                               These charges are for other services that are required to complete your
                               settlement. We can identify providers of these services or you can shop
                               for them yourself. Our estimates for providing these services are below.
                               Service                                       Charge



                            7. Government recording charges
                               These charges are for state and local fees to record your loan and
                               title documents.

                            8. Transfer taxes
                               These charges are for state and local fees on mortgages and home sales.

                            9. Initial deposit for your escrow account
                               This charge is held in an escrow account to pay future recurring charges
                               on your property and includes c all property taxes, c all insurance,
                               and c other                                   .

                            10. Daily interest charges
                                This charge is for the daily interest on your loan from the day of your
                                settlement until the first day of the next month or the first day of your
                                normal mortgage payment cycle. This amount is $                  per day
                                for        days (if your settlement is                ).

                            11. Homeowner’s insurance
                                This charge is for the insurance you must buy for the property to protect
                                from a loss, such as fire.
                                Policy                                       Charge




                            B Your Charges for All Other Settlement Services                                    $


                            A + B Total Estimated Settlement Charges                                            $


                                                                                                     Good Faith Estimate (HUD-GFE) 2
Instructions
Understanding        This GFE estimates your settlement charges. At your settlement, you will receive a HUD-1, a form that lists your
                     actual costs. Compare the charges on the HUD-1 with the charges on this GFE. Charges can change if you select your
which charges        own provider and do not use the companies we identify. (See below for details.)
can change at
                         These charges                                 The total of these charges                   These charges
settlement               cannot increase                               can increase up to 10%                       can change
                         at settlement:                                at settlement:                               at settlement:
                         g    Our origination charge                   g   Required services that we select         g   Required services that you can shop
                                                                                                                        for (if you do not use companies we
                         g    Your credit or charge (points) for the   g   Title services and lender’s title            identify)
                              specific interest rate chosen (after         insurance (if we select them or
                              you lock in your interest rate)              you use companies we identify)           g   Title services and lender’s title
                                                                                                                        insurance (if you do not use
                         g    Your adjusted origination charges        g   Owner’s title insurance (if you use          companies we identify)
                              (after you lock in your interest rate)       companies we identify)
                                                                                                                    g   Owner’s title insurance (if you do not
                         g    Transfer taxes                           g   Required services that you can               use companies we identify)
                                                                           shop for (if you use companies we
                                                                           identify)                                g   Initial deposit for your escrow
                                                                                                                        account
                                                                       g   Government recording charges
                                                                                                                    g   Daily interest charges
                                                                                                                    g   Homeowner’s insurance

Using the            In this GFE, we offered you this loan with a particular interest rate and estimated settlement charges. However:
tradeoff table       g       If you want to choose this same loan with lower settlement charges, then you will have a higher interest rate.
                     g       If you want to choose this same loan with a lower interest rate, then you will have higher settlement charges.
                     If you would like to choose an available option, you must ask us for a new GFE.
                     Loan originators have the option to complete this table. Please ask for additional information if the table is not completed.
                                                                                                           The same loan with       The same loan with a
                                                                               The loan in this GFE
                                                                                                           lower settlement charges lower interest rate

                         Your initial loan amount                              $                           $                          $

                         Your initial interest rate 1
                                                                                                      %                        %                            %

                         Your initial monthly amount owed                      $                           $                          $

                         Change in the monthly amount owed from                No change                   You will pay $             You will pay $
                         this GFE                                                                          more every month           less every month

                         Change in the amount you will pay at                  No change                   Your settlement charges Your settlement
                         settlement with this interest rate                                                will be reduced by      charges will increase by
                                                                                                           $                       $

                         How much your total estimated settlement              $                           $                          $
                         charges will be
                     1
                         For an adjustable rate loan, the comparisons above are for the initial interest rate before adjustments are made.

Using the            Use this chart to compare GFEs from different loan originators. Fill in the information by using a different column
                     for each GFE you receive. By comparing loan offers, you can shop for the best loan.
shopping chart
                                                                               This loan              Loan 2             Loan 3              Loan 4
                         Loan originator name
                         Initial loan amount
                         Loan term
                         Initial interest rate
                         Initial monthly amount owed
                         Rate lock period
                         Can interest rate rise?
                         Can loan balance rise?
                         Can monthly amount owed rise?
                         Prepayment penalty?
                         Balloon payment?

                         Total Estimated Settlement Charges


If your loan is      Some lenders may sell your loan after settlement. Any fees lenders receive in the future cannot change the loan
sold in the future   you receive or the charges you paid at settlement.




                                                                                                                        Good Faith Estimate (HUD-GFE) 3
                                                                                                                                        OMB Approval No. 2502-0265

                          A.    Settlement Statement (HUD-1)

 B. Type of Loan
                                                               6. File Number:             7. Loan Number:                   8. Mortgage Insurance Case Number:
 1.      FHA    2.        RHS             3.    Conv. Unins.

 4.      VA     5.        Conv. Ins.

 C. Note: This form is furnished to give you a statement of actual settlement costs. Amounts paid to and by the settlement agent are shown. Items marked
          “(p.o.c.)“ were paid outside the closing; they are shown here for informational purposes and are not included in the totals.

 D. Name & Address of Borrower:                                E. Name & Address of Seller:                                  F. Name & Address of Lender:




 G. Property Location:                                         H. Settlement Agent:                                          I. Settlement Date:


                                                               Place of Settlement:




 J. Summary of Borrower’s Transaction                                                   K. Summary of Seller’s Transaction

 100. Gross Amount Due from Borrower                                                    400. Gross Amount Due to Seller
 101. Contract sales price                                                              401. Contract sales price
 102. Personal property                                                                 402. Personal property
 103. Settlement charges to borrower (line 1400)                                        403.
 104.                                                                                   404.
 105.                                                                                   405.
 Adjustment for items paid by seller in advance                                         Adjustments for items paid by seller in advance
 106. City/town taxes              to                                                   406. City/town taxes                       to
 107. County taxes                        to                                            407. County taxes                               to
 108. Assessments                         to                                            408. Assessments                                to
 109.                                                                                   409.
 110.                                                                                   410.
 111.                                                                                   411.
 112.                                                                                   412.

 120. Gross Amount Due from Borrower                                                    420. Gross Amount Due to Seller
 200. Amounts Paid by or in Behalf of Borrower                                          500. Reductions In Amount Due to Seller
 201. Deposit or earnest money                                                          501. Excess deposit (see instructions)
 202. Principal amount of new loan(s)                                                   502. Settlement charges to seller (line 1400)
 203. Existing loan(s) taken subject to                                                 503. Existing loan(s) taken subject to
 204.                                                                                   504. Payoff of first mortgage loan
 205.                                                                                   505. Payoff of second mortgage loan
 206.                                                                                   506.
 207.                                                                                   507.
 208.                                                                                   508.
 209.                                                                                   509.
 Adjustments for items unpaid by seller                                                 Adjustments for items unpaid by seller
 210. City/town taxes             to                                                    510. City/town taxes           to
 211. County taxes                        to                                            511. County taxes                    to
 212. Assessments                         to                                            512. Assessments                     to
 213.                                                                                   513.
 214.                                                                                   514.
 215.                                                                                   515.
 216.                                                                                   516.
 217.                                                                                   517.
 218.                                                                                   518.
 219.                                                                                   519.

 220. Total Paid by/for Borrower                                                        520. Total Reduction Amount Due Seller
 300. Cash at Settlement from/to Borrower                                               600. Cash at Settlement to/from Seller
 301. Gross amount due from borrower (line 120)                                         601. Gross amount due to seller (line 420)
 302. Less amounts paid by/for borrower (line 220)              (                  )    602. Less reductions in amount due seller (line 520)       (              )

 303. Cash            From                To Borrower                                   603. Cash                To          From Seller




The Public Reporting Burden for this collection of information is estimated at 35 minutes per response for collecting, reviewing, and
reporting the data. This agency may not collect this information, and you are not required to complete this form, unless it displays a
currently valid OMB control number. No confidentiality is assured; this disclosure is mandatory. This is designed to provide the parties to
a RESPA covered transaction with information during the settlement process.




Previous editions are obsolete                                                   Page 1 of 3                                                                 HUD-1
L. Settlement Charges

 700. Total Real Estate Broker Fees                                                                       Paid From    Paid From
        Division of commission (line 700) as follows:                                                     Borrower’s     Seller’s
                                                                                                           Funds at     Funds at
 701. $                                                 to                                                Settlement   Settlement
 702. $                                                 to
 703. Commission paid at settlement
 704.

 800. Items Payable in Connection with Loan
 801. Our origination charge                                                   $         (from GFE #1)
 802. Your credit or charge (points) for the specific interest rate chosen $             (from GFE #2)
 803. Your adjusted origination charges                                                  (from GFE A)
 804. Appraisal fee to                                                                   (from GFE #3)
 805. Credit report to                                                                   (from GFE #3)
 806. Tax service to                                                                     (from GFE #3)
 807. Flood certification                                                                (from GFE #3)
 808.

 900. Items Required by Lender to Be Paid in Advance
 901. Daily interest charges from         to        @$         /day                      (from GFE #10)
 902. Mortgage insurance premium          for       months to                            (from GFE #3)
 903. Homeowner’s insurance               for       years to                             (from GFE #11)
 904.

1000. Reserves Deposited with Lender
1001. Initial deposit for your escrow account                                            (from GFE #9)
1002. Homeowner’s insurance           months @ $               per month   $
1003. Mortgage insurance              months @ $               per month   $
1004. Property taxes                  months @ $               per month   $
1005.                                 months @ $               per month   $
1006.                                 months @ $               per month   $
1007. Aggregate Adjustment                                                 –$

1100. Title Charges
1101. Title services and lender’s title insurance                                        (from GFE #4)
1102. Settlement or closing fee                                            $
1103. Owner’s title insurance                                                            (from GFE #5)
1104. Lender’s title insurance                                             $
1105. Lender’s title policy limit $
1106. Owner’s title policy limit $
1107. Agent’s portion of the total title insurance premium                 $
1108. Underwriter’s portion of the total title insurance premium           $

1200. Government Recording and Transfer Charges
1201. Government recording charges                                                       (from GFE #7)
1202. Deed $                          Mortgage $                 Releases $
1203. Transfer taxes                                                                     (from GFE #8)
1204. City/County tax/stamps          Deed $                     Mortgage $
1205. State tax/stamps                Deed $                     Mortgage $
1206.

1300. Additional Settlement Charges
1301. Required services that you can shop for                                            (from GFE #6)
1302.                                                                      $
1303.                                                                      $
1304.
1305.

1400. Total Settlement Charges (enter on lines 103, Section J and 502, Section K)




Previous editions are obsolete                                             Page 2 of 3                                      HUD-1
 Comparison of Good Faith Estimate (GFE) and HUD-1 Charges                                                 Good Faith Estimate                     HUD-1
 Charges That Cannot Increase                                     HUD-1 Line Number
 Our origination charge                                                 # 801
 Your credit or charge (points) for the specific interest rate chosen   # 802
 Your adjusted origination charges                                      # 803
 Transfer taxes                                                         #1203


 Charges That in Total Cannot Increase More Than 10%                                                        Good Faith Estimate                    HUD-1
 Government recording charges                                           # 1201
                                                                        #1201
                                                                        #1201
                                                                        #1201
                                                                        #1201
                                                                        #1201
                                                                        #1201
                                                                        #____

                                                                                                  Total
                                                  Increase between GFE and HUD-1 Charges                   $123456                    or                       %



 Charges That Can Change                                                                                    Good Faith Estimate                    HUD-1
 Initial deposit for your escrow account                                #1001
 Daily interest charges                                                 # 901         $       2 /day
 Homeowner’s insurance                                                  # 903
                                                                        #1201
                                                                        #1201
                                                                        #1201



 Loan Terms
 Your initial loan amount is                                              $

 Your loan term is                                                                        years

 Your initial interest rate is                                                            %

 Your initial monthly amount owed for principal, interest, and            $                         includes
 and any mortgage insurance is                                                  Principal
                                                                                Interest
                                                                                Mortgage Insurance

 Can your interest rate rise?                                                   No.        Yes, it can rise to a maximum of XXX%. The first change will be
                                                                          on [DATEDATE] and can change again every [DATEDATE] after
                                                                          [DATEDATE] . Every change date, your interest rate can increase or decrease
                                                                          by XXX%. Over the life of the loan, your interest rate is guaranteed to never be
                                                                          lower than XXX% or higher than XXX%.

 Even if you make payments on time, can your loan balance rise?                 No.        Yes, it can rise to a maximum of $[AMOUNT].

 Even if you make payments on time, can your monthly                            No.        Yes, the first increase can be on               and the monthly amount
 amount owed for principal, interest, and mortgage insurance rise?        owed can rise to $[DATEDATE].
                                                                          The maximum it can ever rise to is $[DATEDATE].

 Does your loan have a prepayment penalty?                                      No.        Yes, your maximum prepayment penalty is $[AMOUNT .

 Does your loan have a balloon payment?                                         No.        Yes, you have a balloon payment of $[AMOUNT] due in
                                                                          XXX years on [DATEDATE].

 Total monthly amount owed including escrow account payments                    You do not have a monthly escrow payment for items, such as property
                                                                          taxes and homeowner’s insurance. You must pay these items directly yourself.

                                                                                You have an additional monthly escrow payment of $[AMOUNT]
                                                                          that results in a total initial monthly amount owed of $[AMOUNT]. This includes
                                                                          principal, interest, any mortgage insurance and any items checked below:
                                                                                Property taxes                                 Homeowner’s insurance
                                                                                Flood insurance



Note: If you have any questions about the Settlement Charges and Loan Terms listed on this form, please contact your lender.


Previous editions are obsolete                                           Page 3 of 3                                                                        HUD-1
PAGE INTENTIONALLY LEFT BLANK
   Understanding               Your Adjusted Origination Charges
   your estimated              1. Our origination charge
   settlement charges             This charge is for getting this loan for you.                                         801
                               2. Your credit or charge (points) for the specific interest rate chosen
                                  c The credit or charge for the interest rate of            % is included in
                                      “Our origination charge.” (See item 1 above.)
                                  c You receive a credit of $               for this interest rate of         %.
                                      This credit reduces your settlement charges.
                                  c You pay a charge of $                for this interest rate of        %.
                                      This charge (points) increases your total settlement charges.
                                  The tradeoff table on page 3 shows that you can change your total
                                  settlement charges by choosing a different interest rate for this loan.               802
                               A        Your Adjusted Origination Charges                                          $

                                Your Charges for All Other Settlement Services
   Some of these charges       3. Required services that we select
   can change at settlement.      These charges are for services we require to complete your settlement.
   See the top of page 3 for      We will choose the providers of these services.                                       804
   more information.              Service                                       Charge
                                                                                                                        through
                                                                                                                        808 +

                               4. Title services and lender’s title insurance
                                  This charge includes the services of a title or settlement agent, for
                                  example, and title insurance to protect the lender, if required.                     1101 & 1102
                               5. Owner’s title insurance
                                  You may purchase an owner’s title insurance policy to protect your interest
                                  in the property.                                                                      1105
                               6. Required services that you can shop for
                                  These charges are for other services that are required to complete your
                                  settlement. We can identify providers of these services or you can shop
References                        for them yourself. Our estimates for providing these services are below.
                                  Service                                       Charge
are to                                                                                                                  1301
HUD                            7. Government recording charges
Line Numbers                      These charges are for state and local fees to record your loan and
                                  title documents.                                                                     1201
                               8. Transfer taxes
                                  These charges are for state and local fees on mortgages and home sales.               1203
                               9. Initial deposit for your escrow account
                                  This charge is held in an escrow account to pay future recurring charges
                                  on your property and includes c all property taxes, c all insurance,
                                  and c other                                   .                                       1001
                               10. Daily interest charges
                                   This charge is for the daily interest on your loan from the day of your
                                   settlement until the first day of the next month or the first day of your
                                   normal mortgage payment cycle. This amount is $                 per day
                                   for        days (if your settlement is                ).                             901
                               11. Homeowner’s insurance
                                   This charge is for the insurance you must buy for the property to protect
                                   from a loss, such as fire.
                                   Policy                                       Charge

                                                                                                                       903 & 904
                               B Your Charges for All Other Settlement Services                                    $


                               A + B Total Estimated Settlement Charges                                            $


                                                                                                        Good Faith Estimate (HUD-GFE) 2
   Understanding               Your Adjusted Origination Charges
   your estimated              1. Our origination charge
   settlement charges             This charge is for getting this loan for you.                                        0% bucket
                               2. Your credit or charge (points) for the specific interest rate chosen
                                  c The credit or charge for the interest rate of            % is included in
                                      “Our origination charge.” (See item 1 above.)
                                  c You receive a credit of $               for this interest rate of         %.
                                      This credit reduces your settlement charges.
                                  c You pay a charge of $                for this interest rate of        %.
                                      This charge (points) increases your total settlement charges.
                                  The tradeoff table on page 3 shows that you can change your total
                                  settlement charges by choosing a different interest rate for this loan.              0% bucket
                               A        Your Adjusted Origination Charges                                          $

                                Your Charges for All Other Settlement Services
   Some of these charges       3. Required services that we select
   can change at settlement.      These charges are for services we require to complete your settlement.
   See the top of page 3 for      We will choose the providers of these services.
   more information.              Service                                       Charge


                                                                                                                       10% bucket
GFE
Tolerance Buckets              4. Title services and lender’s title insurance
                                  This charge includes the services of a title or settlement agent, for
                                  example, and title insurance to protect the lender, if required.                     10% bucket
0% Bucket - HUD                5. Owner’s title insurance
                                  You may purchase an owner’s title insurance policy to protect your interest
fees cannot                       in the property.                                                                     10% bucket
exceed GFE                     6. Required services that you can shop for
                                  These charges are for other services that are required to complete your
                                  settlement. We can identify providers of these services or you can shop
10% Bucket - HUD                  for them yourself. Our estimates for providing these services are below.
fees can exceed                   Service                                       Charge

GFE by up to 10%                                                                                                       10% bucket
IN THE                         7. Government recording charges
                                  These charges are for state and local fees to record your loan and
AGGREGATE, IF                     title documents.                                                                     10% bucket
BORROWER USES                  8. Transfer taxes
LENDER                            These charges are for state and local fees on mortgages and home sales.              0% bucket
IDENTIFIED                     9. Initial deposit for your escrow account
PROVIDERS                         This charge is held in an escrow account to pay future recurring charges
                                  on your property and includes c all property taxes, c all insurance,
                                  and c other                                   .                                      unlimited
Unlimited Bucket -             10. Daily interest charges
                                   This charge is for the daily interest on your loan from the day of your
HUD fees can                       settlement until the first day of the next month or the first day of your
exceed GFE by                      normal mortgage payment cycle. This amount is $
                                   for        days (if your settlement is                ).
                                                                                                   per day
                                                                                                                       unlimited
any amount (also               11. Homeowner’s insurance
includes 10%                       This charge is for the insurance you must buy for the property to protect
                                   from a loss, such as fire.
Bucket items                       Policy                                       Charge
where Borrower                                                                                                         unlimited
chooses provider).
                               B Your Charges for All Other Settlement Services                                    $


                               A + B Total Estimated Settlement Charges                                            $


                                                                                                        Good Faith Estimate (HUD-GFE) 2
                                                          New RESPA Rule FAQs
                                                               (New items are in bold)



     Table of Contents

General ................................................................................................................................................... 3
GFE ........................................................................................................................................................ 5
   GFE – General .................................................................................................................................... 5
   GFE – Seller paid items...................................................................................................................... 9
   GFE – Interest rate expiration ............................................................................................................ 9
   GFE – Expiration.............................................................................................................................. 10
   GFE – Denial .................................................................................................................................... 10
   GFE – Written list of providers ........................................................................................................ 10
   GFE – ―Changed circumstances‖ ..................................................................................................... 11
   GFE – New construction .................................................................................................................. 15
   GFE – Page 1 .................................................................................................................................... 15
   GFE – Name of originator ................................................................................................................ 15
   GFE – Important dates ..................................................................................................................... 16
   GFE – Summary of your loan .......................................................................................................... 18
   GFE – Escrow account information ................................................................................................. 19
   GFE – Page 2 .................................................................................................................................... 20
   GFE – Block 1 .................................................................................................................................. 20
   GFE – Block 2 .................................................................................................................................. 21
   GFE – Block 3 .................................................................................................................................. 22
   GFE – Block 4 .................................................................................................................................. 22
   GFE – Block 5 .................................................................................................................................. 23
   GFE – Block 11 ................................................................................................................................ 23
   GFE – Page 3 .................................................................................................................................... 24
   GFE – Tradeoff table ........................................................................................................................ 24
Reverse Mortgages ............................................................................................................................... 24
Average Charge .................................................................................................................................... 28

     LAST UPDATE:                                             October 23, 2009
                                                                                                                                                         2


Section 4 and 5 – Right to cure and tolerance violations ..................................................................... 30
HUD-1 .................................................................................................................................................. 32
   HUD-1 – General ............................................................................................................................. 32
   HUD-1 – Page 1 ............................................................................................................................... 34
   HUD-1 – Seller-paid items ............................................................................................................... 34
   HUD-1 – 200 series .......................................................................................................................... 35
   HUD-1 – Page 2 ............................................................................................................................... 35
   HUD-1 – 700 series .......................................................................................................................... 35
   HUD-1 – 800 series .......................................................................................................................... 36
   HUD-1 – 900 series .......................................................................................................................... 38
   HUD-1 – 1000 series ........................................................................................................................ 38
   HUD-1 – 1100 series ........................................................................................................................ 39
   HUD-1 – 1200 series ........................................................................................................................ 43
   HUD-1 – 1300 series ........................................................................................................................ 44
   HUD-1 – Page 3 ............................................................................................................................... 45
Settlement cost booklet ........................................................................................................................ 48




     LAST UPDATE:                                            October 23, 2009
                                                                                                      3


General

1)     Q: When does the new RESPA Rule take effect?
       A: The November 2008 RESPA Rule was effective January 16, 2009. Implementation of
the provisions are as follows:

               Provision                             Implementation Date
               Average Charge (optional)             January 16, 2009
               Servicing Disclosure Statement        January 16, 2009
               Other technical changes               January 16, 2009
               New GFE                               January 1, 2010
               New HUD-1/HUD-1A                      January 1, 2010
               (for all transactions in which the
               new GFE is used)
               Tolerances                            January 1, 2010
               Elimination of FHA Cap On             January 1, 2010
               Origination Fees

2)    Q: When does the revised required use definition take effect?
      A: The revised required use definition was withdrawn by a separate final rule published
May 15, 2009.

3)      Q: Can a loan originator e-mail a GFE to a borrower?
        A: Yes; as long as the borrower consents and the other specific requirements for
consumer disclosures under the Electronic Signatures in Global and National Commerce Act
(ESIGN) are met, a loan originator may e-mail, fax, or send by other electronic means the GFE
(and other RESPA disclosures, such as the HUD-1/1A). See section 101(c) of ESIGN, 15 U.S.C.
§ 7001(c); also see 24 CFR § 3500.23. The loan originator may also continue to deliver the GFE
to the borrower by hand delivery or by placing it in the mail, as provided by RESPA.

4)      Q: RESPA and HUD‘s RESPA regulations require that certain records be retained for a
period of time. Can those records be retained electronically?
        A: Yes, if the person responsible for retaining records under RESPA and HUD's RESPA
regulations meets the specific requirements and limitations applicable to the retention of
electronic documents set out in the Electronic Signatures in Global and National Commerce Act
(ESIGN), that person's responsibility will be satisfied by the retention of electronic records. See
sections 101(d) and (e) of ESIGN, 15 U.S.C. § 7001(d) and (e); also see 24 CFR § 3500.23.

5)      Q: Can we translate the GFE and the HUD-1 into languages other than English?
        A: Yes, it is permissible to translate the GFE and the HUD-1 as long as the form has been
translated accurately.

6)      Q: The term ―monthly‖ is used throughout the GFE and HUD-1 forms. The requirements
stated in terms of ―monthly‖ do not work well for loans on which payments are not made monthly

LAST UPDATE:                         October 23, 2009
                                                                                                     4


(e.g., are made biweekly or quarterly). In such transactions, can an appropriate payment period be
substituted whenever requirements on the forms are stated in terms of ―monthly‖?
         A: No, the GFE and HUD-1 are prescribed forms. The instructions for the GFE provide
that the standardized form is the required form. HUD's regulations provide that language and
terms used on the HUD-1 may not be changed, except in limited circumstances which do not
include changes to the standardized language (see 24 CFR § 3500.9). The intent of the
standardized GFE and HUD-1 is to provide borrowers an easier means of comparing loan offers,
and to determine that they are getting the loan at settlement that they were offered in the GFE.
For loans with payment plans that are not monthly, the periodic payments should be converted to
a monthly basis (e.g., payments for a biweekly plan with 26 payments per year would be
multiplied by 26/12, quarterly payments would be divided by 3, etc.).

7)      Q: If a borrower applies for a first and second mortgage before January 1, 2010 and the
loan originator issues a GFE using the new form for the first mortgage, does the loan originator
have to issue the second mortgage GFE on the new GFE form also?
        A: No, the loan originator does not have to issue the GFE for the second mortgage on the
new GFE form prior to January 1, 2010 even if the loan originator issues the GFE for the first
mortgage on the new GFE form. To avoid consumer confusion, the loan originator may choose to
issue new GFEs for both the first and second mortgage, or old GFEs for both the first and second
mortgages. If the loan originator issues the old GFE, the old HUD-1 must be used. If the loan
originator issues the new GFE, the new HUD-1 must be used.

8)    Q: What is a ―no cost‖ loan for purposes in the new RESPA Rule?
      A: Information about ―no cost‖ loans may be found in Appendix A, Instructions for
Completing HUD-1 and HUD-1A Settlement Statements and 24 CFR part 3500, Appendix C –
GFE Instructions.

9)     Q: The definition of ―Origination service‖ does not explicitly include all of the services
provided by mortgage brokers in the definition of ―Settlement services‖. Are all ―Settlement
services‖ considered ―Origination services‖?
       A: No, all ―Settlement services‖ are not considered ―Origination services‖. However, all
―Origination services‖ are ―Settlement services‖.

10)    Q: How may applications under a preapproval program as defined by Section 203.2(b)(2)
of Regulation C be treated?
       A: For the purposes of RESPA, ―application‖ is defined at 24 CFR § 3500.2(b). The
RESPA rule does not address preapprovals or the information required in relation to preapprovals.
The Federal Reserve is responsible for promulgating, interpreting and enforcing Regulation C.

11)     Q: May a loan originator require the use of its affiliate for the tax service or flood
certificate?
        A: No, a loan originator may not require the use of its affiliate for tax service or flood
certificate.



LAST UPDATE:                          October 23, 2009
                                                                                                    5


12)    Q: If I suspect someone is violating RESPA, is there a phone number I can call to make a
complaint to HUD?
       A: We encourage anyone that suspects someone is potentially violating RESPA to contact
us. You may either call 1-202-708-0502 or you may send your complaint to:

                       Director, Office of RESPA and Interstate Land Sales
                       US Department of Housing and Urban Development
                                            Room 9154
                                        451 7th Street, SW
                                      Washington, DC 20410

For more information, please visit our website at www.hud.gov/respa or email our office at hsg-
respa@hud.gov.

GFE

       GFE – General

1)      Q: What happens if a GFE is not provided to a borrower?
        A: In a transaction involving a federally related mortgage, the loan originator is required
to provide a GFE to the borrower. Failure to provide a GFE as required is a violation of Section 5
of RESPA.

2)      Q: When will the use of the new GFE and HUD-1 forms be required?
        A: The new GFE and HUD-1 forms must be used as of January 1, 2010. The new GFE
and HUD-1 forms may be used before this date. Please note that if a loan originator issues a GFE
on the new form, then the settlement agent must use the new HUD-1 form and the tolerances and
other requirements in the revised RESPA regulations will apply.

3)      Q: If a GFE is issued on the old form prior to January 1, 2010, and the loan will close
after January 1, 2010, which HUD-1 form is to be completed by the settlement agent?
        A: If a GFE is issued on the old form prior to January 1, 2010, then the old HUD-1 form
must be used even if closing will occur after January 1, 2010. For GFEs issued on the old form,
the loan originator has the option to reissue the GFE (with the same terms and charges) on the
new form, in which case the settlement agent must complete the new HUD-1 form.

4)      Q: When does a loan originator have to issue a GFE?
        A: A loan originator must issue a GFE no later than 3 business days after the loan
originator receives an application or information sufficient to complete an application.
Application is defined as the submission of a borrower‘s financial information in anticipation of a
credit decision relating to a federally related mortgage loan, which shall include the following: (1)
borrower‘s name, (2) borrower‘s monthly income; (3) borrower‘s social security number to obtain
a credit report; (4) property address; (5) estimate of value of the property; (6) loan amount and (7)
any other information deemed necessary by the loan originator.


LAST UPDATE:                         October 23, 2009
                                                                                                      6


5)     Q: What is a loan originator?
       A: ―Loan originator‖ means a lender or a mortgage broker.

6)      Q: What fees can a loan originator charge before issuing a GFE?
        A: Prior to issuing a GFE, the loan originator may, at its option, collect a fee limited to
the cost of a credit report.

7)     Q: I am a mortgage broker. Can I provide the GFE?
       A: Yes, a mortgage broker can provide the GFE, however the lender is ultimately
responsible for ascertaining that the GFE was provided to the applicant.

8)      Q: There are not enough lines on the GFE or the HUD-1 to show all of the charges that
are appropriate for some of the categories. Where should these charges be listed?
        A: Additional lines may be added to Blocks 3, 6 and 11 of the GFE. Additional lines may
also be added to the HUD-1.

9)    Q: Is a GFE a loan commitment?
      A: No, the GFE is not a loan commitment. A GFE is an estimate of settlement charges a
borrower is likely to incur to obtain a specific loan.

10)     Q: At what point can a loan originator charge a loan applicant fees for services other than
the cost of obtaining a credit report?
        A: After a loan applicant both receives a GFE and indicates an intention to proceed with
the loan covered by the GFE, the loan originator may collect fees beyond the cost of a credit
report for origination-related services.

11)     Q: If the borrower is taking out two loans to finance the purchase, how should the loan
originator disclose the charges from each loan on the GFE and the HUD-1?
        A: Each loan must have a separate GFE and a separate HUD-1. However, the principal
amount of the second loan and a brief explanation of the second loan should be listed on Lines
204 – 209 of the HUD-1 for the first loan.

12)     Q: What are processing and administrative services?
        A: Processing and administrative services are those services required to perform the
functions involved in title service and origination service. Processing and administrative services
include, but are not limited to the following: document delivery, document preparation, copying,
wiring, preparing endorsements, document handling and notarization.

13)     Q: Can items be listed as ―Paid Outside of Closing‖ or ―P.O.C.‖ on the GFE?
        A: No, the totals included in the column on page 2 of the GFE must be the sums of the
prices or fees, by category, for all settlement services that are required to be shown on the GFE.
Where individual components of these totals are required to be itemized, each third party
settlement service must be identified and the estimated total price or fee to be paid for that service
must be stated to the left of the column. The standardized GFE form does not allow information
to be included on any part of those totals that would be paid outside of closing. Such information

LAST UPDATE:                          October 23, 2009
                                                                                                    7


would not help borrowers to shop for loans and would not facilitate comparison of the charges on
the GFE with the charges on the HUD-1.

14)      Q: The definition of application includes the social security number as one of six pieces
of information. Foreign nationals do not have social security numbers. Is a Tax Identification
Number (TIN) an acceptable substitution?
         A: Before a loan originator issues a GFE, the loan originator will often evaluate the credit
worthiness of a potential borrower by pulling an ―in-file‖ or a credit report. The social security
number is typically the unique identifier used to pull a credit report. If the social security number
is not the appropriate unique identifier necessary to determine a borrower‘s credit worthiness,
another unique identifier may be substituted.

15)   Q: Is an approved loan correspondent approved under 24 CFR § 202.8 for Federal
Housing Administration programs considered a lender or a mortgage broker?
      A: A loan correspondent approved under 24 CFR § 202.8 for the Federal Housing
Administration programs is considered a mortgage broker.

16)     Q: If the mortgage broker receiving the application is an exclusive agent of the lender
(similar to the requirements of Regulation Z per Comment 19(b)-3), will the lender be considered
to have received the application when its exclusive agent received it?
        A: The loan originator must issue a GFE when it receives information sufficient to be
considered an application under RESPA. The mortgage broker may issue the GFE, but the lender
is responsible to ascertain whether the GFE has been provided. Timely communication between
the lender and the mortgage broker is essential to assure compliance.

       HUD cannot interpret regulations promulgated by another federal agency, such as
Regulation Z (12 CFR part 226). Please refer to the Board of Governors of the Federal Reserve
System for interpretations of Regulation Z.

17)     Q: If the mortgage broker purports to permit a borrower to lock in a rate, but the
mortgage broker does not lock that rate with the lender, what tolerances apply to the lender for the
credit or charge for the interest rate chosen and the adjusted origination charge?
        A: If the lender accepts the GFE issued by the mortgage broker, the lender is subject to
the loan terms and settlement charges. Charges for the credit or credit for the interest rate chosen
and the adjusted origination charge may not change (zero tolerance). Timely communication
between the lender and the mortgage broker is essential to assure compliance.

18)      Q: If the mortgage broker has failed to provide the GFE on a timely basis, may the lender
issue its own GFE?
         A: The lender is responsible for ascertaining whether or not the GFE has been provided.
If the GFE has not been provided by the mortgage broker, the lender must provide the GFE. The
failure to provide a GFE to a borrower within 3 business days of receipt of the borrower's
application is a violation of Section 5 of RESPA.



LAST UPDATE:                         October 23, 2009
                                                                                                    8


19)     Q: If a GFE has been provided and the interest rate has not been locked, can the loan
originator provide a revised GFE when the borrower later locks the interest rate?
        A: If a borrower who has been provided a GFE later locks the interest rate and there are
any changes to interest rate dependent charges or loan terms, a revised GFE must be issued.

20)     Q: If a GFE has been provided and the interest rate has been locked, may the loan
originator provide a revised GFE if the borrower requests a different rate lock period?
        A: If a borrower requests a change to the mortgage loan identified in a GFE and that
request will change the terms of the loan, the loan originator may provide a revised GFE to the
borrower.

21)    Q: If there is more than one potential borrower in a transaction, may additional lines be
added to the ―Borrower‖ field on the GFE to include all potential borrower names?
       A: Yes, additional lines may be added to the ―Borrower‖ field on the GFE.

22)      Q: A broker-submitted application may contain all the information the lender requires,
but the lender may not want to be bound by the mortgage broker‘s GFE. If the lender were to
reject the application for this reason, would that rejection be subject to ECOA adverse action
requirements and HMDA reporting?
         A: HUD cannot interpret regulations promulgated by another federal agency. Please refer
to the Federal Reserve Board for its regulations and staff commentary on the Equal Credit
Opportunity Act (ECOA) (―Regulation B,‖ 12 CFR part 202) and the Home Mortgage Disclosure
Act (HMDA) (―Regulation C,‖ 12 CFR part 203). The Federal Trade Commission (FTC) may
also provide assistance with ECOA questions involving mortgage companies.

23)     Q: May a loan originator issue a GFE if the loan originator has not received one of the six
pieces of information included in the definition of an application (borrower‘s name, borrower‘s
monthly income, borrower‘s social security number, property address, estimate of the value of the
property and mortgage loan amount sought)?
        A: An application includes information the loan originator requires the borrower to
submit in anticipation of a credit decision. If a loan originator issues a GFE, the loan originator is
presumed to have received all six pieces of information.

24)     Q: Are loan originators permitted to process a loan without all six pieces of information
included in the definition of an application?
        A: Yes. Loan originators may process a loan after they have issued a GFE and the
borrower has received the GFE and has decided to proceed with the loan. It is presumed that,
prior to issuing a GFE, a loan originator has received all six pieces of information.




LAST UPDATE:                         October 23, 2009
                                                                                                      9


25)    Q: When a mortgage broker receives an application or information sufficient to
complete an application, when does the lender who agrees to go forward on the application
have to provide the GFE?
       A: Not later than 3 business days after the mortgage broker received the application
or information sufficient to complete the application, either the lender or the mortgage
broker must provide a GFE. The lender is responsible for ascertaining whether the GFE
has been provided.

26)    Q: If a lender agrees to proceed with a transaction for which a mortgage broker has
provided the GFE to the borrower, may the lender provide a revised GFE?
       A: The lender may provide a revised GFE consistent with the provisions of 24 CFR
§ 3500.7(f).

       GFE – Seller paid items

1)      Q: If at the time a GFE is issued it is known that the seller will pay settlement charges
typically paid by the borrower, how are the charges disclosed on the GFE?
        A: All charges typically paid by the borrower must be disclosed on the GFE regardless of
whether the charges will be paid for by the borrower, the seller, or other party.

2)      Q: Are charges to the seller listed on the GFE?
        A: RESPA requires that only the borrower receive a GFE. The GFE is defined as an
estimate of settlement charges a borrower is likely to incur in connection with the settlement.
Charges that typically would not be charged to the borrower, but would be charged to another
party—such as the seller—do not have to be included on the GFE. If the borrower typically
would incur charges for title services and lender's and owner's title insurance, the GFE
instructions make it clear that those charges are required to be listed regardless of whether, for
example, the contract requires the seller to pay for the service. If there is a question about whether
the borrower or seller is to pay for a particular settlement service, the charge for that service
should be disclosed on the GFE.

       GFE – Interest rate expiration

1)      Q: If the availability of the interest rate (shown in item 1 of ―Important dates‖ on page 1
of the GFE) expires, does a revised GFE have to be issued if the borrower locks a different
interest rate before the expiration of the estimate for the settlement charges (shown in item 2 of
―Important dates‖)?
        A: If the interest rate offer on the GFE expires and the borrower later locks the interest
rate, before the expiration of the estimate for the settlement charges, a revised GFE must be
issued if any interest rate dependent charges and terms change. If a revised GFE is issued only
the following changes may be made: (1) ―Charge or credit (points) for interest rate chosen‖; (2)
―Adjusted origination charges‖; (3) ―Daily interest charges‖; and (4) other interest rate related
loan terms. ―Our origination charge‖ and all other charges must remain the same from the prior
GFE.


LAST UPDATE:                          October 23, 2009
                                                                                                     10


       GFE – Expiration

1)      Q: When does a GFE expire?
        A: If a borrower does not express an intent to continue with an application within ten
business days after the GFE is provided (or such longer time period specified by the loan
originator), the loan originator is no longer bound by the GFE.

       GFE – Denial

1)      Q: If a loan originator denies the loan before the end of the three business day period
after application, does the loan originator need to issue a GFE?
        A: No, the loan originator is not required to issue a GFE if, before the end of the three
business day period, the loan originator denies the application or the loan applicant withdraws the
application.

2)      Q: Section 3500.7 of RESPA states that the GFE need not be provided if mortgage broker
or lender declines the application or the applicant withdraws the application within the three
business day period after application. The provisions for the Special Information Booklet state
that the lender need not provide the Special Information Booklet if the lender denies the
application before the end of the three business day period. Does the Special Information Booklet
need to be provided if the mortgage broker declines the application or the applicant withdraws the
application within the three business day period?
        A: No, the Special Information Booklet does not need to be provided if the loan
originator declines the application or the applicant withdraws the application within the three
business day period.

       GFE – Written list of providers

1)       Q: When do loan originators have to provide the borrower with a written list of identified
providers?
         A: When a loan originator permits a borrower to shop for third-party settlement services,
the loan originator must provide the borrower with a written list of settlement services providers
at the time of the GFE, on a separate sheet of paper.

2)      Q: Does the borrower have to select a settlement service provider from the loan
originator‘s written list of settlement service providers?
        A: No. If the loan originator permits a borrower to shop for a settlement service provider,
the borrower may choose a qualified provider that is not on the originator‘s written list.

3)      Q: If the borrower chooses a settlement service provider that is not on the written list,
does the tolerance apply?
        A: No, if the borrower chooses a settlement service provider that is not on the loan
originator‘s written list of providers, the amount paid for that service is not subject to a tolerance.



LAST UPDATE:                          October 23, 2009
                                                                                                   11


4)      Q: The GFE Instructions require that where a loan originator permits a borrower to shop
for third party settlement services covered in Blocks 4, 5, or 6, the loan originator must provide
the borrower with a separate written list of settlement service providers at the time of the GFE. Is
inclusion on the written list of identified providers considered a referral under Section 3500.14?
        A: Yes, the inclusion of a specifically identified settlement service provider on the
―written list‖ is considered to be a referral under 24 CFR § 3500.14(f).

5)       Q: If a mortgage broker provides the GFE and the ―written list‖ of settlement service
providers and the borrower chooses to use a provider identified on the ―written list‖ for a service,
is the lender subject to tolerances for those services?
         A: Yes, if the lender permits a mortgage broker to issue the GFE and the ―written list‖ of
providers, the lender is subject to the tolerances for the services in which the borrower chooses to
use the identified provider.

6)      Q: In lieu of providing the ―written list‖ of providers, may the loan originator disclose to
the borrower that if they specifically wish to shop for their own provider, but have difficulty
finding a provider for a service at the disclosed price that they may contact the loan originator to
ask the loan originator to identify a provider?
        A: No. Where a loan originator permits a borrower to shop for third party settlement
services, the loan originator must provide the borrower with a written list of settlement service
providers at the time of the GFE, on a separate sheet of paper.

7)       Q: Must the loan originator provide names only of those settlement service providers
known to do business in the locality of the mortgage property or may the loan originator provide a
list of national settlement service providers who may or may not do business in the locality of the
mortgaged property?
         A: The requirements for the new GFE form provide that ―[w]here the loan originator
permits a borrower to shop for third party settlement services, the loan originator must provide the
borrower with a written list of settlement services providers.‖ The list should contain settlement
service providers that are likely available to provide the settlement service for the borrower.

       GFE – “Changed circumstances”

1)      Q: Once a GFE is issued are there any circumstances under which the loan terms or
charges can change?
        A: Yes. The loan terms or charges can change in the event that there are changed
circumstances. ―Changed circumstances‖ is now defined in § 3500.2 as: (1) Acts of God, war,
disaster, or other emergency; (2) Information particular to the borrower or transaction that was
relied on in providing the GFE and that changes or is found to be inaccurate after the GFE has
been provided, which information may include information about the credit quality of the
borrower, the amount of the loan, the estimated value of the property, or any other information
that was used in providing the GFE; (3) New information particular to the borrower or transaction
that was not relied on in providing the GFE; or (4) Other circumstances that are particular to the
borrower or transaction, including boundary disputes, the need for flood insurance, or
environmental problems.

LAST UPDATE:                         October 23, 2009
                                                                                                12



        None of the information collected by the loan originator prior to issuing the GFE may later
become the basis for a ―changed circumstance‖ upon which a loan originator may offer a revised
GFE, unless the loan originator can demonstrate that there was a change in the particular
information or that it was inaccurate, or that the loan originator did not rely on that particular
information in issuing the GFE. In addition, the loan originator is presumed to have relied on the
borrower‘s name, the borrower‘s monthly income, the property address, an estimate of the value
of the property, the mortgage loan amount sought, and any information contained in any credit
report obtained by the loan originator before providing the GFE. The loan originator cannot base
a revision of the GFE on this information, unless it changed or is later found to be inaccurate.

2)      Q: Would the discovery of additional documents (such as releases) that must be recorded
causing an increase in government recording fees be considered a ―changed circumstance‖
allowing the loan originator to provide a revised GFE?
        A: The discovery of previously undisclosed circumstances affecting settlement costs such
as unreleased liens could be considered a ―changed circumstance.‖ A loan originator may choose
to issue a revised GFE reflecting only the increased charges resulting from the ―changed
circumstance‖ or may choose not to reissue a GFE if the increase is minimal. If the loan
originator chooses to issue a revised GFE, only the increase in recording fees may change on the
GFE: all other charges must remain the same.

3)     Q: If there is a ―changed circumstance,‖ when does the loan originator issue a new GFE?
       A: When there is a ―changed circumstance‖ and the loan originator intends to issue a
revised GFE, the loan originator must do so within three business days of receiving the
information sufficient to establish changed circumstances.

4)      Q: If a loan originator issues a revised GFE based on changed circumstances, how long
must the loan originator retain documentation for providing a revised GFE?
        A: The documentation that establishes changed circumstances must be retained for no
less than three years after settlement of the loan.

5)      Q: If circumstances change, may a loan originator issue a revised GFE with changes to all
of the charges and terms related to the loan?
        A: No, the loan originator may only change those charges and terms that are affected by
the specific changed circumstance.

6)     Q: If a revised GFE is provided due to changed circumstances or a borrower requested
change, then how would line 1 of the Important Dates section be completed if the borrower has
already locked the rate shown on the revised GFE?
       A: The revised GFE must only reflect the affected loan terms and settlement charges from
the changed circumstance. If the rate lock period has not been affected, the same information
from the preceding GFE should be entered in Line 1 in the ―Important dates‖ section on the GFE.




LAST UPDATE:                        October 23, 2009
                                                                                                  13


7)    Q: If a revised GFE is provided due to changed circumstances affecting the loan or a
borrower requested change, how would line 1 of the Important Dates section be completed if the
borrower has not locked the rate shown on the revised GFE?
      A: For changed circumstances affecting the loan or borrower-requested changes, if the
borrower has not locked in the interest rate, Line 1 in the ―Important dates‖ section on the GFE
may be updated to accurately reflect the correct dates and time periods.

8)    Q: Are the following sufficient to establish ―changed circumstances‖ consistent with 24
CFR § 3500.7(f)?

       i) A mortgage broker issues a GFE that a lender does not accept and the lender does not
   receive the application within three days of the date the broker received the application.
       A: This does not constitute a changed circumstance.

      ii) If a GFE is issued without a property address, the later identification of a property
   address.
      A: If a loan originator issues a GFE without identifying a property address, the
   subsequent identification of the property address is not considered a changed circumstance.

       iii) The borrower does not proceed to closing quickly upon final approval or does not act
   diligently in providing information to the lender.
       A: The particular facts of each situation must be examined to determine if the facts
   constitute a changed circumstance.

       iv) GSE, FHA or Mortgage Insurance program changes.
       A: This could constitute a changed circumstance if the loan originator did not have notice
   of the GSE, FHA or other mortgage insurance program change prior to the issuance of the
   GFE.

      v) The property address provided by the applicant, turns out to not be the correct, legal
   address.
      A: This could constitute a changed circumstance.

     vi) After the GFE is issued, parties are added to or removed from title or the property is
   moved into or out of trust.
     A: These situations could be considered changed circumstances.

      vii) During or as part of the transaction, it is determined that the property use may change,
   such as from owner-occupied to rental property.
      A: This could constitute a changed circumstance. It should be noted that business
   purpose loans are not covered by RESPA. See 24 CFR §3500.5.

      viii) After the GFE is issued, it is determined that a party will be using a POA to sign,
   which may require additional work and additional fees.
      A: This could be considered a changed circumstance.

LAST UPDATE:                        October 23, 2009
                                                                                                   14



        ix) Credit policy is required to change after the GFE is issued due to regulatory changes
   such as fees charged by government agencies for recording fees or taxes change after the GFE
   is issued.
        A: This could constitute a changed circumstance if the loan originator did not have notice
   of the regulatory change prior to the issuance of the GFE.

      x) The loan does not close by the close date in the original Purchase Agreement or
   Construction Agreement provided to the lender.
      A: The particular facts of each situation must be examined to determine if the facts
   constitute a changed circumstance.

       xi) The vendor originally selected to perform a settlement service goes out of business or
   stops offering the service.
       A: The particular facts of each situation must be examined to determine if the facts
   constitute a changed circumstance.

      xii) AVMs are commonly used for the property type and loan amount requested, but the
   AVM request comes back with a ―no hit,‖ necessitating the use of a more expensive valuation
   method.
      A: This could constitute a changed circumstance.

      xiii) After the GFE is issued, it is determined that an additional service such as an
   additional pest, structural or other inspection, upgraded appraisal, certification, survey or other
   requirement is required by the loan originator in connection with the transaction.
      A: This could constitute a changed circumstance.

       xiv) The borrower‘s credit score changes.
       A: This could constitute a changed circumstance.

       xv) A mortgage broker issues a GFE based on one lender‘s loan products and origination
   fees, but places the loan with a different lender.
       A: No, this would not constitute a changed circumstance.

9)    Q: If a GFE is revised to reflect a changed circumstance, may other charges on the GFE
be made to reflect market fluctuations?
      A: No. A GFE may not be revised to reflect market fluctuations.

10)     Q: If there is a changed circumstance and the mortgage broker issued the GFE, may the
lender issue the revised GFE reflecting the changed circumstances?
        A: Yes. If there is a changed circumstance that allows for a revised GFE, either the
mortgage broker or the lender may issue the revised GFE, but must also comply with the
requirements for documenting and retaining documentation of the reason for the revised GFE.



LAST UPDATE:                         October 23, 2009
                                                                                                15


11)     Q: Information constituting a changed circumstance or borrower-requested changes
might become available to the broker and lender at different times. When is the time for providing
a revised GFE triggered?
        A: If a revised GFE is to be provided, the loan originator must do so within 3 business
days of receiving information sufficient to establish the changed circumstance. The 3 business
days is triggered from the time of receipt by whichever loan originator, either the mortgage broker
or the lender, receives the information first. Timely communication between the mortgage broker
and the lender is essential to assure compliance.

       GFE – New construction

1)      Q: If a transaction involves new construction in which the loan may not close for months,
how does this affect the issuance of a GFE?
        A: In transactions involving new home purchases, where settlement is anticipated to
occur more than 60 calendar days from the time a GFE is provided, the loan originator may
provide the GFE to the borrower with a clear and conspicuous disclosure stating that at any time
up until 60 calendar days prior to closing, the loan originator may issue a revised GFE. If no such
separate disclosure is provided, the loan originator may not issue a revised GFE in the absence of
changed circumstances or another event as provided in 24 CFR § 3500.7(f).

2)      Q: For a loan originator to issue the separate disclosure to the GFE allowing a loan
originator to revise the GFE at any time up to 60 days before settlement, must the new home be
constructed specifically for the borrower or will any newly constructed home previously not
occupied be eligible?
        A: A new home purchase is the purchase of a home either to be constructed or under
construction. In a transaction involving a new home purchase, if it is anticipated that settlement
will not occur for more than 60 days after the GFE is provided, then a loan originator may provide
a separate disclosure to the GFE that clearly states that the loan originator may revise the GFE at
any time up to 60 days before settlement.

        As an example of a means to determine if the home is under construction: if a use and
occupancy permit has been issued for the home prior to the issuance of the GFE, then the home is
not considered to be under construction and the transaction would not be a new home purchase
for the purposes of 24 CFR § 3500.7(f)(6).

       GFE – Page 1

       GFE – Name of originator

1)      Q: Should the name of the individual loan originator or the name of the loan origination
entity go in the ―Name of Originator‖ box at the top of page 1 of the GFE?
        A: The name of the loan originator entity (such as ABC Loan Originator) must go in the
box at the top of page 1 of the GFE. In addition to the name of the entity, the name of the
individual loan originator may also be added.


LAST UPDATE:                        October 23, 2009
                                                                                                  16


2)      Q: If an application is submitted through a mortgage broker but the lender is issuing the
GFE, may either the mortgage broker or the lender be listed in the ―Name of Originator‖ box at
the top of page 1 on the GFE?
        A: The loan originator that issues the GFE is the loan originator listed in the ―Name of
Originator‖ box at the top of page 1 of the GFE.

       GFE – Important dates

1)      Q: In the ―Important dates‖ section of the GFE, where it states ―The interest rate for this
GFE is available through _______‖, does the loan originator have to leave the interest rate open
for a specific amount of time, like 10 days?
        A: There are no restrictions on the amount of time the interest rate must remain available.
The interest rate can be available for any period of time that the loan originator chooses, including
for example, a period of time within one day or for several days.

2)      Q: In the ―Important dates‖ section of the GFE, line 2, for how long must the estimate for
all other settlement charges be available?
        A: The estimate for ―all other settlement charges‖ in the ―Important dates‖ section of the
GFE must be available for at least ten business days.

3)      Q: What charges can change before the interest rate is locked?
        A: With the exception of interest rate-dependent charges and terms, the charges and
terms for all settlement services on the GFE must be available for 10 business days from when the
GFE is provided, or for such longer period of time as the loan originator provides in item 2 of the
―Important dates‖ section of the GFE. The interest rate-dependent charges and terms cannot
change before the expiration of the period indicated by the loan originator in item 1 of the
―Important dates‖ section of the GFE. Between the period of time indicated in item 1 and item 2
of the ―Important dates‖ section, only interest rate-dependent charges may change until the
interest rate is locked. After the expiration of the period indicated in item 2 of the ―Important
dates‖ section, the loan originator is permitted to change all of the charges and terms on the GFE
(assuming that the interest rate is no longer available, as indicated in item 1 of the ―Important
dates‖ section). Interest rate-dependent charges and terms include: (1) ―Your charge or credit
(points) for the specific interest rate chosen,‖ in Block 2 on page 2 of the GFE; (2) ―Your adjusted
origination charges‖ on Line A on page 2 of the GFE; (3) ―Daily interest charges‖ in Block 10 of
the GFE; and (4) interest rate-related loan terms, such as monthly amount owed.

4)      Q: If the interest rate is locked at the time the GFE is issued, how should the loan
originator complete Lines 1, 3, and 4 in the ―Important dates‖ section on the GFE?
        A: Pursuant to the GFE Instructions in Appendix C, if the interest rate is locked before
the GFE is issued, the information in Lines 1, 3 and 4 in the ―Important dates‖ section on the GFE
must be completed with the information that corresponds to the locked rate.




LAST UPDATE:                         October 23, 2009
                                                                                                        17


5)      Q: If a lender does not offer a rate lock, how should Line 1 in the ―Important dates‖
section on the GFE be completed?
        A: In Line 1, the loan originator must state the date, and if applicable, time until which
the interest rate for the GFE will be available. If the rate is not available for any period of time,
then Line 1 should state ―Not Available‖ or ―NA.‖

6)      Q: If a lender does not offer a rate lock, how should Lines 3 and 4 in the ―Important
dates‖ section on the GFE be completed?
        A: If the lender does not offer a rate lock, then Lines 3 and 4 of the ―Important dates‖
section should state ―Not Available‖ or ―NA.‖

7)      Q: If a revised GFE is provided due to changed circumstances or a borrower requested
change, is it necessary to complete Line 3 of the ―Important Dates‖ section of the GFE if the
borrower has already locked the rate shown on the revised GFE?
        A: Yes, the loan originator must complete Line 3 in the ―Important dates‖ section with
the information that was on the preceding GFE, unless the rate lock period was the basis for the
issuance of a revised GFE.

8)      Q: The estimate of ―all other settlement charges‖ in the ―Important dates‖ section on the
GFE must be available for at least 10 business days. When a GFE is mailed, are the 10 business
days measured from when it is mailed?
        A: Yes. The estimate of ―all other settlement charges‖ in the ―Important dates‖ section on
the GFE must be available for at least 10 business days from when the GFE is provided, which, in
this instance, is the date the GFE is placed in the mail to the borrower. The originator should put
the date the GFE is provided into the box for ―Date of GFE‖.

9)      Q: If state law does not permit a mortgage broker to provide an interest rate, how should
the mortgage broker complete the ―Important dates‖ section on the GFE?
        A: RESPA and HUD‘s regulations do not exempt any person from complying with
consistent laws of any state. HUD's regulations provide a process for addressing questions of
consistency between state laws and RESPA. See 24 CFR § 3500.13.

10)     Q: If a loan originator offers a ―float-down‖ lock option, how would the loan originator
complete the ―Important dates‖ section on the GFE?
        A: A ―float-down‖ option should not affect any of the lines in the ―Important dates‖
section on the GFE.

11)     Q: The loan originator must state how many calendar days within which the applicant
must go to settlement once the interest rate is locked. The number of days cannot be determined
until the lock period is determined. May the loan originator enter a range of days for allowable
lock periods? Must the loan originator account for the rescission period if the loan is rescindable?
        A: No, the loan originator may not enter a range of rate lock options on the GFE. Line 3
requires the disclosure of the number of days in which the borrower must go to settlement. Line 3
in the ―Important dates‖ section on the GFE must be completed with one rate lock period and may
need to take into account factors affecting the settlement date.

LAST UPDATE:                          October 23, 2009
                                                                                               18



12)     Q: If a revised GFE is provided due to changed circumstances or a borrower requested
change, is it necessary to complete Line 2 of the ―Important Dates‖ section on the revised GFE if
the shopping period has ended and the borrower has already expressed intent to continue with the
application?
        A: Yes, the loan originator must complete Line 2 in the ―Important dates‖ section. The
date entered must be at least 10 business days from the date the revised GFE is provided to the
borrower.

13)     Q: If a lender accepts a GFE issued by a mortgage broker, may the lender revise the
information contained in the ―Important dates‖ section on the GFE?
        A: No, after the lender has accepted the GFE issued by a mortgage broker, the lender may
not revise the information contained in the ―Important dates‖ section on the GFE, unless the
revised GFE is issued in compliance with 24 CFR § 3500.7(f).

       GFE – Summary of your loan

1)    Q: In a refinance, does the prepayment penalty in the ―Summary of your loan‖ section of
the GFE refer to the loan being paid off or the new loan being applied for?
      A: The prepayment penalty refers to the new loan the borrower is applying for.

2)       Q: How should the loan originator complete the ―Your initial monthly amount owed for
principal, interest, and any mortgage insurance is‖ in the ―Summary of your loan‖ section of the
GFE for a loan that begins as an interest-only and then becomes fully amortized?
         A: Regardless of the type of loan, the loan originator must fill in the initial monthly
amount owed for principal, interest, and any mortgage insurance. The amount shown must be the
greater of: (1) The required monthly payment for principal and interest for the first regularly
scheduled payment, plus any monthly mortgage insurance payment; or (2) the accrued interest for
the first regularly scheduled payment, plus any monthly mortgage insurance payment.

3)     Q: May discretionary charges such as credit insurance be included in the ―Your initial
monthly amount for principal, interest, and any mortgage insurance is _____________‖?
       A: No. ―Your initial monthly amount for principal, interest and any mortgage insurance
is __________‖ may not contain discretionary amounts such as credit insurance. It should only
contain the combined charges of principal, interest, and mortgage insurance.

4)     Q: What is meant by ―initial loan amount.‖?
       A: The initial loan amount is the amount of the principal loan balance on the date of
closing.

5)      Q: Why did HUD use the term ―initial loan amount‖?
        A: HUD used the term ―initial loan amount‖ because some loans allow for negative
amortization that will increase the loan balance over time. Negative amortization occurs when the
interest accrued during a payment period is greater than the scheduled payment and the excess
amount is added to the outstanding loan balance.

LAST UPDATE:                        October 23, 2009
                                                                                                       19



6)      Q: What is meant by ―initial interest rate‖?
        A: The initial interest rate is the interest rate that is applicable on the date of closing.

7)       Q: If a loan contains a conditional preferred rate feature (such as a lower interest rate to
an employee as long as the employee still works for the same employer), what is the ―initial
interest rate‖? What is the first change date on loans containing conditional preferred rate
features?
         A: The initial interest rate is the interest rate that is applicable on the date of closing. If
the first interest rate change date is not known due to a conditional preferred rate feature, the first
change date box should state ―unknown.‖

8)      Q: Are programs such as payment assistance programs, which can increase the borrower's
loan balance, to be taken into consideration in answering the question, ―Even if you make
payments on time, can your loan balance rise‖?
        A: No, this question on the HUD-1 is intended to educate borrowers about certain
potentially high risk loans, such as negative amortization loans. A borrower making monthly
payments on these loans needs to be aware, e.g., that to the extent that the monthly payments do
not cover the full amount of the interest owed during that month, the unpaid interest will be added
to the loan balance. The instructions for completing this item on the GFE provide that repayment
of assistance from federal, state, local, or tribal housing programs should be excluded from
consideration in completing this item on the GFE.

9)      Q: When an FHA loan is paid off, a borrower may have to pay interest on the loan from
the day of payoff until the end of that month. Does this mean that a loan originator should check
―Yes‖ to the question ―Does your loan have a prepayment penalty?‖
        A: No. This is not considered a prepayment penalty. By letter dated September 29, 2009,
the Federal Reserve Board of Governors stated to HUD that lenders which use the monthly
interest accrual method required by FHA ―. . . would not be required to treat the interest charged
from the date of prepayment until the next installment due date as a prepayment penalty for any
purpose under Regulation Z.‖

        GFE – Escrow account information

1)       Q: How does the loan originator complete the ―Escrow account information‖ section on
the GFE?
         A: On the GFE, in the ―Escrow account information‖ section, the first box is for the
monthly payment that the borrower will owe for principal, interest, and mortgage insurance (i.e.,
the same amount shown above on the GFE as ―Your initial monthly amount owed for principal,
interest, and any mortgage insurance is‖). If the lender does not require an escrow account, the
loan originator should check the box for ―No, you do not have an escrow account. You must pay
these charges directly when due.‖ If the lender does require an escrow account, the loan
originator should check the box for ―Yes, you have an escrow account. It may or may not cover
all of these charges. Ask us.‖


LAST UPDATE:                           October 23, 2009
                                                                                                 20


2)     Q: On the GFE, in the ―Escrow account information‖ section, does the first block for the
monthly amount owed include the amount of the estimated escrow payment?
       A: No, the first block is for the monthly amount that will be owed for principal, interest,
and mortgage insurance only. Additional information on charges relating to the escrow account is
in Block 9 on page 2 of the GFE.

       GFE – Page 2

1)     Q: If a governmental loan program requires a borrower to select an “approved”
service provider, such as a HUD approved housing counselor, should the service be
disclosed in Block 3 or Block 6 on the GFE?
       A: Even if a governmental loan program requires a borrower to select from only
“approved” service providers (such as HUD approved housing counselors) the service must
be disclosed in Block 6 on the GFE. If the loan originator selects a particular settlement
service provider, the service must be disclosed in Block 3.

(Please note that the answer above also applies to reverse mortgage programs, see Reverse
Mortgages #8.)

       GFE – Block 1

1)      Q: If there is a lender and a mortgage broker in the same transaction, where does the loan
originator put the lender and mortgage broker charges?
        A: The total of all charges for all loan originators (lenders and mortgage brokers) must be
contained in Block 1, ―Our origination charge‖ on page 2 of the GFE, except for any charge for
the specific interest rate chosen.

2)     Q: Where does the loan originator put the lender‘s processing fee on the GFE?
       A: All loan originator charges—including processing, application, administration fees,
underwriting, document preparation, wire, lender inspection, mortgage broker, loan handling, and
other miscellaneous fees—are contained in Block 1, ―Our origination charge‖.

3)     Q: Can the charge shown on the GFE, Block 1, ―Our origination charge‖, increase after
the GFE has been issued?
       A: No. Block 1, ―Our origination charge‖ cannot increase unless there is a ―changed
circumstance‖ as defined in 24 CFR § 3500.2.

4)      Q: Where should fees such as loan originator‘s Processing Fee, Underwriting Fee, and
Wire Transfer Fee be disclosed on the GFE?
        A: All origination charges for lenders and mortgage brokers, including fees for
administrative and processing services, are included in the charge in Block 1 of the GFE, ―Our
origination charge‖ and should not be itemized separately.

5)     Q: If a loan originator contracts loan document preparation to a third party, is this a
separate charge on the GFE and the HUD-1?

LAST UPDATE:                         October 23, 2009
                                                                                                   21


        A: No, loan document preparation is a processing and administrative service in the
origination of a loan and is included in Block 1 of the GFE, ―Our origination charge‖ (and in Line
801 of the HUD-1), and may not be separately itemized. See 24 CFR § 3500.8(b)(1).

6)      Q: Are attorney‘s fees charged to prepare loan documents for the lender considered part
of the charge for origination services disclosed on Block 1 of the GFE?
        A: Yes, attorney‘s fees charged to prepare loan documents for the lender are considered
part of the charge for origination services disclosed on Block 1 of the GFE and should not be
separately itemized.


7)      Q: Where would a loan originator‘s commitment fee be disclosed on the GFE?
        A: Any fee charged by a loan originator for the commitment period, including a fee to
extend the commitment period, is included in Block 1 of the GFE, ―Our origination charge‖. ―Our
origination charge‖ includes processing, application, administration fees, underwriting, document
preparation, wire, lender inspection, mortgage broker, loan handling and other loan originator
miscellaneous fees.

       GFE – Block 2

1)       Q: How does a loan originator show a ―no cost‖ loan on the GFE?
         A: Where a ―no cost‖ loan encompasses the loan origination charge and some or all third
party fees, a credit should be listed in Block 2 of the GFE to offset all fees encompassed in the
―no cost‖ loan resulting in a negative number in Block A to cover the intended third party fees,
listed in Blocks 3 thru 11 as appropriate.

2)      Q: I am a mortgage broker. If a lender is paying a yield spread premium through the loan,
how do I show the charge for discount points on the GFE?
        A: There may not be a credit for a yield spread premium and a charge for discount points
in the same transaction. Only one box in GFE Block 2, ―Your credit or charge for the specific
interest rate chosen,‖ may be checked.

3)      Q: How is a fee paid by the borrower to temporarily buy down the interest rate disclosed
on the GFE? For example: how is a 3-2-1 buy down, in which the interest rate is below the note
rate by 3 points for the first year, 2 points for the second year and 1 point for the third year,
disclosed on the GFE?
        A: A temporary buy-down of the interest rate is a charge to the borrower for the interest
rate chosen on the loan and as shown in Block 2 of the GFE. A lender could check either the first
or the third box in Block 2 of the GFE. A mortgage broker must check the third box in Block 2 of
the GFE. If entered in the third box, the charge for the buy-down is entered in the blank space for
the charge, and, whether entered in either the first or third box, the initial interest rate should be
entered in the blank space for the interest rate.




LAST UPDATE:                         October 23, 2009
                                                                                                    22


       GFE – Block 3

1)      Q: Where should a VA funding fee be disclosed on the GFE?
        A: Fees specific to government loan programs, such as a VA Funding Fee, should be
disclosed in Block 3, ―Required services that we select.‖

2)       Q: What services belong in Block 3, ―Required services that we select‖?
         A: Block 3 of the GFE contains the charges for all third-party settlement services (except
title services) for which the loan originator requires and selects the provider of the service.
Examples of these charges for services generally include but are not limited to, appraisal, credit
report, tax service, flood certification and up-front mortgage insurance premiums.


       GFE – Block 4

1)       Q: Where should the quote for the Lender‘s title insurance policy premium be disclosed
on the GFE?
         A: The Lender‘s title insurance premium is part of Block 4, ―Title services and lender‘s
title insurance‖ on the GFE, along with any fees for title searches, examinations, endorsements
and all charges associated with the title services and settlement (closing) agent services.

2)     Q: Are delivery fees included in ―Title services‖ and therefore included in Block 4 of the
GFE?
       A: Yes, delivery fees are included in the definition of ―title services‖ and are included in
the charge shown in Block 4 of the GFE.

3)     Q: Are notary fees included in ―Title services‖ and therefore included in GFE Block 4?
       A: Yes, notary fees are included in the definition of ―title services‖ and are included in
the charge shown in Block 4 of the GFE.

4)    Q: Does ―title services‖ include the settlement fee?
      A: Yes, ―Title services‖ is defined to include the service of conducting a settlement. See
24 CFR § 3500.2.

5)      Q: How is the charge for conducting the settlement disclosed on the GFE?
        A: The charge to the borrower for conducting the settlement must be included in the total
of the charges in Block 4 for ―Title services and lender‘s title insurance‖.

6)       Q: Where do I put the charge for the title commitment on the GFE?
         A: The term ―title services‖ is defined to include any service involved in the preparation
and issuance of the title insurance policies. See 24 CFR § 3500.2. On the GFE, the charge for
title services is part of the total charge in Block 4 of the GFE.




LAST UPDATE:                         October 23, 2009
                                                                                                     23


7)      Q: If it is common practice in the locality to charge both the seller and the borrower a
separate charge for the service for conducting the settlement, how should the charges for that
service be disclosed on the GFE?
        A: The charge to the borrower for conducting the settlement must be included in the total
for Block 4 of the GFE. Charges that the seller pays as a matter of common practice and
experience are not disclosed on the GFE.

       GFE – Block 5

1)      Q: Do loan originators have to provide a price for Owner‘s title insurance on the GFE?
        A: Loan originators must provide an estimate of the charge for an Owner‘s title insurance
policy in Block 5, ―Owner‘s title insurance‖ on the GFE on all purchase transactions. For non-
purchase transactions, the loan originator may enter ―NA‖ or ―Not Applicable‖ in this Block.

2)       Q: If a seller typically pays for the Block 5, ―Owner‘s title insurance‖, does the charge
still have to be shown on the GFE?
         A: Yes, an estimate of the cost must be shown in Block 5, ―Owner‘s title insurance‖ for
all purchase transactions regardless of who is selecting or paying for it.

3)      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.

4)       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.

       GFE – Block 11

1)       Q: What types of insurance are included on the GFE, Block 11, ―Homeowner‘s
insurance‖?
         A: Block 11 of the GFE contains estimates for premiums for all types of insurance (other
than title insurance) that must be purchased to meet the loan originator‘s requirements to protect
the property from loss, such as hazard insurance (homeowner‘s insurance), flood insurance, and
earthquake insurance.

LAST UPDATE:                         October 23, 2009
                                                                                                   24



2)      Q: Where should the charge for flood insurance go on the new GFE?
        A: Flood insurance is a type of insurance that would protect the property from loss. The
charge for flood insurance should be itemized in Block 11 on the GFE and included in the Block
11 total.

       GFE – Page 3

       GFE – Tradeoff table

1)      Q: Are loan originators required to complete the Tradeoff table?
        A: The loan originator must complete the left-hand column (―The loan in this GFE‖) of
the Tradeoff table with the information pertaining to the loan as shown on page 1 of the GFE.
The loan originator, at its option, may also complete the remaining sections in the Tradeoff table
with the same information showing an alternate loan with a higher interest rate and one with a
lower interest rate, if the loan originator has those loans available and would issue a GFE based
on the same information provided by the applicant. The alternative loans must use the same loan
amount and be identical to the loan in the GFE except for the interest rate and closing costs.

2)       Q: If a loan originator offers an adjustable interest rate (ARM) loan in which interest rate
related charges may also be used to affect the margin of the loan; will the loan originator be
prohibited from using the tradeoff table because of the different margin?
         A: The loan originator is required to complete only the left hand column on the tradeoff
table, with information respective to the loan terms and settlement charges contained on the GFE.
If the loan originator chooses to complete the remaining columns in the tradeoff table, the
alternative loans must use the same loan amount and must be otherwise identical to the loan
offered, including the margin.

Reverse Mortgages

1)      Q: Reverse mortgages do not have a “loan amount.” Rather there is an initial
principal limit. In the loan summary section on the GFE and on page 3 of the HUD-1, what
is considered the initial loan amount on a reverse mortgage?
        A: The initial loan amount on a reverse mortgage is the initial principal limit.

2)     Q: Reverse mortgages do not have a “loan amount”; rather there is an initial
principal limit. What is considered the loan amount for purposes of Line 202 on page 1 of
the HUD-1?
       A: The initial principal limit is considered to be the loan amount for purposes of
completing Line 202 on page 1 of the HUD-1 and should be listed outside of the borrower’s




LAST UPDATE:                         October 23, 2009
                                                                                              25


column. If there is an initial draw, the description of the initial draw may be listed on a
blank line in Lines 204- 209 with the amount in the borrower’s column.

       The example below illustrates how this answer would appear:




3)      Q: In a reverse mortgage, the loan becomes due upon the occurrence of a specified
event, such as the death of the borrower or the borrower no longer occupying the property
for a certain period of time. What should be entered on the GFE and HUD-1/1A forms for
the loan term?
        A: If the loan term is conditioned upon a specific event in the future and the timing
of that event is not known at the time the GFE is issued and the HUD-1 is prepared, (e.g. a
reverse mortgage), the loan originator may enter “Not Applicable” or “N/A” for the loan
term.

4)      Q: Typically, there are no payments due on a reverse mortgage until the termination
event occurs and the entire amount becomes due. What should reverse mortgage lenders fill
in for “Your initial monthly amount owed for principal, interest, and any mortgage
insurance is _________”?
        A: If no loan payment for principal, interest or mortgage insurance is due for a
reverse mortgage until a termination event occurs, the loan originator may enter either
“Not Applicable” or “N/A” for the initial monthly payment in the appropriate spaces on the
GFE and the HUD-1.

5)     Q: In a reverse mortgage, how should the loan originator complete the answer to the
question, “Even if you make payments on time, can your loan balance rise?”
       A: In a typical reverse mortgage the loan balance will rise through accrued interest
and future disbursements, if any, to the borrower. In these types of loans the box checked
must indicate that the loan balance could rise. However, the maximum to which the loan
balance can rise is not typically known with a reverse mortgage, and this maximum may be
reported as “Unknown”.

       The example below illustrates how this answer would appear:




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                                                                                            26


6)     Q: In a reverse mortgage, how should the loan originator complete the answer to the
question on the GFE, “Even if you make payments on time, can your monthly amount owed
for principal, interest, and any mortgage insurance rise?”
       A: If no loan payment is due for principal, interest and mortgage insurance until a
termination event occurs on a reverse mortgage, the loan originator may check the box
“No” as the answer to the question, “Even if you make payments on time, can your monthly
amount owed for principal, interest, and any mortgage insurance rise?” on the GFE.

7)     Q: In a reverse mortgage, the loan is typically repaid after a termination event
occurs and is repaid in one payment. Does the repayment of a reverse mortgage constitute a
balloon payment for purposes of answering the question, “Does your loan have a balloon
payment?” in the “Summary of your loan terms” on the GFE?
       A: No, the repayment of a reverse mortgage, if the payment is due solely because a
termination event occurred, is not considered a balloon payment for purposes of the GFE
and HUD-1 disclosure.

8)     Q: If a governmental loan program requires a borrower to select an “approved”
service provider, such as a HUD approved housing counselor, should the service be
disclosed in Block 3 or Block 6 on the GFE?
       A: Even if a governmental loan program requires a borrower to select from only
“approved” service providers (such as HUD approved housing counselors) the service must
be disclosed in Block 6 on the GFE. If the loan originator selects a particular settlement
service provider, the service must be disclosed in Block 3.

(Please note that the answer above also applies to other loan programs, see GFE – Page 2,
#1.)

9)     Q: If the lender will establish an arrangement whereby the lender/servicer will pay
items such as property taxes or homeowner’s insurance from a portion of the principal limit
on a reverse mortgage, should the loan originator check the “Yes, you have an escrow
account. It may or may not cover all of these charges. Ask us.” in the escrow account
information section on page 1 of the GFE?
       A: Yes. If the lender will establish an arrangement whereby the lender/servicer will
pay items such as property taxes or homeowner’s insurance from a portion of the principal
limit on a reverse mortgage, the loan originator should check “Yes, you have an escrow
account. It may or may not cover all of these charges. Ask us.” in the escrow account
information section on page 1 of the GFE.

       The example below illustrates how this answer would appear:




LAST UPDATE:                      October 23, 2009
                                                                                              27



10)      Q: For a reverse mortgage, should the loan originator complete the GFE with the
initial interest rate to be contained in the Note or the expected rate in the “Important dates”
section on page 1 of the GFE, “The interest rate for this GFE is available through
 __________. After this time, the interest rate, some of your loan Origination Charges and
the monthly payment shown below can change until you lock your interest rate.”?
         A: The loan originator should disclose the initial interest rate to be contained in the
Note in the “Important dates” section on page 1 of the GFE, “The interest rate for this GFE
is available through __________. After this time, the interest rate, some of your loan
Origination Charges and the monthly payment shown below can change until you lock your
interest rate.”

11)    Q: For a reverse mortgage in which there is no monthly payment anticipated, how
should the statement, “Your initial monthly amount owed for principal, interest and any
mortgage insurance is,” on the “Loan terms” section on page 3 of the HUD-1?
       A: If no loan payment is due for principal, interest and mortgage insurance until a
termination event occurs on a reverse mortgage, the initial monthly amount owed in the
“Loan terms” section on page 3 of the HUD-1 should be completed with “Not Applicable” or
“N/A” for the statement “Your initial monthly amount owed for principal, interest and any
mortgage insurance is,” and the boxes for principal, interest and mortgage insurance should
not be checked.

       The example below illustrates how this answer would appear:




LAST UPDATE:                       October 23, 2009
                                                                                                      28


12)    Q: How should the “Total monthly amount owed including escrow payments”
section on page 3 of the HUD-1 be completed for a reverse mortgage in which the lender or
servicer will pay items such as property taxes or homeowner’s insurance from a portion of
the principal limit?
       A: In a reverse mortgage where the lender has established an arrangement that will
pay for items such as property taxes or homeowner’s insurance through draws from the
principal limit, the second box in the “Total monthly amount owed including escrow
payments” section on page 3 of the HUD-1 must be checked. The blank following the first $
sign must be completed with “0” and an asterisk, and all items the draw will be used for,
such as property taxes, must also be checked. An asterisk must also be placed under the
statement, “Total monthly amount owed including escrow account payments,” with a
description such as, “Paid by or through draws from the principal limit.”

       The example below illustrates how this answer would appear:




Average Charge

1)     Q: What services can be estimated and charged using an average charge?
       A: Third party charges for services that are not based on the property value or loan
amount may be estimated, charged, and reported using an average charge. These third party
charges are permitted for services that include but are not limited to: appraisals, credit reports,
flood certificates, tax service, and recording documents (such as charges by a locality on a per
page basis).

       Average charges may not be used for items such as transfer taxes, interest charges, escrow
reserves and insurances (including title insurance).

2)      Q: How long does the settlement service provider have to keep documentation on how it
calculated an average charge?
        A: A settlement service provider must keep documentation used to calculate an average
charge for at least three years after any settlement for which that average charge was used.

3)     Q: What if the use of an average charge is not permitted under state law?
       A: The use of an average charge is optional. HUD‘s average charge provision does not
preempt state law. If a state in which a settlement service provider does business prohibits
average charges, the settlement service provider may not use an average charge in that state.

LAST UPDATE:                          October 23, 2009
                                                                                                29


4)      Q: How is an average charge calculated?
        A: The settlement service provider using an average charge must define a specific class of
transactions for a specific time period (not less than 30 calendar days, nor more than 6 months),
for a specific geographical area, and for a specific loan type. The average charge is based on a
calculation of the average amount paid for the settlement service for the particular class of
transaction. HUD does not prescribe a particular method for calculating the average charge, but it
must be determined in such a way that the total amounts paid by borrowers and sellers through
use of an average charge will not exceed the total amounts paid to the applicable settlement
service providers in the particular class of transactions.

5)      Q: If in using the average charge method of calculating and disclosing settlement charges,
a settlement service provider charges borrowers and sellers (in the aggregate) too much for the
settlement service, does the excess amount need to be refunded or is it permissible for the
provider to keep the excess amount?
        A: The excess amount does not have to be refunded, but it is not permissible to retain the
excess amount. The excess may be applied to the next average charge period, for example. When
such a procedure is followed, the average charge applied for the subsequent class of transactions
must be adjusted, so that the sum of the previous excess amount and the total amount paid by the
borrowers and sellers in the subsequent class does not exceed the total amount paid to the
applicable settlement service providers.

6)     Q: If the charge for a settlement service is calculated using average charge, may the
charge be waived or discounted?
       A: Yes. The regulations prohibit charging more than the calculated average charge, but
discounting or waiving a charge to a borrower is permitted.

7)     Q: If a settlement service charge for a particular class is calculated using an average
charge, may the average charge amount vary?
       A: The average charge amount across a defined class of transactions may not increase
from the calculated average charge for the predetermined time period. Discounts to the borrower
are permitted.

8)      Q: Are bona fide and reasonable charges under Regulation Z necessarily an ‗average
charge‘ that complies with RESPA‘s specific restrictions on average charges? Are ‗average
charges‘ under RESPA necessarily bona fide and reasonable under Regulation Z?
        A: The use of average charges under RESPA is governed by 24 CFR 3500.8(b)(2). HUD
cannot interpret regulations promulgated by another federal agency such as Regulation Z (12 CFR
part 226). Please refer to the Board of Governors of the Federal Reserve System for
interpretations of Regulation Z.




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                                                                                                  30


Section 4 and 5 – Right to cure and tolerance violations

1)      Q: If there is an inadvertent or technical error on the HUD-1, is this considered a
violation of Section 4 of RESPA?
        A: As long as a revised HUD-1 is provided to all parties within 30 calendar days after
settlement, it would not be considered a violation of RESPA Section 4.

2)     Q: Who is responsible for any tolerance violation?
       A: The lender is responsible for curing tolerance violations.

3)      Q: Does the settlement agent have to stop the closing if a tolerance would be violated?
        A: No, the settlement agent does not need to stop the closing. While HUD recommends
that the lender cure the tolerance violation at closing, the lender has 30 calendar days to cure.

4)      Q: If a charge on the HUD-1 is less than the charge on the GFE, is this a tolerance
violation?
        A: No. It is permissible for charges to the borrower to decrease. This is not considered a
violation.

5)      Q: What happens if the charges are not properly calculated on the GFE and later result in
a tolerance violation? Will the settlement agent be responsible for paying the difference to the
consumer?
        A: The lender is responsible for curing all tolerance violations; not the settlement agent.
The lender must cure the violation at closing or within 30 days after settlement.

6)      Q: If a loan originator pressures a settlement agent to reduce their charges or to ‗cover
the difference‘ to bring the costs into compliance with the tolerances, is that considered a
violation of RESPA Section 8(a)?
        A: If a loan originator (or other settlement service provider) pressures a settlement agent
(or other settlement service provider) to reduce their charges or otherwise ‗cover the difference‘ to
bring the costs into compliance with the tolerances as a condition of receiving future referrals of
business, it may be considered a potential violation of RESPA Section 8(a). Please contact the
Office of RESPA and ILS to file a complaint.

7)       Q: If the lender does not cure a tolerance violation at closing but does cure the violation
within the 30-day right-to-cure period, who sends the borrower the reimbursement? Who
prepares the revised HUD-1?
         A: The lender is responsible for making the reimbursement, but either the lender or a
third party authorized by the lender (including the settlement agent) may send the reimbursement
to the borrower. RESPA and § 3500.8 of HUD's regulations require the settlement agent (person
conducting the settlement) to complete the HUD-1 Settlement Statement. Therefore, a HUD-1
that is revised to adjust charges, such as to cure a tolerance violation, is also completed by the
settlement agent.



LAST UPDATE:                         October 23, 2009
                                                                                                   31


8)       Q: If the lender refunds money to a borrower to correct a tolerance violation and does not
inform the settlement agent, has the settlement agent violated Section 4 of RESPA by not
providing a revised HUD-1?
         A: If the lender does not inform the settlement agent of the changes, the settlement agent
is not in violation of Section 4 of RESPA for not providing an accurate HUD-1. The lender is
responsible for informing the settlement agent of any changes that would necessitate a revised
HUD-1 because the lender is responsible for transmitting to the settlement agent all information
necessary to provide an accurate HUD-1. After the lender informs the settlement agent of
changes, the settlement agent must correct the HUD-1 and provide copies of the corrected HUD-1
to the borrower, seller, and lender, as applicable.

9)       Q: How is a potential tolerance violation that is corrected by the lender shown on the
HUD-1?
         A: The settlement agent must prepare a revised HUD-1 that states the actual charges paid
by the borrower and seller. If the lender pays for a portion of a charge to cure a potential tolerance
violation, the amounts for the charge shown on pages 2 and 3 of the HUD-1 must be corrected to
show the actual amount charged to the borrower. The settlement agent should include on a blank
line in the applicable series a notation that the lender has made a P.O.C. payment of a specified
amount to correct a potential tolerance violation. After the revised HUD-1 has been prepared by
the settlement agent, the settlement agent must provide the revised HUD-1 to the borrower, the
lender, and the seller as appropriate.

          The example below illustrates how a cure for $200.00 of transfer tax charges should be
listed:




10)     Q: Is the tolerance threshold for HUD-1 Lines 801, 802 and 803 separate or is the
tolerance threshold the aggregate of the three lines?
        A: HUD-1 Lines 801, 802 and 803 each have a separate tolerance threshold.




LAST UPDATE:                          October 23, 2009
                                                                                                    32


HUD-1

       HUD-1 – General

1)      Q: How are courier and overnight delivery fees shown on the HUD-1 Settlement
Statement?
        A: Courier and overnight delivery fees are considered to be fees for administrative or
processing services. They are part of a primary service, such as the origination service or title
service, and may not be separately itemized.

2)   Q: Does voluntarily using the HUD-1 in a transaction that otherwise is not subject to
RESPA result in RESPA applying to the transaction?
     A: No, using the HUD-1 form does not subject a transaction to coverage under RESPA.

3)      Q: Does ―conducting a settlement‖ (from the definition of ―title service‖) have the same
meaning as ―conducting the closing‖?
        A: Yes. The terms ―conducting a settlement‖ and ―conducting the closing‖ have the same
meaning under HUD's RESPA regulations and are subject to identical requirements under the
regulations.

4)      Q: May separate HUD-1s be given to the seller and the borrower with only their own
information on each HUD-1?
        A: Yes. It is permissible to have two separate HUD-1s in a transaction; one with the
buyer‘s credits and charges only, and one with the seller‘s credits and charges only. The
settlement agent must provide the lender with a copy of both HUD-1s when the borrower's and
the seller's copies differ.

5)     Q: If an addendum is used, can the following text be added to the HUD-1: ―See attached
addendum for additional information.‖?
       A: It is acceptable to insert such a reference where appropriate on the HUD-1 for the
purpose of making it clear to the parties what the complete HUD-1 comprises.

6)      Q: How should payments by the seller or real estate agent that are for settlement services
included on the GFE be shown on the HUD-1?
        A: If a seller or real estate agent pays for a charge that was included on the GFE, the
charges should be listed in the borrower's column, with an offsetting credit reported in Lines 204-
209 of the HUD-1, identifying the party paying the charge. For a seller-paid charge, the charge
should also be listed in Lines 506-509. For a charge paid by the real estate agent, the name of the
person paying the charge must also be listed.




LAST UPDATE:                         October 23, 2009
                                                                                                    33


7)      Q: The instructions in Appendix A to Part 3500 for completing the HUD-1 indicate how
fees that are paid outside of closing should be designated on the HUD-1. Can the convention
―P.O.C. (B*)‖ be used instead, with the following footnote at the bottom of the page: ―*Paid
outside of closing by borrower‖?
        A: Yes, the HUD-1 Instructions require that P.O.C. items be listed on the HUD-1 by the
settlement agent with an indication whether P.O.C. items are paid by the borrower, seller, or other
party by marking the items paid for by whoever made the payment identified in parentheses, such
as P.O.C. (borrower) or P.O.C. (seller). P.O.C. (B*) may also represent P.O.C. (borrower) and
P.O.C. (S*) may also represent P.O.C. (seller) as long as a footnote is added to the HUD-1 clearly
noting the party paying for the item such as *Paid outside of closing by borrower or *Paid outside
of closing by seller.

8)       Q: Where should fees for processing and administrative services be listed on the HUD-1
Settlement Statement?
         A: Processing and administrative services are services to perform origination and title
services functions. For the loan origination function, charges for such services are included in the
total on Line 801. For the title services function, charges for such services must be included in
the title underwriter's or title agent's charge and are shown in the total on Line 1101. Examples of
processing and administrative services include, but are not limited to, the following: document
delivery, document preparation, copying, wiring, preparing endorsements, document handling,
and notarization.

9)       Q: Where should the survey fee be disclosed on the HUD-1?
         A: The location of the survey fee on the HUD-1 is determined as follows:
         (a) if the loan originator required a survey as a condition of the loan and selected the
settlement service provider, the charge for the survey must be listed on a blank line in the 800
series in the borrower‘s column;
         (b) if the loan originator required a survey as a condition of the loan and the borrower
selected the settlement service provider, the charge for the survey must be listed as part of the
total in Line 1301 of the HUD-1 and itemized as applicable;
         (c) if a survey was required to issue a lender‘s or owner‘s title insurance policy, the charge
for the survey is part of the charge in Line 1101 and must be further itemized if performed by a
third party;
         (d) if the borrower elected to obtain a survey that was neither required by the loan
originator nor required to issue a lender‘s or owner‘s title insurance policy, then the charge is
listed in the borrower‘s column on a blank line in the 1300 series.

10)     Q: May an addendum be added to the HUD-1 to list additional fees and other
information?
        A: Yes, an additional page may be attached to the HUD-1 to add sequentially numbered
lines as needed to accommodate the complete listing of all items required to be shown on the
HUD-1, and for the purpose of including customary recitals and information used locally in real
estate settlements (for example, breakdown of payoff figures, a breakdown of borrower‘s total
monthly mortgage payments, check disbursements, a statement indicating receipt of funds,
applicable special stipulations between buyer and seller, and the date funds are transferred).

LAST UPDATE:                          October 23, 2009
                                                                                                   34



11)     Q: The General Instructions indicate that if a charge has been shown on the GFE as
payable by the borrower but at closing it is paid by another person, including by the loan
originator in a loan other than a no-cost loan, the fee should be shown in the borrower‘s column
on the HUD-1 and be offset by listing a credit to the borrower on lines 204-209 of the HUD-1. If
a HUD-1A form is being used, lines 204-209 do not exist. How should the credit be shown on a
HUD-1A form?
        A: Use of the HUD-1A form is an optional form to be used by the settlement agent in a
transaction in which there is not a seller and as otherwise appropriate. If the use of a HUD-1A
form is not appropriate, such as if there is a credit given by a loan originator or other party, the
settlement agent must use the HUD-1 form.

12)     Q: In a transaction that is closed in the mortgage broker‘s name but is table funded by the
lender, must the name and address of the funding lender be shown in Section F (consistent with
definition of ―lender‖ under 24 CFR § 3500.2(b)) or may the mortgage broker‘s name and address
be shown?
        A: The HUD-1 Instructions for Section F state that the name and address of the lender
must be stated in this section. Therefore the name of the lender and not the mortgage broker must
be stated in Section F on the HUD-1.

13)     Q: What does the HUD-1 Instructions in Appendix A refer to when it states ―these
instructions‖?
        A: They refer to the instructions for completing the HUD-1 found in Appendix A
pursuant to the Regulations at 24 CFR § 3500.8.

14)    Q: What do the initials ―RHS‖ stand for on page 1 of the HUD-1, B. Type of Loan,
number 2?
       A: The initials ―RHS‖ on page 1 of the HUD-1, B. Type of Loan, number 2 stands for
Rural Housing Service.

       HUD-1 – Page 1

       HUD-1 – Seller-paid items

1)      Q: What if at closing the seller is paying for a settlement service that was listed on the
GFE, such as the Owner‘s title insurance policy? How is this shown on the HUD-1?
        A: If the seller is paying for a service that was on the GFE, such as Owner‘s title
insurance, the charge remains in the borrower‘s column on the HUD-1. A credit from the seller to
the borrower to offset the charge should be listed on the first page of the HUD-1 in Lines 204-209
and Lines 506-509 respectively.

2)      Q: If the seller has agreed to pay charges that were disclosed on the borrower‘s GFE, how
are these charges listed on the HUD-1?
        A: The charge for any service which is disclosed on the borrower‘s GFE is listed in the
borrower‘s column on the HUD-1. The amount charged to the borrower is offset by a credit in

LAST UPDATE:                         October 23, 2009
                                                                                                35


that amount in Lines 204-209 and by a charge to the seller in that amount in Lines 506-509 on
page 1 of the HUD-1.

       HUD-1 – 200 series

1)      Q: When the borrower is using a second loan to help finance the purchase of a home, may
both loans go on one HUD-1?
        A: No, each loan must have a separate GFE and a separate HUD-1. The principal amount
of the second loan must be listed outside the borrower‘s column with a brief explanation on Line
204-209 of the HUD-1 for the primary loan. If the net proceeds of the second loan are less than
the principal amount, the net proceeds may be listed on the same line in the borrower‘s column.

       The example below illustrates how the fields in this question may be completed.

                  204. Second loan (principal balance $30,000)        $29, 400.00

2)      Q: What types of loans can be shown in Line 202 of the HUD-1?
        A: Line 202 of the HUD-1 is used to state the amount of the loan in the mortgage
transaction. The loan could be a purchase money loan, refinance, home equity loan, construction
loan, or a manufactured home purchase loan.

3)   Q: Where should the transferred escrow balance in a refinance transaction be listed on the
HUD-1?
     A: The transferred escrow balance should be listed as a credit in lines 204-209 of the
HUD-1.

       HUD-1 – Page 2

1)     Q: On which lines of page 2 of the HUD-1 is a person not required to be identified?
       A: The general rule is that the names of all persons that received payment for each
separately identified settlement service must be identified on page 2 of the HUD-1. There is not a
requirement to identify persons on the following lines: 801, 802, 803, 901, the 1000 series, 1101,
1105, 1106, 1201, 1202, 1203, 1204, 1205 and 1301.

       HUD-1 – 700 series

1)      Q: Where do I put the percentage of commission to the real estate agents on the HUD-1?
        A: The percentage used to compute the sales commission has been removed from the
HUD-1 to better reflect current practices in the real estate industry. The total amount of the
commission to each real estate broker or agent must be shown on Lines 701 and 702. The amount
of the commissions disbursed at settlement must be shown inside the columns on Line 703.




LAST UPDATE:                           October 23, 2009
                                                                                                  36


2)      Q: If a real estate agent is retaining some of the borrower‘s earnest money deposit as part
of the agent's commission, is that amount listed in the 700-series on the HUD-1?
        A: Yes, if a real estate agent is holding the borrower‘s earnest money deposit, the amount
of the earnest money deposit applied towards the commission and the party holding the earnest
money must be identified on Line 704 of the HUD-1 as Paid Outside of Closing or P.O.C. Only
the amount of the commission disbursed at settlement is entered in the columns on Line 703.

       HUD-1 – 800 series

1)      Q: What charges are included in ―Our origination charge‖ on Line 801 of the HUD-1?
        A: Line 801 includes all charges received by a loan originator, except for any additional
charge (―points‖) for the interest rate chosen on the loan. The amount on Line 801 also includes
all amounts received for any service, including administrative and processing services, performed
by or on behalf of the lender or any mortgage broker. (The amount on Line 801 is not listed in
the columns.)

2)     Q: If an attorney prepares loan documents for a lender, where does that charge go on the
HUD-1?
       A: Loan document preparation done on behalf of the loan originator is a processing and
administrative service in the origination of a loan and is included in the charge on Line 801 of the
HUD-1, and may not be separately itemized. See 24 CFR § 3500.8(b)(1).

3)      Q: How does a settlement agent show a ―no cost‖ loan on the HUD-1?
        A: In the case of ―no cost‖ loans where ―no cost‖ refers only to the loan originator‘s fees,
a credit equal to the amount shown in Line 801 on the HUD-1 must be given in Line 802 of the
HUD-1 so that the adjusted origination charge in Line 803 of the HUD-1 equals zero. In the case
of ―no cost‖ loans where ―no cost‖ encompasses some or all third party fees and the origination
charge, a credit should be listed in Line 802 of the HUD-1 to offset all fees encompassed in the
―no cost‖ loan, resulting in a negative number for the adjusted origination charge on Line 803 of
the HUD-1. The third party services covered by this offset must be itemized and listed in the
borrower‘s column.

4)      Q: If a borrower pays some of the origination charge prior to closing, how should it be
disclosed on the HUD-1?
        A: The full charge for origination, except for any charge for the specific interest rate
chosen (points), must be shown on Line 801 of the HUD-1 to the left of the borrower‘s column.
If the borrower pays some of the origination charge before settlement, an offsetting credit in that
amount is shown on the first page of the HUD-1 in Lines 204 – 209. Lines 801, 802, and 803 of
the HUD-1 may not contain any ―Paid Outside of Closing‖ (P.O.C.) items.

5)     Q: How is a payment from the lender to the mortgage broker that will be ―paid outside of
closing‖ (P.O.C.) shown on the GFE and HUD-1?
       A: All payments from a lender to a mortgage broker must be shown as a credit to the
borrower in Block 2 of the GFE and on Line 802 of the HUD-1. These payments may not be
shown as P.O.C.

LAST UPDATE:                         October 23, 2009
                                                                                                  37



6)      Q: What fees are to be recorded in the 800 series of the HUD-1, beginning on Line 804?
        A: When the loan originator selects the settlement service provider, fees for third party
settlement services that are required by the loan originator are recorded in the 800 series
beginning on Line 804. These third party services and fees most often include appraisals, credit
reports, flood searches, tax service, and governmental loan program charges, such as VA, FHA,
Rural Housing Service, or state bond loan programs. Processing or administrative services are
part of ―Our origination charge‖ and may not be separately itemized. The HUD-1 Instructions for
the 800 series explain which fees go on which lines.

7)     Q: If state law requires further itemization of loan originator fees such as a commitment
or underwriting fee, how should these fees be listed on the HUD-1?
       A: If state law requires further itemization of loan originator fees than required under
RESPA, those fees may be treated as other required disclosures and itemized on Line 808 and
additional lines in the 800 series on the HUD-1 with the charge listed outside the borrower‘s
column.

8)      Q: If the loan originator performs loan origination services typically performed by a
third-party for the appraisal, credit report and/or flood certificate, are the charges for these
services listed in Lines 804 thru 807 or are the charges included in the loan originator‘s charge in
Line 801 on the HUD-1?
        A: Charges for the appraisal, credit report and/or flood certificate performed by the loan
originator in a transaction must be included in the loan originator‘s charge listed in Line 801 on
the HUD-1.

9)      Q: Is the charge for the Mortgage Electronic Registration System (MERS) registration fee
a charge that may be separately itemized in the 800 series on the HUD-1?
        A: No, the charge for the MERS registration is considered to be part of the charge for
origination service and may not be separately itemized on the HUD-1.




LAST UPDATE:                         October 23, 2009
                                                                                               38


10)     Q: The Internal Revenue Service (IRS) requires that reportable points be clearly
designated on the HUD-1 Settlement Statement for purposes of preparing IRS Form 1098. As
Line 801 on the HUD-1 discloses the total of all loan originator fees as well as the origination
point(s), how can the origination point(s) be designated?
        A: A loan originator may designate any origination point paid on page 2 of the HUD-1 in
Line 801. The designation should follow ―Our Origination Charge‖ either by adding the language
―Includes Origination Point" (_% or $__) or by placing an asterisk (*) and adding the language at
the bottom of the page.




                                               OR




       HUD-1 – 900 series

1)       Q: Where is the charge for flood insurance shown on the HUD-1? What if the borrower
pays it prior to settlement?
         A: Flood insurance should be disclosed on Line 904 of the HUD-1 with the charge in the
borrower‘s column. If the borrower pays the insurance prior to closing, the item should be shown
on Line 904 of the HUD-1 noted as ―Paid Outside of Closing‖ or P.O.C. with the charge to the
left of the column.

2)     Q: On some loans a borrower will make a full regular payment within less than a month
and receive an interest credit at closing. May the interest credit, instead of the collection of
interim interest, be listed in Line 901 on the HUD-1?
       A: Yes, an interest credit may be listed (as a negative number) in Line 901 on the HUD-1.

       HUD-1 – 1000 series

1)   Q: Does Line 1001 reflect the total of all other lines in the 1000 series?
     A: Yes, Line 1001 is the total of all escrow items contained in the 1000 series of the
HUD-1.




LAST UPDATE:                        October 23, 2009
                                                                                                  39


2)     Q: May additional lines be added to the 1000 series on the HUD-1?
       A: Yes, additional lines may be added to the 1000 series if needed. If lines are added,
Line 1007, Aggregate Adjustment, must be moved down (and renumbered accordingly) so that it
remains the last line item in the series.

3)       Q: If a geographical area has more than one type of property tax, such as County and City
property taxes, should each property tax be separately listed on the HUD-1 or may they be
grouped together in Line 1004 on the HUD-1?
         A: The total amount of all property taxes held in an escrow or reserve account may be
listed in Line 1004 on the HUD-1. Further itemization of the property taxes held in reserve is not
required.

        HUD-1 – 1100 series

1)      Q: What are title services?
        A: The term ―title services‖ includes:

     1. Any service involved in the provision of title insurance, including but not limited to:

             title examination and evaluation
             preparation and issuance of commitment
             clearance of underwriting objections
             preparation and issuance of policies
             all processing and administrative services required to perform these functions (e.g.
             document delivery, preparation and copying, wiring, endorsements, and notary); and

     2. The service of conducting a settlement.

2)     Q: Where should the settlement agent list the commitment fee, wire fee and other
miscellaneous title fees on the HUD-1?
       A: The commitment fee, wire fee, and other miscellaneous fees are included as
processing and administrative fees that are part of the definition of ―title services.‖ All of these
types of fees must be included in the charges shown on Line 1101 of the HUD-1, and are not to be
itemized separately.

3)     Q: Are document preparation fees included in ―title services‖ or would they appear as
separate line item charge in the borrower‘s column?
       A: Document preparation fees are part of administrative or processing fees which are
included in the charge in Line 1101 of the HUD-1 and may not be separately itemized.

4)     Q: Are delivery fees included in ―Title services‖ and therefore included in Line 1101 of
the HUD-1?
       A: Yes, delivery fees are included in the definition of ―title services‖ and are included in
the charge shown in Line 1101 of the HUD-1.


LAST UPDATE:                          October 23, 2009
                                                                                                    40


5)     Q: Are notary fees included in ―Title services‖ and therefore included in Line 1101 of the
HUD-1?
       A: Yes, notary fees are included in the definition of ―title services‖ and are included in
the charge shown in Line 1101 of the HUD-1.

6)    Q: What is the Lender‘s title policy limit on Line 1105 of the HUD-1?
      A: The Lender‘s title policy limit, Line 1105 of the HUD-1, is the maximum dollar
amount of coverage available under the policy.

7)      Q: Where should the quote for the Lender‘s title insurance policy premium be disclosed
on the HUD-1?
        A: The Lender‘s title insurance premium is part of the charge shown on Line 1101, ―Title
services and lender‘s title insurance‖ on the HUD-1, along with any fees for title searches,
examinations, endorsements and all charges associated with the title services and settlement
(closing) agent services.

8)       Q: Do the disclosures of the title agent‘s and the title underwriter‘s portions of the title
insurance premium on Lines 1107 and 1108 of the HUD-1 Settlement Statement also contain the
charges for the title policy endorsements?
         A: Yes, disclosure of the agent‘s and the underwriter‘s portions of the title insurance
premium on Lines 1107 and 1108 of the HUD-1 Settlement Statement also contains any charges
for title policy endorsements that are retained by the title agent or title underwriter.

9)       Q: If a title insurance underwriter is also the title agent, what should be shown on Lines
1107 and 1108 of the HUD-1?
         A: If there is no premium split between the title underwriter and a separate title agent, all
of the title insurance premium (including charges for endorsements) would be shown on Line
1108, and $0 would be shown on Line 1107.

10)    Q: Where should the Lender‘s title insurance premium be disclosed on the HUD-1?
       A: The amount of the premium for Lender‘s title insurance and related endorsements
must be included in the total for title services and lender‘s title insurance on Line 1101 of the
HUD-1. The charge for the Lender‘s title insurance policy and its related endorsements must also
be itemized on Line 1104 with the charge to the left of the columns.

11)    Q: If a borrower selects an attorney to represent the borrower‘s personal interests at
settlement, where is this attorney‘s fee disclosed on the HUD-1?
       A: If a borrower selects an attorney to represent the borrower‘s personal interests at
settlement, and the service provided by that attorney is separate from the functions necessary to
conduct the closing, provide title services or issue the lender‘s title insurance policy, this
attorney‘s charge may be separately listed on a blank line in the 1100 series in the borrower‘s
column along with the name of the attorney and the type of service provided. Accordingly, the
amount of this attorney‘s fee should not be included in the charge listed on Line 1101.



LAST UPDATE:                          October 23, 2009
                                                                                                   41


12)   Q: How is the premium recorded on the HUD-1 if the borrower purchases an enhanced
owner‘s title insurance policy, rather than a basic policy?
      A: Regardless of whether the borrower chooses to purchase a basic or an enhanced
owner‘s title insurance policy, the premium must be listed in the borrower‘s column on Line
1103.

13)    Q: If the title agent conducts the settlement, should the charge for conducting the
settlement be included in Line 1101 of the HUD-1, with the itemized charge listed outside the
column on Line 1102?
       A: Yes, the charge for conducting the settlement must be included in the total on Line
1101. If the charge is paid to a third party, the charge must be itemized outside of the columns on
Line 1102.

14)     Q: Where do I put the charge for the title commitment on the HUD-1?
        A: The term ―title services‖ is defined to include any service involved in the preparation
and issuance of the title commitment. See 24 CFR § 3500.2. On the HUD-1, the charge to the
borrower for title services, including the charge for services related to the title commitment, must
be included in the total in the borrower's column on Line 1101. If a third party prepares and
issues the title commitment, the disbursement for this service also must be itemized outside the
columns on a blank line in the 1100-series.

15)     Q: What items are included in the amount disclosed on Line 1101 of the HUD-1?
        A: Line 1101 is the total of the charges for ―Title services and lender‘s title insurance,‖
which includes: all charges for conducting a settlement (Line 1102); any premiums paid for
lender‘s title insurance and its related endorsements (Line 1104); all charges for title searches and
examinations; and charges for all other services itemized in the 1100 series if those services are
included in the definition of ―title service.‖ The total on Line 1101 should not include the amount
of any premium for owner‘s title insurance and its related endorsements, which must be listed in
the columns on Line 1103.

16)     Q: How is the charge for conducting the settlement disclosed on the HUD-1?
        A: The charge to the borrower for conducting the settlement must be included in the total
stated in the borrower's column on Line 1101 of the HUD-1. In addition, the total in the
borrower's column on Line 1101 must include any amount for conducting the settlement that was
paid by another person on behalf of the borrower. In such a case, an offsetting credit must be
shown on page 1 of the HUD-1. If the seller paid the amount, a credit to the borrower in that
amount must be listed in Lines 204-209, and a charge to the seller must be listed in Lines 506-
509. If another person pays the amount an offsetting credit is reported in Lines 204-209,
identifying the person paying the charge.

        Any separate charge to a seller for conducting the settlement is listed in the seller's column
in Line 1102. The borrower‘s charge for conducting the settlement should be itemized outside
the borrower‘s column in Line 1102.



LAST UPDATE:                         October 23, 2009
                                                                                                    42


17)     Q: If state law requires further itemization of title service or title insurance related fees
such as a commitment fee or fees for endorsements to a title insurance policy, how should these
fees be listed on the HUD-1?
        A: If state law requires further itemization of title service or title insurance related fees
than required under RESPA, those fees may be itemized on blank lines in the 1100 series on the
HUD-1 with the charge listed outside the borrower‘s column. Endorsements to a title insurance
policy may also be listed in Lines 1103 and 1104 as applicable, with the charge listed outside the
borrower‘s column.

18)     Q: Under the Truth In Lending Act, a settlement or closing fee is generally included in
the finance charge, but if a settlement agent charges for a service that the lender does not require
and as to which the lender retains no portion of the fee, the fee is not a finance charge. Should
fees charged by a settlement agent for services that are not required by the lender or requested by
the borrower be listed on Line 1101 and/or Line 1102 on the HUD-1, or separately itemized on a
blank line?
        A: ―Title service‖ is defined to include ―the service of conducting a settlement.‖ If a
settlement agent requires an additional service involved in the provision of title insurance, the
charge for that service would be included with the total charge on Line 1101 on the HUD-1. If a
fee for the additional service is not a processing or administrative service paid to a third party, it
must be itemized outside the columns on a blank line in the 1100-series.

       HUD cannot interpret regulations promulgated by another federal agency, such as
Regulation Z (12 CFR part 226). Please refer to the Board of Governors of the Federal Reserve
System for interpretations of Regulation Z.

19)     Q: Is the amount listed in Line 1108 on the HUD-1 the amount the title underwriter
receives as determined by state law?
        A: The amount listed in Line 1108 on the HUD-1 discloses the title underwriter‘s portion
of the total title insurance premium, Owner‘s and Lender‘s title insurance premium and their
related endorsements. The manner in which this amount is determined has no bearing on the
requirement of disclosure.

20)      Q: Is the amount listed in Line 1107 on the HUD-1 the amount the title agent receives as
determined by state law?
         A: The amount listed in Line 1107 on the HUD-1 discloses the title agent‘s portion of the
total title insurance premium, Owner‘s and Lender‘s title insurance premium and their related
endorsements. The manner in which this amount is determined has no bearing on the requirement
of disclosure.

21)     Q: If the borrower is purchasing a Lender‘s and an Owner‘s title insurance policy in the
same transaction and is receiving a simultaneous issue discount on the policies, is the discounted
amount for the Lender‘s title insurance policy or the undiscounted rate for the Lender‘s title
insurance policy listed in Line 1104 on the HUD-1?
        A: The amount of the charge for the Lender‘s title insurance policy will vary according to
state law and what is customary in a particular area. As the HUD-1 is used as a statement of

LAST UPDATE:                          October 23, 2009
                                                                                                  43


actual charges, in Line 1104, the settlement agent must record the actual charge the borrower will
pay for the lender‘s title insurance premium and related endorsements.

22)     Q: If a title agent is sharing a portion of the title insurance premium with an attorney, is
the name of the attorney listed in Line 1107 on the HUD-1?
        A: On Line 1107 the settlement agent must ―record the amount of the total title insurance
premium, including endorsements, that is retained by the title agent.‖ If a portion of the title
insurance premium will not be retained by the title agent, but will instead be paid to an attorney,
then a blank line in the 1100-series should be used to itemize, outside the columns, the amount
paid to the attorney, and to identify the attorney's name and type of service provided.

       HUD-1 – 1200 series

1)      Q: If there are additional government recording fees, such as to record a power of
attorney or road maintenance agreement, are they included in Line 1201 of the HUD-1 or can they
be charged separately?
        A: Line 1201 is used to record the total government recording charges. Additional items
the lender requires to be recorded, other than those already enumerated in Line 1202, must be
itemized on Line 1206. The charges for these additional items must be stated outside the column.

2)      Q: What items are included in the amount listed on Line 1201 of the HUD-1?
        A: Line 1201 is the total of the government recording charges. Examples of such charges
include but are not limited to state and local fees for recording the deed, mortgage, deed of trust,
releases, and any other instrument or document recorded to preserve marketable title or to perfect
the lender‘s security interest in the property.

3)    Q: What items are included in the amount listed on Line 1203 of the HUD-1?
      A: Line 1203, "Transfer taxes," is the total of state and local government fees imposed for
mortgages and home sales.

4)      Q: How can the transfer tax be properly disclosed on the HUD-1 in markets where
settlement agents are allowed to purchase transfer tax stamps from the city/county/state in bulk
for use in their various transactions and the settlement agent does not cut a check to the
city/county/state out of each escrow or disbursement file?
        A: Amounts for transfer taxes that are attributable to the transaction are listed in Lines
1203, 1204 and 1205 on the HUD-1. The name of the party that receives the payment for transfer
taxes is not required to be identified in Lines 1203, 1204 and 1205 on the HUD-1.




LAST UPDATE:                         October 23, 2009
                                                                                                  44



5)     Q: If it is typical that a seller, in a particular geographical area, pays a charge to record
the deed, on what line should the charge be listed on the HUD-1?
       A: In a particular geographical area, if it is typical that the seller pays a charge to record
the deed, the charge to the seller must be listed in the seller‘s column on Line 1202 of the HUD-1.
The charge to record the deed is also itemized to the left of the columns on Line 1202.

       The example below illustrates how the lines in this question should be completed.




       HUD-1 – 1300 series

1)      Q: What charges are shown in the 1300 series of the HUD-1 Settlement Statement?
        A: The 1300 series of the HUD-1 Settlement Statement is used to record the charges for
settlement services that are disclosed in Block 6 of the GFE as well as charges that are not
disclosed on the GFE. Examples of some of these services may include charges for home
inspections, radon inspections, and homeowner‘s warranty.

2)       Q: What charges are shown on Line 1301 of the HUD-1?
         A: Line 1301 is the total of all charges for third party settlement services that the loan
originator required but for which the borrower was permitted to select the service provider. The
charge on Line 1301 is shown in the borrower‘s column. All charges included in the total amount
on Line 1301 must be separately itemized outside of the columns in Lines 1302 and subsequent
lines, identifying the type of service, the name of the provider, and the amount of the charge.

3)      Q: If the loan originator does not allow the borrower to shop for any required services,
can the settlement agent begin the itemized list of additional miscellaneous settlement charges in
the 1300 series on Line 1302?
        A: Yes, if Line 1302 and additional sequentially numbered lines will not be needed to
record required services that the borrower can shop for; the settlement agent may list the itemized
miscellaneous settlement services on Line 1302.

4)      Q: If a loan originator permits a borrower to shop for services typically listed in Block 3
on the GFE, such as tax service or flood certificate, where should the services be listed on the
HUD-1?
        A: If a loan originator permits a borrower to shop for services typically listed in Block 3
on the GFE, such as tax service or flood certificate, the services would instead be listed in Block 6
of the GFE. The total amount charged for these services is listed in the borrower‘s column in
Line 1301, and the charges are itemized outside the columns in Line 1302 and following lines on
the HUD-1.



LAST UPDATE:                         October 23, 2009
                                                                                                     45


       HUD-1 – Page 3

1)      Q: How do settlement agents get the information to prepare page 3 of the HUD-1? Do
they have to search through all of the loan documents to get this information?
        A: The lender is required to transmit the information necessary to complete the HUD-1.
The instructions for completing the HUD-1 state that the lender must provide information to the
settlement agent in a format that permits the settlement agent to simply enter the necessary
information to complete the loan terms section on page 3 of the HUD-1 without having to refer to
the loan documents.

2)       Q: Is it a violation of the tolerance if some of the items in the 10% category in the
Comparison Chart exceed 10%, but other items in the category do not exceed 10%?
         A: The tolerance applies to the total of all charges shown in the category ―Charges That
in Total Cannot Increase More Than 10%.‖ A tolerance violation of this category means that the
total of all actual charges in this category exceed the total of all estimated charges in this category
by more than 10%.

3)     Q: How are items that were ―paid outside of closing‖ (P.O.C.) shown in the Comparison
Chart on page 3 of the HUD-1?
       A: The HUD-1 column in the Comparison Chart must include any amounts shown on
page 2 of the HUD-1 in the column as paid by the borrower, plus any amounts that are shown as
P.O.C. by or on behalf of the borrower.

       For example, if the borrower pays $300 towards required appraisal services, but the total
charge for the appraisal is $500, then Line 804 on page 2 of the HUD-1 will show a P.O.C.
amount of $300 outside the column and a charge of $200 in the borrower‘s column.




         The total amount of $500 would be shown in the ―HUD-1‖ column ($300 P.O.C. + $200
at settlement) on a separate line in the comparison chart for charges that cannot increase more
than 10 percent on page 3 of the HUD-1.




LAST UPDATE:                          October 23, 2009
                                                                                                   46



4)      Q: Can cross-references to the applicable Blocks on the GFE be included for each charge
itemized in the Comparison Chart on the third page of the HUD-1?
        A: Cross-references to the GFE Block numbers should not be added to page 3 of the
HUD-1. The appropriate HUD-1 line number is entered to the left of the columns, and this
information will allow the borrower to trace the charge to page 2 of the HUD-1 and then to the
GFE. The itemization of each charge in the Comparison Chart must also include a description of
the service, such as ―appraisal fee‖ or ―credit report.‖

5)      Q: May the yes/no check boxes be removed from the Loan Terms section on page 3 of
the HUD-1?
        A: No. The Loan Terms section is part of the HUD-1 form and may not be altered except
for formatting, such as margins or shading, adding additional lines and other options. Please refer
to 24 CFR § 3500.9 of HUD's regulations (in title 24 of the Code of Federal Regulations) for rules
applicable to reproduction of the HUD-1.

6)       Q: Is the settlement agent required to compare the ―Loan Terms‖ section of the HUD-1
with the ―Summary of your loan‖ section of the GFE?
         A: Settlement agents are not required to compare the information contained in the GFE
with the information transmitted by the lender to the settlement agent for the purpose of
completing the Loan Terms section of the HUD-1. If the settlement agent becomes aware of
inconsistencies between the information contained in the HUD-1 and the GFE, in the interest of
all parties the discrepancy should be communicated to the lender.

7)       Q: Does page 3 of the HUD-1 have to be given to the seller since it only contains
borrower information?
         A: No, Section 4 of RESPA does not require that parts of the HUD-1 that relate only to
the borrower's transaction be furnished to the seller. It is permissible to have two separate HUD-
1s in a transaction; one with the buyer‗s credits and charges only, and one with the seller‗s credits
and charges only. Page 3 of the HUD-1 pertains only to charges to the borrower and loan
information and is not required to be given to the seller.

8)       Q: When completing the Comparison Chart on page 3 of the HUD-1, are all GFE Block 3
items (―Required services that we select‖) combined into one charge on one line, or should each
of the items contained in GFE Block 3 be itemized separately?
         A: Each item included in Block 3 on the borrower's GFE must be separately itemized in
the ―Charges That in Total Cannot Increase More Than 10%‖ section of the Comparison Chart on
page 3 of the HUD-1.

9)      Q: Why doesn‘t the ―Loan Terms‖ section on page 3 of the HUD-1 duplicate the
―Summary of your loan‖ section on the GFE?
        A: The ―Summary of your loan‖ section of the GFE is usually written before a settlement
date is chosen and before the amount of any escrow payment that the borrower will have to pay is
known. The ―Loan Terms‖ section of the HUD-1 includes certain information that may not have


LAST UPDATE:                         October 23, 2009
                                                                                                 47


been known or may not have been available at the time that the GFE was prepared, but is known
and included on the HUD-1.

10)    Q: In the ―Loan Terms‖ section on page 3 of the HUD-1, how should the information be
completed for the item ―Can your interest rate rise?‖
       A: If the interest rate cannot rise, the ―No‖ box should be checked and no further
information is required.

        If the interest rate can rise, the ―Yes‖ box must be checked and the applicable information
must be entered in the blank spaces for: the maximum interest rate; the date of the first possible
change in the interest rate; the frequency of subsequent changes; the date after which subsequent
interest rate changes could occur; the amount, stated as a percentage, that the interest rate could
increase or decrease at every change date; the lowest possible interest rate over the life of the
loan; and the maximum possible interest rate over the life of the loan.

       The example below illustrates how the fields in this question should be completed.




11)     Q: How should the loan originator complete the answer to the question, ―Every change
date your interest can increase or decrease by ____%‖, on the HUD-1, if the loan does not contain
a cap of periodic interest changes other than by setting the overall floor and ceiling?
        A: If the loan offered does not contain a cap of periodic interest change other than by
setting the overall floor and ceiling, the loan originator should complete the answer to the
question, ―Every change date your interest can increase or decrease by ____%‖ with the
difference between the floor and the ceiling.

12)     Q: How should the loan originator complete the answer on the HUD-1 to the question,
―Every change date your interest can increase or decrease by ____%‖, if there is a cap on periodic
increases, but not on periodic decreases?
        A: If the loan offered does not contain a cap on decrease of periodic interest, the loan
originator should complete the answer to the question, ―Every change date your interest can
increase or decrease by ____%‖ with the difference between the floor and the ceiling.




LAST UPDATE:                         October 23, 2009
                                                                                                 48


13)      Q: May a lender transmit the information necessary to prepare page 3 of the HUD-1 to
the settlement agent in a streamlined document that looks similar to page 3 of the HUD-1, such as
a pro-forma?
         A: Yes, the lender may transmit the information necessary to prepare page 3 of the HUD-
1 to the settlement agent in a streamlined document that looks similar to page 3 of the HUD-1,
such as a pro-forma, but the settlement agent must prepare the HUD-1 including page 3.

14)     Q: How is it determined what settlement charges belong in the HUD-1 column in one of
the three categories in the Comparison Chart on page 3 of the HUD-1?
        A: Charges for settlement services that are disclosed on the GFE or would have been
appropriate to disclose on the GFE, whether the charges are paid by the borrower, paid on behalf
of the borrower or paid outside of closing, must be listed in one of the three tolerance categories
of the Comparison Chart on page 3 of the HUD-1.

Settlement cost booklet

1)   Q: When will the Settlement Cost Booklet be revised?
     A: HUD is currently revising the Settlement Cost Booklet. The Booklet will be available
on HUD‘s website and will be published in the Federal Register when it is completed.




LAST UPDATE:                         October 23, 2009
Final RESPA Rule Requirements


The Department of Housing and Urban Development (HUD) released its final rule on the Real
Estate Settlement Procedures Act (RESPA) on November 20, 2008. The final rule and
accompanying commentary is 341 pages long.
HUD has shortened the GFE and HUD 1/1A; dropped the closing script, volume discounts, and
the “optional” reference to owners’ title insurance; extended average cost pricing to all
settlement service providers for certain settlement services; and provided the lender a right to
cure for amounts in excess of tolerances and the settlement agent a right to cure for HUD 1/1A
errors.
On the negative side, the rule retains disclosure of the agent/underwriter premium split on the
HUD 1/1A. ALTA made strong arguments that this is a private contractual agreement between
commercial entities that should remain private, and that disclosure will have anti-competitive
repercussions that could result in higher prices for consumers. But HUD determined that
consumer disclosure of this split is more important.
The rule retained Yield Spread Premium disclosures from the original proposed rule. They are
treated as a credit to the borrower for closing costs. It also retains the prohibition on “required
use” which would prohibit many inducements used by homebuilders and others for consumers to
use their affiliated service providers. (Free kitchen upgrade if use affiliated title company)
Most of the new rule’s requirements will become effective January 16, 2009. The new GFE and
HUD 1/1A won’t be required until January 1, 2010, although they may be used anytime before
then. If the new forms are used, all requirements of the rule must also be followed, such as
tolerances and the agent/underwriter split disclosure.
This document provides an analysis of how HUD finalized the rule in areas of concern to the title
industry. It also contains line by line instructions from the rule for filling out the HUD 1/1A and
comparison chart.

•   The Closing Script has been dropped from the final rule. There will be no reading and
    explanation of a closing script. Much of the information included in the script will now be
    written on the new HUD 1/1A, page three/two.

•   The explicit volume or negotiated discount language has been removed from the final rule.
    HUD explained that although they believe these discounts are not currently a violation of
    RESPA as long as they are passed on to the consumer, they will continue to explore methods
    to lower consumer costs outside of this rulemaking.

•   The term “optional” has been removed from the description of owners’ title insurance on
    both the GFE and HUD 1/1A. It explains that “You may purchase an owner’s title insurance
    policy to protect your interest in the property.”
•   The final rule will allow all settlement service providers to utilize average costs for services
    excluding any service that is based on the value of the property or loan. Because they are
    based on the value of the property insurance premiums cannot be averaged. But fees for
    services such as credit reports, courier fees, etc. can be average priced. HUD has removed
    the specific methods for cost averaging from the final rule and left it to settlement service
    providers to utilize averaging methods of their own choice. The total amount of the average
    costs over the utilized time period (1 to 6 months) must not exceed the total amount paid for
    those services. In other words, some may pay a bit more and some may pay a bit less, but in
    the final analysis, the average cost totals can’t be greater than what the total would be if exact
    fees were charged. There is a three year recordkeeping requirement, and the time period for
    averaging must be updated regularly.

•   Tolerances remain in the final rule. Origination and lender costs are subject to a zero
    tolerance. They may not increase. Settlement services recommended by the lender are
    subjected to a ten percent tolerance between the GFE and closing. Title charges are subject
    to this tolerance if the lender recommended title company is chosen by the borrower. The
    tolerance applies to the sum of all the included settlement services. Individual services may
    exceed the tolerance as long as the total does not exceed ten percent. Recording fees are now
    part of the ten percent category while transfer taxes remain in the zero tolerance category.

    o “The final rule seeks to balance the borrower’s interest in receiving an accurate GFE
      early in the application process to enable the borrower to shop effectively, with the
      lender’s interest in maintaining flexibility to address the many issues that can arise in a
      complex process such as loan origination.”

    o Transfer taxes (including mortgage taxes) should generally be known at the time the GFE
      is provided, so those taxes continue to be subject to a zero tolerance. If there are changes
      in the tax rates or in the price of the property after a GFE is provided, those changes
      would either constitute changed circumstances or new information that would be the
      basis for providing a revised GFE. It is HUD’s view that these provisions will provide
      sufficient flexibility to protect loan originators from changes outside their control, while
      still preventing loan originators from providing “low-ball” estimates of transfer taxes on
      the GFE that could mislead prospective borrowers.

    o Government recording charges, in contrast, often may not be known with any certainty at
      the time the GFE is provided, and in many cases not until close to, or at, closing.
      Therefore, HUD has determined that these charges should be included with the third
      party charges that are subject to an overall 10 percent tolerance. Because the government
      recording charges typically are small in relation to other settlement costs, this should
      provide ample flexibility to loan originators on these charges without unduly impacting
      the permitted tolerances for other third party settlement charges.

    o   A loan originator that violates the GFE requirements, which include the tolerance
        requirements, shall be deemed to have violated section 5 of RESPA. However, the final
        rule also provides a loan originator with an opportunity to cure any violation of the
        tolerance by reimbursing the borrower any amount by which the tolerances were
        exceeded. This reimbursement may be made at settlement or within 30 calendar days
        after settlement. HUD will deem a payment to have been provided in a timely fashion if it
        is placed in the mail by the loan originator within 30 calendar days after settlement.
        HUD has determined, based on the comments received, that 30 calendar days provides
        sufficient time for loan originators to identify and cure any tolerance violations through
        their post-closing review process. In most cases, HUD expects that violations will be
        identified at or before settlement when completing the revised HUD-1 form, which
        provides a clear format for comparing the charges estimated on the GFE with those
        actually imposed at settlement.

    o   The opportunity to cure violations of the tolerances is an important tool for loan
        originators to manage compliance with the tolerance requirements. Many lenders and
        groups representing lenders and other settlement service providers objected to the
        imposition of tolerances because of the difficulty of providing accurate estimates to
        prospective borrowers early in the application process. The opportunity to cure will
        permit loan originators to give an estimate of expected settlement charges in good faith,
        without subjecting them to harsh penalties if the estimate turns out to be lower than the
        actual charges at settlement.


Charges that may not increase      Total charges may increase up       Charges may change at
(zero tolerance)                   to 10% (10% tolerance)              settlement
• Our origination charge           • Required services that we         • Required services that you
• Your credit or charge                select                              can shop for (if you do not
    (points) for the specific      • Title services and lender’s           use companies we identify)
    interest rate chosen (after        title insurance (if we select   • Title services and lender’s
    you lock in your interest          them or you use companies           title insurance (if you do not
    rate)                              we identify)                        use companies we identify)
• Your adjusted origination        • Owner’s title insurance (if       • Owner’s title insurance (if
    charges (after you lock in         you use companies we                you do not use companies
    your interest rate)                identify)                           we identify)
• Transfer taxes                   • Required services that you        • Initial deposit for your
                                       can shop for (if you use            escrow account
                                       companies we identify)          • Daily interest charges
                                   • Government recording              • Homeowner’s insurance
                                       charges



•   Right to cure is available to lenders if they repay the consumer any charges that exceed
    tolerances on settlement services estimates on the GFE. Otherwise, the overages will be
    considered a violation of RESPA, Section 5. The onus is on the lender for repayment and
    they have 30 days after closing to discover and repay the overages. Closing agents also have
    30 days to cure any errors or omissions on the HUD 1/1A. A violation of any of the
    requirements for completing the HUD-1/1A shall be deemed to be a violation of section 4 of
    RESPA. An inadvertent or technical error in completing the HUD-1/1A shall not be deemed
    a violation of section 4 of RESPA, if a revised HUD-1/1A is provided to the borrower and/or
    seller within 30 calendar days of settlement. This opportunity to cure errors on the HUD-
    1/1A is consistent with HUD’s longstanding policy permitting settlement agents to provide
    revised HUD-1/1A settlement statements where errors are discovered after settlement.

•   The GFE and HUD 1/1A have been amended. The GFE has been shortened to three pages
    from four. The HUD 1/1A now has references on most lines to the corresponding area of the
    GFE for easier consumer comparison. The HUD 1/1A has a new third page that includes a
    chart comparing the amounts listed for particular settlement costs on the GFE with the total
    costs listed for those charges on the HUD-1.

•   The comparison chart contains most of the information from the closing script. Originators
    are required to provide all information needed to complete the comparison chart and loan
    terms disclosure. Closers will be required to copy the costs directly from the provided GFE
    and HUD 1 Settlement Statement. The loan section must be completed in accordance with
    the information and instructions provided by the lender. The lender “must provide this
    information in a format that permits the settlement agent to simply enter the necessary
    information in the appropriate spaces, without the settlement agent having to refer to the loan
    documents themselves.” The lender also must indicate which items are “lender identified” so
    that they can be included in the appropriate section on page 3 for tolerance purposes.

•   On the HUD 1/1A, the 1100 series covers title charges and charges by attorneys and closing
    or settlement agents. The title charges include a variety of services performed by title
    companies or others, and include fees directly related to the transfer of title (title
    examination, title search, document preparation), fees for title insurance, and fees for
    conducting the closing. The legal charges include fees for attorneys representing the lender,
    seller, or borrower, and any attorney preparing title work. The series also includes any
    settlement, notary, and delivery fees related to the services covered in this series.

•   Disbursements to third parties must be broken out in the appropriate lines or in blank lines in
    the series, and amounts paid to these third parties must be shown outside of the columns if
    included in Line 1101. Charges not included in Line 1101 must be listed in the columns.

•   HUD has determined that many separate fees currently separately disclosed on the HUD 1
    will now be lumped together in line 1101.

•   Line 1101 is used to record the total for the category of “Title services and lender’s title
    insurance.” All the various fees are included in this total, including the settlement or closing
    fee and any legal charges in conjunction with the closing. (total is split between the
    Borrower’s and Seller’s columns according to who pays)

•   Line 1102 is used to record the settlement or closing fee. (listed outside of column)

•   Line 1103 is used to record the charges for the owner’s title insurance and related
    endorsements. (listed in the columns in either the sellers or borrowers according to who paid
    for the policy)
•   Line 1104 is used to record the lender’s title insurance premium and related endorsements.
    This amount is included in line 1101. It will be the straight title insurance premium rate
    (inclusive of endorsement fees) (listed outside of columns)

•   Line 1105 is used to record the amount of the lender’s title policy limit. (Listed outside of
    the columns)

•   Line 1106 is used to record the amount of the owner’s title policy limit. (listed outside of
    columns)
•   Line 1107 is used to record the amount of the total title insurance premium, including
    endorsements, that is retained by the title agent. (listed outside of columns)

•   Line 1108 used to record the amount of the total title insurance premium, including
    endorsements, that is retained by the title underwriter. (listed outside of columns)

•   Additional sequentially numbered lines in the 1100-series may be added to itemize title
    charges paid to other third parties, as identified by name and type of service provided. (listed
    outside of columns as they should be part of total title service charges in line 1101.

•   The HUD 1/1A continues to require disclosure of the agent/underwriter split, even after
    strong arguments made by ALTA and others against it. HUD determined “that this
    breakdown will help consumers better understand their title charges.

•   The current RESPA rules allow the addition of signature lines to the HUD 1/1A. Title
    professionals may have been surprised to see the absence of these from the HUD forms.
    Apparently, these were added to the original forms and we have all become so used to them
    that we didn’t know they were not a requirement. (3500.9 (7))
Instructions for Completing the HUD 1 and HUD 1A

The following are instructions for completing the HUD-1 settlement statement, required under
section 4 of RESPA and 24 CFR part 3500 (Regulation X) of the Department of Housing and
Urban Development regulations. This form is to be used as a statement of actual charges and
adjustments paid by the borrower and the seller, to be given to the parties in connection with the
settlement. The instructions for completion of the HUD-1 are primarily for the benefit of the
settlement agents who prepare the statements and need not be transmitted to the parties as an
integral part of the HUD-1. There is no objection to the use of the HUD-1 in transactions in
which its use is not legally required.

General Instructions

Information and amounts may be filled in by typewriter, hand printing, computer printing, or any
other method producing clear and legible results. Refer to HUD’s regulations (Regulation X)
regarding rules applicable to reproduction of the HUD-1 for the purpose of including customary
recitals and information used locally in settlements; for example, a breakdown of payoff figures,
a breakdown of the Borrower’s total monthly mortgage payments, check disbursements, a
statement indicating receipt of funds, applicable special stipulations between Borrower and
Seller, and the date funds are transferred.

The settlement agent shall complete the HUD-1 to itemize all charges imposed upon the
Borrower and the Seller by the loan originator and all sales commissions, whether to be paid at
settlement or outside of settlement, and any other charges which either the Borrower or the Seller
will pay at settlement. Charges for loan origination and title services should not be itemized
except as provided in these instructions. For each separately identified settlement service in
connection with the transaction, the name of the person ultimately receiving the payment must be
shown together with the total amount paid to such person. Items paid to and retained by a loan
originator are disclosed as required in the instructions for lines in the 800-series of the HUD-1
(and for per diem interest, in the 900-series of the HUD-1).

As a general rule, charges that are paid for by the seller must be shown in the seller’s column on
page 2 of the HUD-1 (unless paid outside closing), and charges that are paid for by the borrower
must be shown in the borrower’s column (unless paid outside closing). However, in order to
promote comparability between the charges on the GFE and the charges on the HUD-1, if a
seller pays for a charge that was included on the GFE, the charge should be listed in the
borrower’s column on page 2 of the HUD-1. That charge should also be offset by listing a credit
in that amount to the borrower on lines 204-209 on page 1 of the HUD-1, and by a charge to the
seller in lines 506-509 on page 1 of the HUD-1. If a loan originator (other than for no-cost
loans), real estate agent, other settlement service provider, or other person pays for a charge that
was included on the GFE, the charge should be listed in the borrower’s column on page 2 of the
HUD-1, with an offsetting credit reported on page 1 of the HUD-1, identifying the party paying
the charge.
Charges paid outside of settlement by the borrower, seller, loan originator, real estate agent, or
any other person, must be included on the HUD-1 but marked “P.O.C.” for “Paid Outside of
Closing” (settlement) and must not be included in computing totals.

However, indirect payments from a lender to a mortgage broker may not be disclosed as P.O.C.,
and must be included as a credit on Line 802. P.O.C. items must not be placed in the Borrower or
Seller columns, but rather on the appropriate line outside the columns. The settlement agent
must indicate whether P.O.C. items are paid for by the Borrower, Seller, or some other party by
marking the items paid for by whoever made the payment as “P.O.C.” with the party making the
payment identified in parentheses, such as “P.O.C. (borrower)” or “P.O.C. (seller)”.

In the case of “no cost” loans where “no cost” encompasses third party fees as well as the upfront
payment to the loan originator, the third party services covered by the “no cost” provisions must
be itemized and listed in the borrower’s column on the HUD-1/1A with the charge for the third
party service. These itemized charges must be offset with a negative adjusted origination charge
on Line 803 and recorded in the columns.

Blank lines are provided in section L for any additional settlement charges. Blank lines are also
provided for additional insertions in sections J and K. The names of the recipients of the
settlement charges in section L and the names of the recipients of adjustments described in
section J or K should be included on the blank lines.

Lines and columns in section J which relate to the Borrower’s transaction may be left blank on
the copy of the HUD–1 which will be furnished to the Seller. Lines and columns in section K
which relate to the Seller’s transaction may be left blank on the copy of the HUD–1 which will
be furnished to the Borrower.


Line Item Instructions

Instructions for completing the individual items on the HUD–1 follow.

Section A. This section requires no entry of information.

Section B. Check appropriate loan type and complete the remaining items as applicable.

Section C. This section provides a notice regarding settlement costs and requires no additional
entry of information.

Sections D and E. Fill in the names and current mailing addresses and zip codes of the Borrower
and the Seller. Where there is more than one Borrower or Seller, the name and address of each
one is required. Use a supplementary page if needed to list multiple Borrowers or Sellers.

Section F. Fill in the name, current mailing address and zip code of the Lender.
Section G. The street address of the property being sold should be listed. If there is no street
address, a brief legal description or other location of the property should be inserted. In all cases
give the zip code of the property.

Section H. Fill in name, address, zip code and telephone number of settlement agent, and address
and zip code of “place of settlement.”

Section I. Fill in date of settlement.

Section J. Summary of Borrower’s Transaction. Line 101 is for the contract sales price of the
property being sold, excluding the price of any items of tangible personal property if Borrower
and Seller have agreed to a separate price for such items.

Line 102 is for the sales price of any items of tangible personal property excluded from Line 101.
Personal property could include such items as carpets, drapes, stoves, refrigerators, etc. What
constitutes personal property varies from state to state. Manufactured homes are not considered
personal property for this purpose.

Line 103 is used to record the total charges to Borrower detailed in Section L and totaled on Line
1400.

Lines 104 and 105 are for additional amounts owed by the Borrower, such as charges that were
not listed on the GFE or items paid by the Seller prior to settlement but reimbursed by the
Borrower at settlement. For example, the balance in the Seller’s reserve account held in
connection with an existing loan, if assigned to the Borrower in a loan assumption case, will be
entered here. These lines will also be used when a tenant in the property being sold has not yet
paid the rent, which the Borrower will collect, for a period of time prior to the settlement. The
lines will also be used to indicate the treatment for any tenant security deposit. The Seller will be
credited on Lines 404–405.

Lines 106 through 112 are for items which the Seller had paid in advance, and for which the
Borrower must therefore reimburse the Seller. Examples of items for which adjustments will be
made may include taxes and assessments paid in advance for an entire year or other period, when
settlement occurs prior to the expiration of the year or other period for which they were paid.
Additional examples include flood and hazard insurance premiums, if the Borrower is being
substituted as an insured under the same policy; mortgage insurance in loan assumption cases;
planned unit development or condominium association assessments paid in advance; fuel or
other supplies on hand, purchased by the Seller, which the Borrower will use when Borrower
takes possession of the property; and ground rent paid in advance.

Line 120 is for the total of Lines 101 through 112.

Line 201 is for any amount paid against the sales price prior to settlement.

Line 202 is for the amount of the new loan made by the Lender when a loan to finance
construction of a new structure constructed for sale is used as or converted to a loan to finance
purchase. Line 202 should also be used for the amount of the first user loan, when a loan to
purchase a manufactured home for resale is converted to a loan to finance purchase by the first
user. For other loans covered by 24 CFR part 3500 (Regulation X) which finance construction of
a new structure or purchase of a manufactured home, list the sales price of the land on Line 104,
the construction cost or purchase price of manufactured home on Line 105 (Line 101 would be
left blank in this instance) and amount of the loan on Line 202. The remainder of the form should
be completed taking into account adjustments and charges related to the temporary financing and
permanent financing and which are known at the date of settlement.

Line 203 is used for cases in which the Borrower is assuming or taking title subject to an existing
loan or lien on the property.

Lines 204–209 are used for other items paid by or on behalf of the Borrower. Lines 204–209
should be used to indicate any financing arrangements or other new loan not listed in Line 202.
For example, if the Borrower is using a second mortgage or note to finance part of the purchase
price, whether from the same lender, another lender or the Seller, insert the principal amount of
the loan with a brief explanation on Lines 204–209.

Lines 204-209 should also be used where the Borrower receives a credit from the Seller for
closing costs, including seller-paid GFE charges. They may also be used in cases in which a
Seller (typically a builder) is making an “allowance” to the Borrower for items that the Borrower
is to purchase separately.

Lines 210 through 219 are for items which have not yet been paid, and which the Borrower is
expected to pay, but which are attributable in part to a period of time prior to the settlement. In
jurisdictions in which taxes are paid late in the tax year, most cases will show the proration of
taxes in these lines. Other examples include utilities used but not paid for by the Seller, rent
collected in advance by the Seller from a tenant for a period extending beyond the settlement
date, and interest on loan assumptions.

Line 220 is for the total of Lines 201 through 219.

Lines 301 and 302 are summary lines for the Borrower. Enter total in Line 120 on Line 301.
Enter total in Line 220 on Line 302.
Line 303 must indicate either the cash required from the Borrower at settlement (the usual case
in a purchase transaction), or cash payable to the Borrower at settlement (if, for example, the
Borrower’s earnest money exceeds the Borrower’s cash obligations in the transaction or there is
a cash-out refinance). Subtract Line 302 from Line 301 and enter the amount of cash due to or
from the Borrower at settlement on Line 303. The appropriate box should be checked. If the
Borrower’s earnest money is applied toward the charge for a settlement service, the amount so
applied should not be included on Line 303 but instead should be shown on the appropriate line
for the settlement service, marked “P.O.C. (Borrower)”, and must not be included in computing
totals.

Section K. Summary of Seller’s Transaction. Instructions for the use of Lines 101 and 102 and
104–112 above, apply also to Lines 401–412. Line 420 is for the total of Lines 401 through 412.
Line 501 is used if the Seller’s real estate broker or other party who is not the settlement agent
has received and holds a deposit against the sales price (earnest money) which exceeds the fee or
commission owed to that party. If that party will render the excess deposit directly to the Seller,
rather than through the settlement agent, the amount of excess deposit should be entered on Line
501 and the amount of the total deposit (including commissions) should be entered on Line 201.
Line 502 is used to record the total charges to the Seller detailed in section L and totaled on Line
1400.

Line 503 is used if the Borrower is assuming or taking title subject to existing liens which are to
be deducted from sales price.

Lines 504 and 505 are used for the amounts (including any accrued interest) of any first and/or
second loans which will be paid as part of the settlement.

Line 506 is used for deposits paid by the Borrower to the Seller or other party who is not the
settlement agent. Enter the amount of the deposit in Line 201 on Line 506 unless Line 501 is
used or the party who is not the settlement agent transfers all or part of the deposit to the
settlement agent, in which case the settlement agent will note in parentheses on Line 507 the
amount of the deposit that is being disbursed as proceeds and enter in the column for Line 506
the amount retained by the above-described party for settlement services. If the settlement agent
holds the deposit, insert a note in Line 507 which indicates that the deposit is being disbursed as
proceeds.

Lines 506 through 509 may be used to list additional liens which must be paid off through the
settlement to clear title to the property. Other Seller obligations should be shown on Lines 506–
509, including charges that were disclosed on the GFE but that are actually being paid for by the
Seller. These Lines may also be used to indicate funds to be held by the settlement agent for the
payment of either repairs, or water, fuel, or other utility bills that cannot be prorated between the
parties at settlement because the amounts used by the Seller prior to settlement are not yet
known. Subsequent disclosure of the actual amount of these post-settlement items to be paid
from settlement funds is optional.

Any amounts entered on Lines 204–209 including Seller financing arrangements should also be
entered on Lines 506–509.

Instructions for the use of Lines 510 through 519 are the same as those for Lines 210 to 219
above.

Line 520 is for the total of Lines 501 through 519.

Lines 601 and 602 are summary lines for the Seller. Enter the total in Line 420 on

Line 610. Enter the total in Line 520 on Line 602.
Line 603 must indicate either the cash required to be paid to the Seller at settlement (the usual
case in a purchase transaction), or the cash payable by the Seller at settlement. Subtract Line 602
from Line 601 and enter the amount of cash due to or from the Seller at settlement on Line 603.
The appropriate box should be checked.

Section L. Settlement Charges.

Line 700 is used to enter the sales commission charged by the sales agent or real estate broker.

Lines 701–702 are to be used to state the split of the commission where the settlement agent
disburses portions of the commission to two or more sales agents or real estate brokers.

Line 703 is used to enter the amount of sales commission disbursed at settlement.

If the sales agent or real estate broker is retaining a part of the deposit against the sales price
(earnest money) to apply towards the sales agent’s or real estate broker’s commission, include in
Line 703 only that part of the commission being disbursed at settlement and insert a note on Line
704 indicating the amount the sales agent or real estate broker is retaining as a “P.O.C.” item.

Line 704 may be used for additional charges made by the sales agent or real estate broker, or for
a sales commission charged to the Borrower, which will be disbursed by the settlement agent.

Line 801 is used to record “Our origination charge,” which includes all charges received by the
loan originator, except any charge for the specific interest rate chosen (points). This number must
not be listed in either the buyer’s or seller’s column. The amount shown in Line 801 must
include any amounts received for origination services, including administrative and processing
services, performed by or on behalf of the loan originator.

Line 802 is used to record “Your credit or charge (points) for the specific interest rate chosen,”
which states the charge or credit adjustment as applied to “Our origination charge,” if applicable.
This number must not be listed in either column or shown on page one of the HUD-1.

For a mortgage broker originating a loan in its own name, the amount shown on Line 802 will be
the difference between the initial loan amount and the total payment to the mortgage broker from
the lender. The total payment to the mortgage broker will be the sum of the price paid for the
loan by the lender and any other payments to the mortgage broker from the lender, including any
payments based on the loan amount or loan terms, and any flat rate payments. For a mortgage
broker originating a loan in another entity’s name, the amount shown on Line 802 will be the
sum of all payments to the mortgage broker from the lender, including any payments based on
the loan amount or loan terms, and any flat rate payments. In either case, when the amount paid
to the mortgage broker exceeds the initial loan amount, there is a credit to the borrower and it is
entered as a negative amount.

When the initial loan amount exceeds the amount paid to the mortgage broker, there is a charge
to the borrower and it is entered as a positive amount. For a lender, the amount shown on Line
802 may include any credit or charge (points) to the Borrower.
Line 803 is used to record “Your adjusted origination charges,” which states the net amount of
the loan origination charges, the sum of the amounts shown in Lines 801 and 802. This amount
must be listed in the columns as either a positive number (for example, where the origination
charge shown in Line 801 exceeds any credit for the interest rate shown in Line 802 or where
there is an origination charge in Line 801 and a charge for the interest rate (points) is shown on
Line 802) or as a negative number (for example, where the credit for the interest rate shown in
Line 802 exceeds the origination charges shown in Line 801).

In the case of “no cost” loans, where “no cost” refers only to the loan originator’s fees, the
amounts shown in Lines 801 and 802 should offset, so that the charge shown on Line 803 is zero.
Where “no cost” includes third party settlement services, the credit shown in Line 802 will more
than offset the amount shown in Line 801. The amount shown in Line 803 will be a negative
number to offset the settlement charges paid indirectly through the loan originator.

Lines 804-808 may be used to record each of the “Required services that we select.” Each
settlement service provider must be identified by name and the amount paid recorded either
inside the columns or as paid to the provider outside closing (“P.O.C.”), as described in the
General Instructions.

Line 804 is used to record the appraisal fee.

Line 805 is used to record the fee for all credit reports.

Line 806 is used to record the fee for any tax service.

Line 807 is used to record any flood certification fee.

Lines 808 and additional sequentially numbered lines, as needed, are used to record other third
party services required by the loan originator. These Lines may also be used to record other
required disclosures from the loan originator. Any such disclosures must be listed outside the
columns.

Lines 901–904. This series is used to record the items which the Lender requires to be paid at the
time of settlement, but which are not necessarily paid to the lender (e.g., FHA mortgage
insurance premium), other than reserves collected by the Lender and recorded in the 1000-series.
Line 901 is used if interest is collected at settlement for a part of a month or other period
between settlement and the date from which interest will be collected with the first regular
monthly payment. Enter that amount here and include the per diem charges. If such interest is not
collected until the first regular monthly payment, no entry should be made on Line 901.

Line 902 is used for mortgage insurance premiums due and payable at settlement, including any
monthly amounts due at settlement and any upfront mortgage insurance premium, but not
including any reserves collected by the Lender and recorded in the 1000-series. If a lump sum
mortgage insurance premium paid at settlement is included on Line 902, a note should indicate
that the premium is for the life of the loan.
Line 903 is used for homeowner's insurance premiums that the Lender requires to be paid at the
time of settlement, except reserves collected by the Lender and recorded in the 1000-series.
Lines 904 and additional sequentially numbered lines are used to list additional items required by
the Lender (except for reserves collected by the Lender and recorded in the 1000-series),
including premiums for flood or other insurance. These lines are also used to list amounts paid at
settlement for insurance not required by the Lender.

Lines 1000-1007. This series is used for amounts collected by the Lender from the Borrower and
held in an account for the future payment of the obligations listed as they fall due. Include the
time period (number of months) and the monthly assessment. In many jurisdictions this is
referred to as an “escrow”, “impound”, or “trust” account. In addition to the property taxes and
insurance listed, some Lenders may require reserves for flood insurance, condominium owners’
association assessments, etc. The amount in line 1001 must be listed in the columns, and the
itemizations in lines 1002 through 1007 must be listed outside the columns.

After itemizing individual deposits in the 1000 series, the servicer shall make an adjustment
based on aggregate accounting. This adjustment equals the difference between the deposit
required under aggregate accounting and the sum of the itemized deposits. The computation
steps for aggregate accounting are set out in 24 CFR § 3500.17(d). The adjustment will always
be a negative number or zero (-0-), except for amounts due to rounding. The settlement agent
shall enter the aggregate adjustment amount outside the columns on a final line of the 1000 series
of the HUD-1 or HUD-1A statement. Appendix E to this part sets out an example of aggregate
analysis.

Lines 1100-1108. This series covers title charges and charges by attorneys and closing or
settlement agents. The title charges include a variety of services performed by title companies or
others, and include fees directly related to the transfer of title (title examination, title search,
document preparation), fees for title insurance, and fees for conducting the closing. The legal
charges include fees for attorneys representing the lender, seller, or borrower, and any attorney
preparing title work. The series also includes any settlement, notary, and delivery fees related to
the services covered in this series. Disbursements to third parties must be broken out in the
appropriate lines or in blank lines in the series, and amounts paid to these third parties must be
shown outside of the columns if included in Line 1101. Charges not included in Line 1101 must
be listed in the columns.

Line 1101 is used to record the total for the category of “Title services and lender’s title
insurance.” This amount must be listed in the columns.

Line 1102 is used to record the settlement or closing fee.

Line 1103 is used to record the charges for the owner’s title insurance and related endorsements.
This amount must be listed in the columns.

Line 1104 is used to record the lender’s title insurance premium and related endorsements.
Line 1105 is used to record the amount of the lender’s title policy limit. This amount is recorded
outside of the columns.
Line 1106 is used to record the amount of the owner’s title policy limit. This amount is recorded
outside of the columns.

Line 1107 is used to record the amount of the total title insurance premium, including
endorsements, that is retained by the title agent. This amount is recorded outside of the columns.

Line 1108 used to record the amount of the total title insurance premium, including
endorsements, that is retained by the title underwriter. This amount is recorded outside of the
columns.

Additional sequentially numbered lines in the 1100-series may be used to itemize title charges
paid to other third parties, as identified by name and type of service provided.

Lines 1200-1206. This series covers government recording and transfer charges.

Charges paid by the borrower must be listed in the columns as described for lines 1201 and 1203,
with itemizations shown outside the columns. Any amounts that are charged to the seller and that
were not included on the Good Faith Estimate must be listed in the columns.

Line 1201 is used to record the total “Government recording charges,” and the amount must be
listed in the columns.

Line 1202 is used to record, outside of the columns, the itemized recording charges.

Line 1203 is used to record the transfer taxes, and the amount must be listed in the columns.

Line 1204 is used to record, outside of the columns, the amounts for local transfer taxes and
stamps.

Line 1205 is used to record, outside of the columns, the amounts for State transfer taxes and
stamps.

Line 1206 and additional sequentially numbered lines may be used to record specific itemized
third party charges for government recording and transfer services, but the amounts must be
listed outside the columns.

Line 1301 and additional sequentially numbered lines must be used to record required services
that the borrower can shop for, such as fees for survey, pest inspection, or other similar
inspections. These lines may also be used to record additional itemized settlement charges that
are not included in a specific category, such as fees for structural and environmental inspections;
pre-sale inspections of heating, plumbing or electrical equipment; or insurance or warranty
coverage. The amounts must be listed in either the borrower’s or seller’s column.

Line 1400 must state the total settlement charges as calculated by adding the amounts within
each column.
Page 3.

Comparison of Good Faith Estimate (GFE) and HUD-1/1A Charges

The comparison chart must be prepared using the exact information and amounts from the GFE
and the actual settlement charges shown on the HUD-1/1A Settlement Statement. The
comparison chart is comprised of three sections: “Charges That Cannot Increase”, “Charges That
Cannot Increase More Than 10%”, and “Charges That Can Change”.

“Charges That Cannot Increase”. The amounts shown in Blocks 1 and 2, in Line A, and in
Block 8 on the borrower’s GFE must be entered in the appropriate line in the Good Faith
Estimate column. The amounts shown on Lines 801, 802, 803 and 1203 of the HUD-1/1A must
be entered in the corresponding line in the HUD-1/1A column. The HUD-1/1A column must
include any amounts shown on page 2 of the HUD-1 in the column as paid for by the borrower,
plus any amounts that are shown as P.O.C. by or on behalf of the borrower. If there is a credit in
Block 2 of the GFE or Line 802 of theHUD-1/1A, the credit should be entered as a negative
number.

“Charges That Cannot Increase More Than 10%”. A description of each charge included in
Blocks 3 and 7 on the borrower’s GFE must be entered on separate lines in this section, with the
amount shown on the borrower’s GFE for each charge entered in the corresponding line in the
Good Faith Estimate column. For each charge included in Blocks 4, 5 and 6 on the borrower’s
GFE for which the loan originator selected the provider or for which the borrower selected a
provider identified by the loan originator, a description must be entered on a separate line in this
section, with the amount shown on the borrower’s GFE for each charge entered in the
corresponding line in the Good Faith Estimate column. The loan originator must identify any
third party settlement services for which the borrower selected a provider other than one
identified by the loan originator so that the settlement agent can include those charges in the
appropriate category.

Additional lines may be added if necessary. The amounts shown on the HUD-1/1A for each line
must be entered in the HUD-1/1A column next to the corresponding charge from the GFE, along
with the appropriate HUD-1/1A line number. The HUD-1/1A column must include any amounts
shown on page 2 of the HUD-1 in the column as paid for by the borrower, plus any amounts that
are shown as P.O.C. by or on behalf of the borrower.

The amounts shown in the Good Faith Estimate and HUD-1/1A columns for this section must be
separately totaled and entered in the designated line. If the total for the HUD-1/1A column is
greater than the total for the Good Faith Estimate column, then the amount of the increase must
be entered both as a dollar amount and as a percentage increase in the appropriate line.

“Charges That Can Change”. The amounts shown in Blocks 9, 10 and 11 on the borrower’s GFE
must be entered in the appropriate line in the Good Faith Estimate column. Any third party
settlement services for which the borrower selected a provider other than one identified by the
loan originator must also be included in this section. The amounts shown on the HUD-1/1A for
each charge in this section must be entered in the corresponding line in the HUD-1/1A column,
along with the appropriate HUD-1/1A line number. The HUD-1/1A column must include any
amounts shown on page 2 of the HUD-1 in the column as paid for by the borrower, plus any
amounts that are shown as P.O.C. by or on behalf of the borrower. Additional lines may be
added if necessary.

Loan Terms

This section must be completed in accordance with the information and instructions provided by
the lender. The lender must provide this information in a format that permits the settlement agent
to simply enter the necessary information in the appropriate spaces, without the settlement agent
having to refer to the loan documents themselves.


INSTRUCTIONS FOR COMPLETING HUD-1A

Note: The HUD-1A is an optional form that may be used for refinancing and subordinate-lien
federally related mortgage loans, as well as for any other one-party transaction that does not
involve the transfer of title to residential real property. The HUD-1 form may also be used for
such transactions, by utilizing the borrower’s side of the HUD-1 and following the relevant parts
of the instructions as set forth above. The use of either the HUD-1 or HUD-1A is not mandatory
for open-end lines of credit (home equity plans), as long as the provisions of Regulation Z are
followed.

Background

The HUD-1A settlement statement is to be used as a statement of actual charges and adjustments
to be given to the borrower at settlement, as defined in this part. The instructions for completion
of the HUD-1A are for the benefit of the settlement agent who prepares the statement; the
instructions are not a part of the statement and need not be transmitted to the borrower. There is
no objection to using the HUD-1A in transactions in which it is not required, and its use in open-
end lines of credit transactions (home-equity plans) is encouraged. It may not be used as a
substitute for a HUD-1 in any transaction that has a seller. Refer to the “definitions” section (§
3500.2) of 24 CFR part 3500 (Regulation X) for specific definitions of terms used in these
instructions.

General Instructions

Information and amounts may be filled in by typewriter, hand printing, computer printing, or any
other method producing clear and legible results. Refer to 24 CFR § 3500.9 regarding rules for
reproduction of the HUD-1A. Additional pages may be attached to the HUD-1A for the inclusion
of customary recitals and information used locally for settlements or if there are insufficient lines
on the HUD-1A. The settlement agent shall complete the HUD-1A in accordance with the
instructions for the HUD-1 to the extent possible, including the instructions for disclosing items
paid outside closing and for no cost loans.

Blank lines are provided in Section L for any additional settlement charges.
Blank lines are also provided in Section M for recipients of all or portions of the loan proceeds.
The names of the recipients of the settlement charges in Section L and the names of the
recipients of the loan proceeds in Section M should be set forth on the blank lines.

Line-Item Instructions

Page 1

The identification information at the top of the HUD-1A should be completed as follows:

The borrower’s name and address is entered in the space provided. If the property securing the
loan is different from the borrower’s address, the address or other location information on the
property should be entered in the space provided. The loan number is the lender’s identification
number for the loan. The settlement date is the date of settlement in accordance with 24 CFR §
3500.2, not the end of any applicable rescission period. The name and address of the lender
should be entered in the space provided.

Section L. Settlement Charges. This section of the HUD-1A is similar to Section L of the HUD-
1, with minor changes or omissions, including deletion of lines 700 through 704, relating to real
estate broker commissions. The instructions for Section L in the HUD-1, should be followed
insofar as possible. Inapplicable charges should be ignored, as should any instructions regarding
seller items.

Line 1400 in the HUD-1A is for the total settlement charges charged to the borrower. Enter this
total on line 1601. This total should include Section L amounts from additional pages, if any are
attached to this HUD-1A.

Section M. Disbursement to Others. This section is used to list payees, other that the borrower, of
all or portions of the loan proceeds (including the lender, if the loan is paying off a prior loan
made by the same lender), when the payee will be paid directly out of the settlement proceeds. It
is not used to list payees of settlement charges, nor to list funds disbursed directly to the
borrower, even if the lender knows the borrower's intended use of the funds.

For example, in a refinancing transaction, the loan proceeds are used to pay off an existing loan.
The name of the lender for the loan being paid off and the pay-off balance would be entered in
Section M. In a home improvement transaction when the proceeds are to be paid to the home
improvement contractor, the name of the contractor and the amount paid to the contractor would
be entered in Section M. In a consolidation loan, or when part of the loan proceeds is used to pay
off other creditors, the name of each creditor and the amount paid to that creditor would be
entered in Section M. If the proceeds are to be given directly to the borrower and the borrower
will use the proceeds to pay off existing obligations, this would not be reflected in Section M.
Section N. Net Settlement. Line 1600 normally sets forth the principal amount of the loan as it
appears on the related note for this loan. In the event this form is used for an open-ended home
equity line whose approved amount is greater than the initial amount advanced at settlement, the
amount shown on Line 1600 will be the loan amount advanced at settlement. Line 1601 is used
for all settlement charges that both are included in the totals for lines 1400 and 1602, and are not
financed as part of the principal amount of the loan. This is the amount normally received by the
lender from the borrower at settlement, which would occur when some or all of the settlement
charges were paid in cash by the borrower at settlement, instead of being financed as part of the
principal amount of the loan. Failure to include any such amount in line 1601 will result in an
error in the amount calculated on line 1604. Items paid outside of closing (P.O.C.) should not be
included in Line 1601.

Line 1602 is the total amount from line 1400.

Line 1603 is the total amount from line 1520.

Line 1604 is the amount disbursed to the borrower. This is determined by adding together the
amounts for lines 1600 and 1601, and then subtracting any amounts listed on lines 1602 and
1603.

Page 2

This section of the HUD-1A is similar to page 3 of the HUD-1. The instructions for page 3 of the
HUD-1, should be followed insofar as possible. The HUD-1/1A Column should include any
amounts shown on page 1 of the HUD-1A in the column as paid for by the borrower, plus any
amounts that are shown as P.O.C. by the borrower. Inapplicable charges should be ignored.
                                                                                                                             Monday,
                                                                                                                             November 17, 2008




                                                                                                                             Part IV

                                                                                                                             Department of
                                                                                                                             Housing and Urban
                                                                                                                             Development
                                                                                                                             24 CFR Parts 203 and 3500
                                                                                                                             Real Estate Settlement Procedures Act
                                                                                                                             (RESPA): Rule To Simplify and Improve
                                                                                                                             the Process of Obtaining Mortgages and
                                                                                                                             Reduce Consumer Settlement Costs; Final
                                                                                                                             Rule
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                                        68204            Federal Register / Vol. 73, No. 222 / Monday, November 17, 2008 / Rules and Regulations

                                        DEPARTMENT OF HOUSING AND                               FOR FURTHER INFORMATION CONTACT:     Ivy              preamble. This final rule is also
                                        URBAN DEVELOPMENT                                       Jackson, Director, or Barton Shapiro,                 accompanied by a final regulatory
                                                                                                Deputy Director, Office of RESPA and                  impact analysis and regulatory
                                        24 CFR Parts 203 and 3500                               Interstate Land Sales, Office of Housing,             flexibility analysis, which are addressed
                                        [Docket No. FR–5180–F–03]                               Department of Housing and Urban                       in sections VIII and IX of this preamble.
                                                                                                Development, 451 7th Street, SW.,                     Table of Contents
                                        RIN 2502–AI61                                           Room 9158, Washington, DC 20410–
                                                                                                8000; telephone number 202–708–0502.                  I. Significant Changes from March 2008
                                        Real Estate Settlement Procedures Act                                                                               Proposed Rule
                                                                                                For legal questions, contact Paul S. Ceja,            II. Overview of Commenters
                                        (RESPA): Rule To Simplify and                           Assistant General Counsel; Joan Kayagil,
                                        Improve the Process of Obtaining                                                                              III. GFE and GFE Requirements—Discussion
                                                                                                Deputy Assistant General Counsel; or                        of Public Comments
                                        Mortgages and Reduce Consumer                           Rhonda L. Daniels, Attorney-Advisor,                     A. Overall Comments on the Proposed
                                        Settlement Costs                                        for GSE/RESPA, Department of Housing                        Required GFE Form
                                        AGENCY:  Office of the Assistant                        and Urban Development, 451 7th Street,                   B. Changes to Facilitate Shopping
                                                                                                SW., Room 9262, Washington, DC                           1. New Definitions for ‘‘GFE Application’’
                                        Secretary for Housing—Federal Housing                                                                               and ‘‘Mortgage Application.’’
                                        Commissioner, HUD.                                      20410–0500; telephone number 202–
                                                                                                708–3137. These telephone numbers are                    2. Up-Front Fees That Impede Shopping
                                        ACTION: Final rule.                                                                                              3. Introductory Language on the GFE Form
                                                                                                not toll-free. Persons with hearing or                   4. Terms on the GFE (Summary of Loan
                                        SUMMARY: This final rule amends HUD’s                   speech impairments may access these                         Details)
                                        regulations to further RESPA’s purposes                 numbers through TTY by calling the                       5. Period During Which the GFE Terms Are
                                        by requiring more timely and effective                  toll-free Federal Information Relay                         Available to the Borrower
                                        disclosures related to mortgage                         Service at 800–877–8339.                                 6. Option to Pay Settlement Costs
                                        settlement costs for federally related                  SUPPLEMENTARY INFORMATION:                               7. Establishing Meaningful Standards for
                                                                                                                                                            GFEs
                                        mortgage loans to consumers. The                        Background                                               a. Tolerances
                                        changes made by this final rule are                                                                              b. Unforeseeable Circumstances
                                        designed to protect consumers from                         On March 14, 2008 (73 FR 14030),
                                                                                                                                                         8. Lender Disclosure
                                        unnecessarily high settlement costs by                  HUD published a proposed rule (March
                                                                                                                                                         9. Enforcement and Cure
                                        taking steps to: improve and standardize                2008 proposed rule) that submitted for                   10. Implementation Period
                                        the Good Faith Estimate (GFE) form to                   public comment changes to HUD’s                          C. Lender Payments to Mortgage Brokers—
                                        make it easier to use for shopping                      regulations designed to improve certain                     Yield Spread Premiums (YSPs)
                                        among settlement service providers;                     disclosures required to be provided                      1. Disclosure of YSP on GFE
                                        ensure that page 1 of the GFE provides                  under RESPA (12 U.S.C. 2601–2617).                       2. Definition of ‘‘Mortgage Broker.’’
                                                                                                The RESPA disclosure requirements                        3. FHA Limitation on Origination Fees of
                                        a clear summary of the loan terms and                                                                               Mortgagees
                                        total settlement charges so that                        apply in almost all transactions
                                                                                                involving mortgages that secure loans                 IV. Modification of HUD–1/1A Settlement
                                        borrowers will be able to use the GFE                                                                               Statement
                                        to identify a particular loan product and               on one-to four-family residential
                                                                                                                                                         A. Overall Comments on Proposed Changes
                                        comparison shop among loan                              properties. HUD’s regulations                               to HUD–1/1A Settlement Statement
                                        originators; provide more accurate                      implementing the RESPA requirements                      B. Proposed Addendum to the HUD–1, the
                                                                                                are codified in 24 CFR part 3500. The                       Closing Script
                                        estimates of costs of settlement services
                                                                                                revisions to the regulations adopted by               V. Permissibility of Average Cost Pricing and
                                        shown on the GFE; improve disclosure
                                                                                                HUD in this final rule are intended to                      Negotiated Discounts—Discussion of
                                        of yield spread premiums (YSPs) to help
                                                                                                make the process of obtaining mortgage                      Public Comments
                                        borrowers understand how YSPs can                                                                                A. Overview and Definition of ‘‘Thing of
                                                                                                financing clearer and, ultimately, less
                                        affect borrowers’ settlement charges;                                                                               Value’’
                                                                                                costly for consumers.
                                        facilitate comparison of the GFE and the                   The preamble of the March 2008                        B. Methodology for Average Cost Pricing
                                        HUD–1/HUD–1A Settlement                                 proposed rule presents an overview of                 VI. Prohibition Against Requiring the Use of
                                        Statements; ensure that at settlement                   the statutory requirements under                            Affiliates—Discussion of Public
                                        borrowers are aware of final costs as                                                                               Comments
                                                                                                RESPA, as well as a detailed account of               VII. Technical Amendments
                                        they relate to their particular mortgage                HUD’s efforts to initiate regulatory
                                        loan and settlement transaction; clarify                                                                      VIII. Regulatory Flexibility Act—Comments
                                                                                                changes commencing in 2002. HUD                             of the Office of Advocacy of the Small
                                        HUD–1 instructions; expressly state that                refers the reader to the March 2008                         Business Administration
                                        RESPA permits the listing of an average                 proposed rule for a detailed description              IX. Findings and Certifications
                                        charge on the HUD–1; and strengthen                     of the background of this rulemaking.
                                        the prohibition against requiring the use                                                                     I. Significant Changes From March
                                                                                                The principles that guided HUD in the
                                        of affiliated businesses.                                                                                     2008 Proposed Rule
                                                                                                development of this rule are also
                                           This final rule follows a March 14,                  included in the March 2008 proposed                      RESPA is a consumer protection
                                        2008, proposed rule and makes changes                   rule.                                                 statute, and, as further described in this
                                        in response to public comment and                          The preamble to this final rule                    preamble, consumer groups were, in
                                        further consideration of certain issues                 highlights some of the more significant               general, very supportive of the basic
                                        by HUD. In addition, this rule provides                 changes made at this final rule stage in              goals and key components of the March
                                        for an appropriate transition period.                   response to public comment and upon                   2008 proposed rule. For example, the
                                        Compliance with the new requirements                    further consideration of certain issues               National Consumer Law Center, in a
                                        pertaining to the GFE and settlement                    by HUD, summarizes the public                         joint comment with Consumer Action,
                                        statements is not required until January                comments received on the March 2008                   the Consumer Federation of America,
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                                        1, 2010. However, certain provisions are                proposed rule, and provides HUD’s                     and the National Association of
                                        to be implemented upon the effective                    response to those comments. The                       Consumer Advocates, stated, ‘‘HUD has
                                        date of the final rule.                                 following table of contents is provided               done an excellent job in moving the ball
                                        DATES: Effective Date: This rule is                     to assist the reader in identifying where             toward greater protection for consumers
                                        effective on January 16, 2009.                          certain topics are discussed in this                  in the settlement process.’’ In addition,


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                                                         Federal Register / Vol. 73, No. 222 / Monday, November 17, 2008 / Rules and Regulations                                         68205

                                        the Center for Responsible Lending, in                  industry commenters about the need for                comment period on June 12, 2008, HUD
                                        its comment concluded: ‘‘[W]e applaud                   sufficient time for the industry to make              had received approximately 12,000
                                        HUD for addressing the challenge of                     systems and operational changes                       comments. Approximately two-thirds of
                                        reforming RESPA. We believe HUD’s                       necessary to meet the requirements of                 the comments received were duplicative
                                        proposed GFE provides important                         the new rule, the final rule provides that            or repeat comments; i.e., individuals or
                                        improvements over existing                              the new GFE and HUD–1 will not be                     organizations who submitted identical
                                        requirements.’’                                         required until January 1, 2010.                       or virtually identical comments. For
                                           HUD received adverse comments                        However, certain other provisions of the              example, members of certain trade
                                        about many aspects of the proposed                      rule will take effect 60 days from the                organizations, or employees of certain
                                        rule, primarily from mortgage industry                  publication date of the final rule. The               companies, frequently submitted
                                        representatives, including requests that                following are some of the most                        identical comments.
                                        HUD withdraw its proposal entirely or                   significant changes made at this final                   HUD received comments from
                                        that HUD postpone its current efforts in                rule stage, and are discussed in more                 homeowners, prospective homeowners,
                                        order to work with the Federal Reserve                  detail in the discussion of public                    organizations representative of
                                        Board to arrive at a joint regulatory                   comment.                                              consumers, and numerous industry
                                        approach. HUD takes these comments                         • A GFE form that is shorter than had              organizations involved in the settlement
                                        very seriously and appreciates the                      been proposed.                                        process, including lending institutions,
                                        concerns raised by these commenters.                       • Allowing originators the option not              mortgage brokers, real estate agents,
                                        HUD’s view continues to be, however,                    to fill out the tradeoff table on the GFE             lawyers, title agents, escrow agents,
                                        that improvements in disclosures to                     form.                                                 closing agents and notaries, community
                                        consumers about critical information                       • A revised definition of                          development corporations, and major
                                        relating to the costs of obtaining a home               ‘‘application’’ to eliminate the separate             organizations representative of key
                                        mortgage, often the most significant                    GFE application process.                              industry areas such as bankers,
                                        financial transaction a consumer will                      • Adoption of requirements for the                 mortgage bankers, mortgage brokers,
                                        enter into, are needed, and that such                   GFE that are similar to recently revised              realtors, and title and escrow agents, as
                                        disclosures are a central purpose of                    Federal Reserve Board Truth-in-Lending                well as from state and federal regulators.
                                        RESPA. Most commenters—including                        regulations which limit fees charged in                  HUD appreciates all those who took
                                        consumers, industry representatives,                    connection with early disclosures and                 the time to review the March 2008
                                        and federal and state regulatory                        defining timely provision of the                      proposed rule and submit comments.
                                        agencies—supported the concept of                       disclosures.                                             In addition to submission of
                                        better disclosures in general, and                         • Clarification of terminology that                comments, HUD representatives
                                        commended both HUD’s efforts and                        describes the process applicable to, and              accepted invitations to participate in
                                        particular provisions in the proposed                   the terms of, an applicant’s particular               public forums and panel discussions
                                        rule.                                                   loan.                                                 about RESPA and HUD’s March 2008
                                           Moreover, given the current mortgage                    • Inclusion of a provision to allow                proposed rule. HUD also met, at HUD
                                        crisis, the foreclosure situation many                  lenders a short period of time in which               Headquarters or at the offices of the
                                        homeowners are now facing because                       to correct certain violations of the new              Office of Management and Budget
                                        they entered into mortgage transactions                 disclosure requirements.                              (OMB), with interested parties,
                                        that they did not fully understand, and                    • A revised HUD–1/1A settlement                    requesting meetings as provided by
                                        the prospect that future homeowners                     statement form that includes a summary                Executive Order 12866 (Regulatory
                                        may find themselves in this same                        page of information that provides a                   Planning and Review), who highlighted
                                        situation, HUD believes that it is very                 comparison of the GFE and HUD–1/1A                    for HUD and OMB areas of concern and
                                        important that the improvements in                      list of charges and a listing of final loan           support for various aspects of the rule.
                                        mortgage disclosures made by this final                 terms as a substitute for the proposed                   All of this input contributed to HUD’s
                                        rule move forward immediately.                          closing script addition.                              decisions that resulted in this final rule.
                                        Nevertheless, as noted in the preamble                     • Elimination of the requirement for a                HUD also received approximately 100
                                        to the March 2008 proposed rule, HUD                    closing script to be completed and read               public comments that were submitted
                                        will continue to work with the Federal                  by the closing agent.                                 after the deadline. To the extent
                                        Reserve Board to achieve coordination                      • A simplified process for utilizing an            feasible, HUD reviewed late comments
                                        and consistency between the Board’s                     average charge mechanism.                             to determine if issues were raised that
                                        current regulatory efforts and HUD’s                       • No regulatory change in this
                                                                                                                                                      were not addressed in comments
                                        requirements.                                           rulemaking regarding negotiated
                                           HUD has made many changes to the                                                                           submitted by the deadline.
                                                                                                discounts, including volume based
                                        March 2008 proposed rule in response                    discounts.                                            III. GFE and GFE Requirements—
                                        to public comment and further                                                                                 Discussion of Public Comments
                                        consideration of certain issues by HUD.                 II. Overview of Commenters
                                        Some of the provisions in the March                        The public comment period on the                   A. Overall Comments on the Proposed
                                        2008 proposed rule have been revised in                 March 2008 proposed rule was                          Required GFE Form
                                        this final rule and others have been                    originally scheduled to close on May 13,                Proposed Rule. HUD proposed a four-
                                        withdrawn for further consideration.                    2008. In response to numerous requests,               page GFE form. The first page of the
                                        HUD believes that the result is a final                 including congressional requests, to                  GFE included a summary chart with key
                                        rule that will give borrowers additional                extend the comment period, and HUD’s                  terms and information about the loan for
                                        and more reliable information about                     desire to develop a better rule, HUD                  which the GFE was provided, including
                                        their mortgage loans earlier in the                     announced an extension of the comment                 initial loan balance; loan term; initial
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                                        application process, and will better                    period. This announcement was made                    interest rate; initial amount owed for
                                        assure that the mortgage loans to which                 on both HUD’s Web site and by                         principal, interest, and any mortgage
                                        they commit at settlement will be the                   publication of a notice in the Federal                insurance; rate lock period; whether the
                                        loans of their choice. At the same time,                Register on May 12, 2008 (73 FR 26953).               interest rate can rise; whether the loan
                                        in recognition of the concerns raised by                At the close of the extended public                   balance can rise; whether the monthly


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                                        68206            Federal Register / Vol. 73, No. 222 / Monday, November 17, 2008 / Rules and Regulations

                                        amount owed for principal, interest, and                the interest rate of the loan. (See section           commended HUD for adding several
                                        any mortgage insurance can rise;                        III.B.6 of this preamble below.)                      features that highlight risk to the first
                                        whether the loan has a prepayment                          The fourth page of the GFE included                page of the GFE: The prepayment
                                        penalty; whether the loan has a balloon                 a discussion of financial responsibilities            penalty, the balloon payment, the
                                        payment; and whether the loan includes                  of a homeowner. The loan originator                   maximum possible loan balance, the
                                        a monthly escrow payment for property                   would have been required to state the                 maximum monthly payment, and
                                        taxes and possibly other obligations.                   annual property taxes and annual                      whether certain fees are escrowed. CRL
                                        The first page of the form also included                homeowner’s flood, and other required                 stated that knowing the maximum
                                        information regarding the length of time                property protection insurance, but                    monthly payment of principal, interest,
                                        the interest rate for the GFE was valid;                would not have been required to state                 and mortgage insurance is critical to the
                                        the length of time the other settlement                 estimates for other charges such as                   consumer’s ability to determine whether
                                        charges were valid; information about                   annual homeowner’s association or                     or not the loan is sustainable. It
                                        when settlement must occur if the                       condominium fees. The GFE included a                  recommended that other features be
                                        borrower proceeds with the loan; and                    section that advised borrowers that the               added to page 1, including increased
                                        information concerning how many days                    type of loan chosen could affect current              emphasis on total monthly payment. It
                                        the interest rate must be locked before                 and future monthly payments. The                      also recommended that the monthly
                                        settlement. At the bottom of the first                  proposed GFE also indicated that the                  payment amount include an estimate of
                                        page, the GFE included a summary of                     borrower could ask the loan originator                property taxes, property insurance, and
                                        the settlement charges. The adjusted                    for more information about loan types                 the other charges listed on page 4 of the
                                        origination charges listed on the second                and could look at several government                  proposed GFE as one total line item, on
                                        page, along with the charges for all other              publications, including HUD’s Special                 page 1.
                                        settlement charges listed on the second                 Information Booklet on settlement                        CRL also recommended that page 1 of
                                        page, would have been totaled and                       charges, Truth in Lending Act (TILA)                  the GFE include the annual percentage
                                        listed on this page.                                    disclosures, and consumer information                 rate (APR) instead of the note rate
                                           The second page of the GFE included                  publications of the Federal Reserve                   because the APR is the standardized
                                        a listing of estimated settlement charges.              Board. The March 2008 proposed rule                   measurement of loan cost in the
                                        The loan originator’s service charge                    invited comments on possible                          industry, and because the APR captures
                                        would have been required to be listed at                additional ways to increase consumer                  the total cost of the loan. CRL further
                                                                                                understanding of adjustable rate                      recommended that given that credit cost
                                        the top of page two, and the credit or
                                                                                                mortgages.                                            comprises the largest component of total
                                        charge (points) for the specific interest
                                                                                                   Page 4 also would have included                    loan cost, the form’s emphasis on
                                        rate chosen would have been required to
                                                                                                information about possible lender                     settlement costs should be reduced.
                                        be subtracted or added to the service                                                                            In addition, CRL recommended that
                                        charge to arrive at the adjusted                        compensation after settlement. In
                                                                                                addition, page 4 would have included a                the first page of the GFE also include
                                        origination charge, which would have                                                                          information on the first possible date on
                                        been shown on the top of page two. Page                 shopping chart to assist the borrower in
                                                                                                comparing GFEs from different loan                    which the interest rate can rise; an
                                        two of the GFE also would have                                                                                explanation of what prepayment
                                        required an estimate for all other                      originators and information about how
                                                                                                                                                      penalties are and how they are triggered;
                                        settlement services. The GFE included                   to apply for the loan for which the GFE
                                                                                                                                                      simplified broker compensation; and
                                        categories for other settlement services                had been provided.
                                                                                                                                                      notification that mortgage terms are
                                        including: Required services that the                   Comments                                              negotiable. While CRL supported
                                        loan originator selected; title services                                                                      aggregating fees on page 2 of the GFE to
                                        and lender’s title insurance; required                  Consumer Representatives
                                                                                                                                                      promote mortgage loan shopping, it
                                        services that the borrower would have                      Consumer representatives generally                 recommended that the tradeoff table on
                                        been able to shop for; government                       supported the proposed standardized                   page 3 be revamped in order to force the
                                        recording and transfer charges; reserves                GFE, while offering specific                          rate/point tradeoff that it is intended to
                                        or escrow; daily interest charges;                      recommendations for improvement. The                  disclose.
                                        homeowner’s insurance; and optional                     National Community Reinvestment                          The GFE proposed by CRL includes
                                        owner’s title insurance. The GFE would                  Coalition recommended inclusion of the                the APR, for reasons stated above. In
                                        have required these charges to be                       annual percentage rate (APR) on the                   addition, the GFE proposed by CRL
                                        subtotaled at the bottom of page two.                   GFE. The Center for Responsible                       includes the first date the interest rate
                                        The sum of the adjusted origination                     Lending (CRL) stated that it believed                 can rise. CRL also included on page 1,
                                        charges and the charges for all other                   that the proposed GFE has the potential               ‘‘estimated required additional housing
                                        settlement services would have been                     to significantly improve current                      expenses’’ as well as ‘‘total estimated
                                        required to be listed on the bottom of                  disclosure requirements because it                    maximum monthly housing costs.’’ CRL
                                        page 2.                                                 offers a standardized shopping tool with              stated that while it understands that
                                           The third page of the GFE would have                 better linkages to the HUD–1, requires                consumers should not compare loans
                                        required information concerning                         that terms be binding, and takes                      based on total estimated maximum
                                        shopping for a loan offer. In addition,                 important steps toward trying to alert                monthly housing costs, CRL believes
                                        page three would have included                          consumers to the risky features of their              that it is critical that consumers,
                                        information about which settlement                      loans. However, according to CRL, most                particularly those in the subprime
                                        charges could change at settlement, and                 consumers will not have the capacity to               market, begin evaluating their ability to
                                        by how much such charges could                          absorb everything in a four-page GFE                  afford the loan at the outset of the loan
                                        change. Page 3 also would have required                 and therefore it proposed an alternative              process. CRL’s proposed GFE also
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                                        the loan originator to include                          two-page GFE.                                         includes a broader prepayment penalty
                                        information about loans for which a                        CRL noted that a new GFE should                    disclosure than the prepayment penalty
                                        borrower would have qualified that                      ensure that consumers have the best                   disclosure on the proposed GFE. In
                                        would increase or decrease settlement                   chance possible to understand the                     addition, CRL’s proposed GFE includes
                                        charges, with a corresponding change in                 riskiest features of their loans. CRL                 a broker compensation disclosure, a


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                                                         Federal Register / Vol. 73, No. 222 / Monday, November 17, 2008 / Rules and Regulations                                       68207

                                        notice that the consumer can negotiate                  important information. MBA submitted                  the disparity among originator
                                        settlement charges and a summary of                     a two-page GFE as an alternative to the               disclosures, it more closely mirrors the
                                        charges to facilitate reconciliation to the             proposed GFE that combines the RESPA                  HUD–1 than the proposed GFE; it does
                                        HUD–1.                                                  and TILA disclosures. While lenders                   not create groupings of disclosures that
                                           Comments by the National Consumer                    and their associations expressed general              must be broken out; and it is one page,
                                        Law Center (NCLC) (filed on behalf of                   support for the goals of the proposed                 making it more user friendly.
                                        NCLC and Consumer Action, the                           rule, many lenders recommended that
                                        Consumer Federation of America, and                                                                           Other Commenters
                                                                                                HUD work together with the Federal
                                        the National Association of Consumer                    Reserve Board to produce a combined                      Many other commenters also
                                        Advocates) stated that the proposed                     RESPA and TILA disclosure and to                      expressed concern about the length of
                                        standardization of the GFE, the                         implement this combined product                       the form. The National Association of
                                        increased linkage between the GFE and                   simultaneously, to replace the current                Realtors (NAR) stated that the proposed
                                        the settlement statement, and the                       RESPA and TILA disclosures provided                   GFE fails to achieve the right balance
                                        proposed requirement that some terms                    at the time of application.                           between providing the necessary
                                        on the GFE be binding, are important                       MBA stated that it generally supports              information and presenting such
                                        changes that should increase consumer                   grouping of the amount or ranges of                   information simply in a manner to be
                                        understanding and competition in the                    specific services on the GFE in a manner              useful to the consumer. NAR asserted
                                        mortgage marketplace. NCLC                              that is comprehensible and comparable,                that the disclosures, tables, and
                                        recommended that HUD go further by                      but recommended that the form be                      instructions in the proposed GFE will
                                        requiring the prominent disclosure of                   modified so that it is mainly a list of               serve as a ‘‘psychological barrier’’ to
                                        the APR on the GFE instead of the                       charges with minimal supplementary                    many consumers who will feel
                                        interest rate. According to NCLC, failure               material, as on the GFE form submitted                overwhelmed with having to read,
                                        to include the APR on the GFE obscures                  by MBA. MBA recommended that the                      comprehend, and act on this amount of
                                        the cost of credit and hinders consumer                 material on page 3 and page 4 of the                  information. NAR stated that the
                                        shopping.                                               proposed GFE be moved to explanatory                  decision not to include itemized costs in
                                           NCLC expressed concern that the                      materials such as the Special                         the proposed GFE will result in
                                        proposed GFE gives far greater                          Information Booklet. While MBA stated                 consumers getting less than the full
                                        prominence to settlement costs than to                  that a summary of loan terms could be                 disclosure Congress intended in the
                                        interest. NCLC stated that if the GFE is                useful, it recommended that the                       original statute. NAR asserted that the
                                        successful in getting consumers to shop                 summary be removed from the GFE and                   proposed GFE creates the opportunity to
                                        on settlement costs, there is a risk that               issued by the Federal Reserve Board in                bury additional, undisclosed fees into
                                        consumers will neglect the primary cost                 consultation with HUD. MBA further                    ‘‘packages’’ and prevents individual
                                        component of loans, interest. According                 recommended the deletion of the term                  provider cost comparison to the
                                        to NCLC, while settlement costs matter,                 ‘‘adjusted origination charge’’ from the              detriment of consumers.
                                        they matter most not as a stand-alone                   bottom of page 1.                                        NAR also recommended that the
                                        cost, but in relation to the interest rate.                A major lender expressed the concern               proposed GFE and the HUD–1 mirror
                                        NCLC recommended that the GFE be                        that the proposed form is so laden with               each other in order to assist consumers
                                        revised by reducing the focus on                        information that lenders cannot convey                in understanding whether the terms and
                                        settlement costs through reduction of                   key cost information in a clear and                   expenses that were disclosed at loan
                                        the font size and elimination of the bold               conspicuous manner. This commenter                    application are those that are the
                                        type for settlement costs. NCLC also                    stated that the proposed form would                   governing terms at closing. NAR noted
                                        recommended that HUD work with the                      pose a significant compliance burden                  that, along with CRL, it previously
                                        Federal Reserve Board to produce                        for lenders and would not provide                     recommended that HUD provide
                                        disclosures that are not misleading or                  borrowers with any greater                            consumers a summary GFE
                                        that obscure the actual cost of credit. In              understanding of their loan.                          accompanied by a full GFE with
                                        addition, NCLC recommended that the                     Specifically, the lender objected to the              detailed explanations of each
                                        first page of the GFE provide only a total              disclosures required on page 3 of the                 subcategory of fees to help consumers
                                        for all settlement costs, without                       proposed form.                                        understand the services and fees for
                                        breaking out the origination costs.                        The National Association of Mortgage               which they are being charged. NAR
                                           NCLC supported the loan summary on                   Brokers (NAMB) generally supported                    reiterated this recommendation for the
                                        page 1 and recommended that the                         the inclusion of information listed on                final rule and, along with the American
                                        summary sheet refer to the APR instead                  page 4 of the proposed GFE. However,                  Land Title Association (ALTA),
                                        of to the interest rate. NCLC also                      NAMB objected to consolidating major                  submitted a summary GFE and a full
                                        recommended that the first page provide                 categories on the GFE on the grounds                  GFE for HUD’s consideration.
                                        only a total of the estimated settlement                that such categories tend to lead to                     The Credit Union National
                                        charges, not separate lines for the                     consumer confusion since components                   Association (CUNA) opposed increasing
                                        origination and total settlement costs.                 are not evident to consumers until                    the GFE to the proposed four-page form.
                                                                                                presented with the HUD–1, on which                    CUNA stated that the proposed form
                                        Industry Representatives                                they are disclosed separately. NAMB                   would not benefit borrowers who could
                                          Generally, lenders and their                          also asserted that the proposed GFE is                be confused by the additional
                                        associations opposed the proposed GFE                   in conflict with the current RESPA                    information, rather than helped in
                                        on the grounds that the form is too                     requirements on affiliated business                   understanding their loan options. The
                                        lengthy and, in their opinion, would                    disclosure, because the proposed GFE                  National Association of Federal Credit
                                        only confuse borrowers. The American                    eliminates the name of the provider on                Unions (NAFCU) stated that the length
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                                        Bankers Association commented that                      the GFE. NAMB submitted, in place of                  of the proposed form is too long for the
                                        the proposed GFE is overly prescriptive.                the proposed GFE, a model that                        purpose of the GFE, which is simply to
                                        The Mortgage Bankers Association                        provides symmetrical disclosure of                    provide a good faith estimate of
                                        (MBA) stated that the length of the form                originator compensation. NAMB stated                  settlement costs. NAFCU recommended
                                        will cause borrowers to ignore its                      that its model form not only remedies                 that pages 3 and 4 of the proposed form


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                                        be consolidated into one page by                           ALTA asserted that HUD’s views that                commented that more information about
                                        removing the section on page 3 entitled                 consumers: (1) Shop among lenders                     potential payment shock and the
                                        ‘‘understanding which charges can                       based on the lender’s estimates of                    adjustment of interest rates should be
                                        change at settlement’’ and the section on               charges in the 1100 series on the HUD–                included on the GFE. Specifically, the
                                        page 4 entitled ‘‘using the shopping                    1, and (2) have no need to know the                   FDIC recommended that the GFE
                                        chart.’’ NAFCU suggested that the                       amounts of the various charges that                   explain when an initial interest rate
                                        information contained in these sections                 comprise the aggregate amount, are in                 expires and when monthly payments
                                        should be provided in the Special                       error. ALTA stated that with regard to                increase.
                                        Information Booklet.                                    the itemization of individual costs that                The Federal Trade Commission (FTC)
                                           The Conference of State Bank                         comprise the aggregate Block 4 charge,                staff comment stated that the proposed
                                        Supervisors (CSBS), the American                        consumers who want to shop for these                  GFE form offers several features that
                                        Association of Residential Mortgage                     services will be seriously disadvantaged              will benefit consumers. These features
                                        Regulators (AARMR), and the National                    because there is no way to determine                  include a summary overview of loan
                                        Association of Consumer Credit                          the lender’s estimated price for the title            terms and charges on the first page; the
                                        Administrators (NACCA) stated that                      company, escrow company, attorney, or                 additional details regarding categories of
                                        they support HUD’s goal to provide                      surveyor.                                             fees and shopping options on
                                        clear and valuable information to                          ALTA also stated that the disclosure               subsequent pages; and the focus on total
                                        consumers regarding adjustable rate                     of a single fee for title insurance fails to          settlement costs, rather than itemized
                                        mortgages on the GFE. These                             recognize that, in most areas of the                  costs. However, FTC staff stated that the
                                        commenters recommended that HUD                         country, the seller generally pays a                  form raises concerns that warrant
                                        work with the Federal Reserve Board to                  substantial portion of the title insurance            clarification or modification. For
                                        develop coordinated, consistent, and                    charges. ALTA noted that the March                    example, FTC staff stated that
                                        cooperative disclosures to ensure that                  2008 proposed rule failed to provide                  consumers may be confused based on
                                        consumers are not confused. They                        instruction as to how to disclose title-              the differences between the GFE and the
                                        recommended that the GFE contain an                     related fees when these costs are paid by             HUD–1 disclosures and the TILA forms
                                        estimate of taxes and insurance even                    the seller. ALTA expressed concern that               they receive, particularly the difference
                                        when there will be no reserve for taxes                 if the GFE and HUD–1 do not itemize                   in monthly amounts. Rather than
                                        and insurance in the monthly payment.                   the fees for title insurance services, the            explain the differences in the Special
                                        According to these commenters, if the                   possibility exists that the borrower                  Information Booklet, FTC staff
                                        estimate is not included in the monthly                 could pay for services for which sellers              recommended that HUD provide a clear
                                        payment amount, the borrower will not                   currently assume payment, and this                    explanation of the difference between
                                                                                                would result in higher costs to the                   the forms on the GFE and the closing
                                        clearly understand whether they can
                                                                                                borrower. ALTA requested that HUD                     script, or use an alternative disclosure
                                        afford the monthly payment. While
                                                                                                continue to require title insurance fees              on the GFE and closing script to ensure
                                        these commenters indicated their
                                                                                                disclosed in the 1100 series of the HUD–              as much consistency with the TILA
                                        general support for the grouping of fees
                                                                                                1 to be separately itemized on both the               disclosures as possible.
                                        and charges on the proposed GFE into                                                                            The Office of Thrift Supervision
                                                                                                GFE and HUD–1.
                                        major settlement cost categories, they                     With respect to the category for                   (OTS) commented that HUD should
                                        expressed concern that some in the                      owner’s title insurance on page 2 of the              consider revising its settlement cost
                                        industry might take advantage of this                   GFE, ALTA requested that the word                     booklet to include illustrations
                                        format by putting additional fees and                   ‘‘optional’’ be dropped from the                      reflecting the impact that loan features
                                        charges in a totaled category.                          disclosure on both the proposed GFE                   and terms can have on the cost of the
                                           ALTA stated that page 1 of the                       and the proposed HUD–1. ALTA                          mortgage. In particular, OTS stated that
                                        proposed GFE presents the summary of                    expressed concern that, by including the              such illustrations would be particularly
                                        loan terms and the total costs for                      word ‘‘optional’’ in both disclosures,                useful in reflecting payment shock,
                                        settlement services in an                               HUD appears to be suggesting that a                   among other features, that a borrower
                                        understandable format. However, ALTA                    consumer does not need separate                       may experience when rates reset.
                                        urged HUD to improve the individual                     coverage for title insurance, which may
                                        fee disclosures by using a page that is                                                                       HUD Determination
                                                                                                discourage borrowers from obtaining
                                        identical to page 2 of the current HUD–                 owner’s coverage. ALTA also noted that                   In response to comments, HUD has
                                        1. ALTA stated that revising page 2, as                 owner’s title insurance is required in                made a number of changes to the
                                        it recommended, would allow                             residential real estate transactions in               revised GFE, including shortening the
                                        consumers to know all fees included                     many states and that, by labeling                     form from four pages to three and
                                        within the total amount listed on the                   owner’s title insurance as optional on                clarifying important information for
                                        GFE summary page and to more directly                   both the GFE and the HUD–1, HUD’s                     borrowers throughout the form. While
                                        compare these fees to the final charges                 requirement would directly conflict                   HUD recognizes that too much
                                        and closing.                                            with various state requirements.                      information on the form may
                                           With respect to the categorization of                                                                      overwhelm borrowers, HUD is also
                                        fees on page 2 of the proposed GFE,                     Federal Agencies                                      cognizant that borrowers need to be
                                        ALTA objected to the proposed                             The Federal Deposit Insurance                       aware of the important aspects of the
                                        requirement that a single fee be                        Corporation (FDIC) also expressed                     loan, as well as the settlement costs.
                                        disclosed for title services and lender’s               concern about the length of the                       While HUD considered all of the various
                                        title insurance on Block 4 and for                      proposed GFE. While considering the                   alternative forms submitted by
                                        primary title services in the 1100                      proposed GFE to be an improvement                     commenters, HUD determined that its
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                                        section of the HUD–1. ALTA stated that                  over the current model form, the FDIC                 proposed GFE, with certain
                                        the elimination of required itemization                 expressed concern about whether the                   modifications made at this final rule
                                        of these fees is of concern and can only                proposed GFE provides information that                stage, would best meet the needs of
                                        serve to lessen, rather than enhance,                   consumers will understand in an easily                borrowers to shop and compare loans
                                        competition for these services.                         understandable format. The FDIC also                  from different loan originators. As


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                                                         Federal Register / Vol. 73, No. 222 / Monday, November 17, 2008 / Rules and Regulations                                        68209

                                        demonstrated by the testing of the form                 property taxes or other property-related              insurance to protect the borrower’s
                                        conducted by HUD’s forms contractor,                    charges in addition to the monthly                    interest in the property.
                                        consumers liked the general format of                   payment. The section includes a                          Block 6 of the revised form, ‘‘Required
                                        the form and were not overwhelmed by                    disclosure as to whether an escrow                    services that you can shop for,’’ is the
                                        its length. Accordingly, HUD has                        account is required for the loan                      same as Block 5 of the proposed form.
                                        maintained several important features of                described in the GFE. If no escrow                    While Block 6 of the proposed form
                                        the proposed GFE in the final form.                     account is included for the loan, this                included both government recording
                                        Other features from the proposed form                   section informs the borrower that the                 charges and transfer taxes, in response
                                        have been removed from the form, as                     additional charges must be paid directly              to comments, government recording
                                        revised at this final rule stage, and will              when due. If the loan includes an                     charges are now listed in Block 7 of the
                                        be included in the revised Special                      escrow account, the section informs the               revised form, along with the explanation
                                        Information Booklet. The final GFE                      borrower that it may or may not cover                 that ‘‘these charges are state and local
                                        continues to inform borrowers about                     all additional charges.                               fees to record your loan and title
                                        critical loan and settlement cost                          The bottom of page 1 on the revised                documents.’’ Block 8 now lists transfer
                                        information and allows borrowers to                     form retains the ‘‘summary of your                    taxes with the explanation that ‘‘these
                                        effectively shop among loan originators                 settlement charges’’ section, as set forth            charges are state and local fees on
                                        without burdening them with                             in the proposed GFE. The summary                      mortgages and home sales.’’ This change
                                        extraneous information.                                 includes the amount from Block A on                   was made in response to comments so
                                           The top of page 1 of the revised form                page 2, ‘‘your adjusted origination                   that these two different types of
                                        continues to include blank spaces for                   charges’’; the amount from Block B on                 government fees could be treated
                                        the loan originator’s name, address,                    page 2, ‘‘your charges for all other                  differently with respect to tolerances, as
                                        phone number, and email address, as                     settlement services’’ ; and reflects the              explained below.
                                        well as the borrower’s name, the                        ‘‘total estimated settlement charges’’ as                Block 7 of the proposed form,
                                        property address, and the date of the                   the sum of Blocks A and B.                            ‘‘Reserves or escrow,’’ is now Block 9 of
                                        GFE. In addition, the top of the revised                                                                      the revised form and is now listed as
                                                                                                   Page 2 of the revised GFE, like page
                                        page 1 includes a statement about the                                                                         ‘‘initial deposit for your escrow
                                                                                                2 of the proposed form, contains a
                                        purpose of the GFE, and information on                                                                        account.’’ The sentence below the title
                                                                                                listing of estimated settlement charges.              now explains that the charge is held in
                                        how to shop for a loan offer. This
                                                                                                The top of the second page continues to               an escrow account to pay future
                                        section of the form also references
                                                                                                require that the origination charge be                recurring charges on the property and
                                        HUD’s Special Information Booklet on
                                                                                                listed, and the credit or charge for the              includes check boxes to indicate
                                        settlement charges, as well as Truth in
                                                                                                specific interest rate is required to be              whether the escrow includes all
                                        Lending disclosures and information
                                                                                                subtracted or added to the origination                property taxes, all insurance or other
                                        available at http://www.hud.gov/respa.
                                                                                                charge to arrive at the adjusted                      payments. The ‘‘other’’ category may
                                        Such information was included on page
                                                                                                origination charge. However, this                     include non-tax and non-insurance
                                        4 of the proposed form. While the
                                        revised page 1 also continues to include                portion of the second page includes                   escrowed items, and/or specify which
                                        information about important dates, such                 some minor changes from the proposed                  taxes or insurance payments are
                                        as how long the interest rate is available              form. First, Block 2 now references                   included in the escrow if the escrow
                                        and how long the estimate for all other                 ‘‘points’’ after the ‘‘charge’’ in the                does not include all such payments.
                                        settlement charges is available, the rate               heading, rather than at the end of the                   Block 8 of the proposed form, ‘‘Daily
                                        lock period information that was                        sentence, to better inform the borrower.              interest charges,’’ is now Block 10 of the
                                        included in the loan summary chart on                   The heading now reads, ‘‘Your credit or               revised form. Block 9 of the proposed
                                        the proposed GFE has been moved from                    charge (points) for the specific interest             form, ‘‘Homeowner’s insurance’’ is now
                                        the summary chart to the ‘‘important                    rate chosen.’’ In addition, to draw the               Block 11 of the revised form.
                                        dates’’ block on the revised form. This                 borrower’s attention to the effect of the                The revised GFE requires the charges
                                        change was made to consolidate all the                  credit in Block 2, the term ‘‘reduces’’ is            in Blocks 3 through 11 to be subtotaled
                                        information about dates in one section                  now bolded in box 2. To draw the                      at the bottom of page 2. The sum of the
                                        of the form and to minimize potential                   borrower’s attention to the effect of the             adjusted origination charges and the
                                        borrower confusion.                                     charge in Block 2, the term ‘‘increases’’             charges for all other settlement services
                                           The revised page 1 also includes a                   is now bolded in box 3 of the second                  are required to be listed on the bottom
                                        summary chart of the loan on which the                  block. Finally, the second sentence in                of page 2. This figure will also be listed
                                        GFE is based, but this section of the                   box 2 and box 3 in Block 2 refers to                  on the bottom of page 1, in the block
                                        form is now referred to as ‘‘summary of                 ‘‘settlement’’ charges rather than                    ‘‘Total Estimated Settlement Charges.’’
                                        your loan’’ instead of ‘‘summary of your                ‘‘upfront’’ charges, in order to be                      In light of comments received on
                                        loan terms,’’ as proposed. The revised                  consistent with other language on the                 various aspects of the proposed form,
                                        summary continues to include key                        form.                                                 page 3 of the revised form has been
                                        terms and information about the loan for                   Page 2 of the revised GFE, like the                redesigned to include the most
                                        which the GFE was provided, but                         second page of the proposed GFE, also                 important information from pages 3 and
                                        certain changes were made to headings                   contains an estimate for all other                    4 of the proposed form. At the top of the
                                        on the chart to address specific                        settlement services. While the categories             redesigned page 3, the section
                                        comments. While the proposed GFE                        from the proposed form have generally                 ‘‘Understanding which charges can
                                        included information about the monthly                  been retained on the final form, certain              change at settlement’’ includes
                                        escrow payment in the summary chart,                    changes have been made to the                         information to assist the borrower in
                                        the revised form includes a separate                    categories to streamline the form in                  comparing charges on the GFE with the
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                                        section concerning the escrow account.                  response to comments. Block 10 of the                 charges listed on the HUD–1 settlement
                                        This section, referred to as ‘‘escrow                   proposed form ‘‘optional owner’s title                statement. Next, the tradeoff table
                                        account information,’’ informs the                      insurance’’ is now Block 5 of the revised             provides information on different loans
                                        borrower that some lenders require an                   form and informs the borrower that the                for which the borrower is qualified that
                                        escrow account to hold funds for paying                 borrower may purchase owner’s title                   would increase or decrease settlement


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                                        68210            Federal Register / Vol. 73, No. 222 / Monday, November 17, 2008 / Rules and Regulations

                                        charges, with a corresponding change in                 the loan originator determined that the               recognized the Federal Reserve Board’s
                                        the interest rate of the loan. Completing               borrower was not creditworthy. The                    rulemaking authority under ECOA and
                                        this tradeoff table is now optional. This               borrower could not be rejected at the                 the Fair Credit Reporting Act (FCRA)
                                        table is intended to be read in                         mortgage application stage unless the                 and indicated that requirements under
                                        conjunction with the section on                         originator determined there was a                     these statutes and their implementing
                                        ‘‘adjusted origination charges’’ on page                change in the borrower’s eligibility                  regulations would be triggered by the
                                        2 of the form. The tradeoff table on the                based on final underwriting, as                       newly defined GFE application. They
                                        final form has been modified to require                 compared to information developed for                 noted that current definitions in both
                                        ‘‘your initial loan amount’’ in the first               such application prior to the time the                statutes and their implementing
                                        category, as opposed to ‘‘your initial                  borrower chose the particular originator.             regulations cover the GFE application.
                                        loan balance’’ on the proposed form, to                 Under the proposed rule, the originator                 According to their comments, the
                                        be consistent with the change in                        would have been required to document                  application of ECOA and FCRA to the
                                        terminology on the first page of the                    the basis for such a determination and                GFE application is important because
                                        form.                                                   maintain the records for no less than 3               such application ensures binding and
                                           Page 3 of the revised form also                      years after settlement.                               accurate disclosures. These commenters
                                        includes the shopping chart included on                   The March 2008 proposed rule also                   recommended that HUD coordinate
                                        page 4 of the proposed form, to assist                  provided that where a borrower was                    with the Federal Reserve Board to
                                        borrowers in comparing GFEs from                        rejected for a loan for which a GFE had               ensure that the GFE application remains
                                        different loan originators. Finally, the                been issued, but the borrower qualified               covered by ECOA and FCRA.
                                        lender disclosure that was included on                  for a different loan program, the                     Industry Representatives
                                        the proposed form has been retained on                  originator would have to provide a
                                        the revised form, as discussed below.                   revised GFE. If a borrower was rejected                  Industry representatives expressed
                                                                                                for a loan and no other loan product                  significant concerns about the ‘‘GFE
                                        B. Changes to Facilitate Shopping                                                                             Application’’ and ‘‘Mortgage
                                                                                                could be offered, the borrower would
                                        1. New Definitions for ‘‘GFE                                                                                  Application’’ approach under the March
                                                                                                have to be notified within one business
                                        Application’’ and ‘‘Mortgage                                                                                  2008 RESPA proposal. Specifically, they
                                                                                                day and the applicable notice
                                                                                                                                                      expressed concerns about the limited
                                        Application’’                                           requirements satisfied.
                                                                                                                                                      information originators would be
                                           Proposed Rule. The March 2008                          Under the March 2008 proposed rule,
                                                                                                                                                      permitted to collect in order to conduct
                                        proposed rule provided separate                         for loans covered by RESPA, the TILA
                                                                                                                                                      preliminary underwriting before issuing
                                        definitions for a ‘‘GFE application’’ and               disclosures would be provided within 3
                                                                                                                                                      a GFE. One commenter stated that this
                                        a ‘‘mortgage application’’ in an effort to              days of a written GFE application,
                                                                                                                                                      limitation precludes an originator from
                                        promote shopping. Under the proposed                    unless the creditor, i.e. the loan
                                                                                                                                                      considering, at the GFE application
                                        rule, a loan originator would have                      originator, determined that the
                                                                                                                                                      stage, important information that a
                                        provided a borrower a GFE once the                      application could not be approved on
                                                                                                                                                      lender currently collects early in the
                                        borrower provided the originator six                    the terms requested. The proposed rule
                                                                                                                                                      transaction in order to develop a GFE.
                                        pieces of information that included:                    indicated that based on consultations
                                                                                                                                                      Some of those additional items include
                                        Borrower’s name, Social Security                        with the Federal Reserve Board, when a                loan product type sought, purpose of
                                        Number, property address, gross                         GFE application is submitted, an initial              loan, and information to compute the
                                        monthly income, borrower’s                              TILA disclosure would also have to be                 loan-to-value ratio. The commenters
                                        information on the house price or best                  provided, so long as the application was              claimed that limiting consideration of
                                        estimate of the value of the property,                  in writing, or, in the case of an oral                this type of information would make it
                                        and the amount of the mortgage loan                     application, committed to written or                  difficult for originators to provide a
                                        sought. The rule provided that the GFE                  electronic form. HUD noted that                       meaningful GFE, because they would be
                                        application would have to be in written                 whether a GFE application under a                     unable to provide any reliable estimate
                                        form and, if provided orally, would                     particular set of facts triggered the Home            of cost or determine a borrower’s ability
                                        have to be reduced to a written or                      Mortgage Disclosure Act (HMDA) or the                 to repay the loan. They also stated that
                                        electronic record. Under the March 2008                 Equal Credit Opportunity Act (ECOA)                   the inability to consider important
                                        proposed rule, a separate GFE would                     requirements would be determined                      underwriting information until the
                                        have to be provided for each loan where                 under Regulation B and Regulation C, as               mortgage application stage would result
                                        a transaction involved more than one                    interpreted in the Federal Reserve                    in the issuance of more than one GFE.
                                        mortgage loan.                                          Board’s official staff commentary.                    The net result, they concluded, would
                                           The proposed rule would have                         Comments                                              lead to borrower confusion and
                                        required that once a borrower chose to                                                                        increased costs to the borrower.
                                        proceed with a particular loan                          Consumer Representatives                                 Industry commenters also expressed
                                        originator, the loan originator could                      Consumer representatives supported                 further operational concerns related to
                                        require the borrower to provide                         early delivery of the GFE, which, under               the limitations on underwriting
                                        additional information through a                        the proposed rule, would be issued                    information at the GFE stage. They
                                        ‘‘mortgage application’’ in order to                    when a lender receives the proposed                   stated that the limitation on information
                                        complete final underwriting. This                       ‘‘GFE Application.’’ However, they                    that loan originators can take into
                                        additional information could be used to                 emphasized that enforcement and                       consideration, in developing a GFE,
                                        verify the GFE, and could include                       private rights of action are necessary to             would force lenders to develop systems
                                        income and employment verification,                     ensure that a meaningful GFE will be                  that could underwrite based on very
                                        property valuation, an updated credit                   provided to consumers early in the                    limited information. They further stated
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                                        analysis, and the borrower’s assets and                 mortgage application process.                         that the originator would not have
                                        liabilities.                                               Consumer representatives also raised               sufficient information to determine the
                                           The March 2008 proposed rule                         the issue of whether HUD’s definition of              type of property the consumer is
                                        provided that a borrower could be                       ‘‘GFE Application’’ triggers other                    considering—such as whether the
                                        rejected at the GFE application stage if                regulatory requirements. They                         property is commercial, industrial,


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                                                         Federal Register / Vol. 73, No. 222 / Monday, November 17, 2008 / Rules and Regulations                                        68211

                                        vacation, or residential—or the type of                 determines that the application cannot                rule. Under this approach, at the time of
                                        loan the consumer is considering, such                  be approved on the terms requested.                   application, the loan originator will
                                        as a purchase money loan, refinance, or                 The commenters further noted that the                 decide what application information it
                                        home equity loan. They stated it is                     Regulatory Impact Analysis states ‘‘[t]he             needs to collect from a borrower, and
                                        important for the lender to have this                   proposed rule clarifies that only the                 which of that collected application
                                        information because the lender may not                  mortgage application would be subject                 information it will use, in order to issue
                                        engage in the kind of lending a                         to Regulations B (ECOA) and C (HMDA),                 a meaningful GFE. However, before
                                        consumer seeks.                                         which is the current situation today.’’               providing the GFE, the loan originator
                                           In addition, industry commenters                     These commenters requested                            will be assumed to have collected at
                                        expressed confusion over whether a                      clarification of this matter.                         least the following six items of
                                        credit report was one of the six pieces                    Industry representatives questioned                information: the borrower’s name,
                                        of information they could collect as part               HUD’s legal authority to: limit                       Social Security Number, and gross
                                        of the GFE application, and requested                   information originators can request to                monthly income; the property address;
                                        that HUD provide clarification on this                  underwrite a loan; require that                       an estimate of the value of the property;
                                        subject.                                                originators accept an abbreviated                     and the amount of the mortgage loan
                                           Industry representatives also                        application from which to complete a                  sought. The borrower’s Social Security
                                        requested that HUD permit borrowers to                  GFE; require a new GFE when a                         Number would be collected for
                                        expedite the application process and                    counteroffer is made; and require a                   purposes of obtaining a credit report.
                                        proceed to the mortgage application                     consumer to be notified within one                    The final rule now defines
                                        stage, when the borrower so desires due                 business day of a lender’s decision to                ‘‘application’’ to include at least these
                                        to timing or other concerns.                            reject an application, among other                    six items of information. Therefore,
                                           Industry representatives stated that                 concerns.                                             under this single application process, a
                                        the new application definitions in the                     Additionally, one lender commented                 loan originator may ask for, or a
                                        March 2008 proposed rule would                          that under HUD’s March 2008 proposed                  borrower may choose to submit, more
                                        present uncertainty in complying with                   rule, lenders would be required to retain             information than the loan originator
                                        other mortgage-related statutes and                     the GFE application for 3 years, which                intends to use to process the GFE, for
                                        regulations. They commented that                        is different from the 25-month retention              example the information on a standard
                                        compliance with other statutes and                      requirement by TILA or ECOA. The                      1003 mortgage loan application form,
                                        regulations is triggered by a mortgage                  lender commented that this difference                 but beyond the six items of information,
                                        ‘‘application.’’ Because HUD’s proposal                 presents additional expense without a                 the loan originator will determine what
                                        included both a ‘‘GFE Application’’ and                 substantive benefit to the consumer.                  it needs to issue a GFE. HUD strongly
                                        a ‘‘Mortgage Application,’’ they
                                                                                                Other Commenters                                      urges loan originators to develop
                                        commented that it is not clear which
                                                                                                                                                      consistent policies or procedures
                                        one is the ‘‘application’’ for purposes of                 The FTC staff recommended that HUD
                                                                                                                                                      concerning what information it will
                                        compliance with other regulations. In                   reevaluate the proposed ‘‘GFE
                                        particular, lenders expressed concern                                                                         require to minimize delays in issuing
                                                                                                application,’’ as this terminology is new
                                        with the possibility that the ‘‘GFE                                                                           GFEs.
                                                                                                and could generate consumer confusion
                                        Application’’ would trigger compliance                  in the already complex mortgage                          In order to prevent overburdensome
                                        obligations under FCRA, ECOA, HMDA,                     process. FTC staff suggested that HUD                 documentation demands on mortgage
                                        and the TILA requirements. They                         characterize it as the ‘‘GFE application’’            applicants, and to facilitate shopping by
                                        requested that ambiguities surrounding                  concept so that consumers do not                      borrowers, the final rule specifically
                                        compliance with these statutes and                      confuse it with the mortgage                          prohibits the loan originator from
                                        other laws be addressed to provide                      application. They also recommended                    requiring an applicant, as a condition
                                        clarity and mitigate litigation exposure.               that HUD educate consumers about                      for providing a GFE, to submit
                                        For example, one lender noted that to                   these two components of the mortgage                  supplemental documentation to verify
                                        calculate the spread for high-cost loans                lending process. Further, FTC indicated               the information provided by the
                                        under Regulation Z and many state                       that the industry would also benefit                  applicant on the application. Loan
                                        predatory lending laws, the index used                  from guidance on how the GFE                          originators, however, can require
                                        is based on the month in which the                      application relates to other mortgage                 applicants to provide such verification
                                        ‘‘application’’ for credit is received by               lending laws that include an                          information after the GFE has been
                                        the creditor. This lender stated that it                ‘‘application’’ concept.                              provided, in order to complete final
                                        was not clear from the proposed rule                       CSBS, AARMR, and NACCA also                        underwriting. In addition, the rule does
                                        whether the GFE application is an                       expressed concern over the creation of                not bar a loan originator from using its
                                        application for purposes of Regulation                  a ‘‘GFE application’’ and a ‘‘mortgage                own sources before issuing a GFE to
                                        Z.                                                      application’’ because, they asserted,                 independently verify the information
                                           Industry commenters expressed                        these application concepts will cause                 provided by the applicant.
                                        confusion about preamble statements                     consumer confusion. They                                 Once the applicant submits to the
                                        regarding whether HMDA or ECOA is                       recommended that HUD coordinate                       loan originator all the mortgage
                                        triggered by the GFE Application. They                  with other federal regulatory agencies to             application information deemed
                                        indicated that the preamble stated that                 ensure consistency and clarity to                     necessary by the loan originator to
                                        whether HMDA or ECOA is triggered by                    regulatory requirements from loan                     process the GFE, the originator will be
                                        the GFE Application should be                           application to loan closing.                          required to deliver or mail a GFE to the
                                        determined under Regulations C and B,                                                                         applicant within 3 business days. HUD
                                        as interpreted by the Board. They noted,                HUD Determination                                     is now also limiting the fee that may be
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                                        however, that the preamble stated that                    To address the concerns raised by the               charged for providing the GFE,
                                        based on consultations with the Federal                 commenters about the bifurcated                       consistent with the Federal Reserve
                                        Reserve Board, TILA disclosures would                   application approach set forth in the                 Board’s recently finalized rule limiting
                                        be provided within 3 days of a written                  proposed rule, HUD has adopted a                      the fees that consumers can be charged
                                        GFE application unless the creditor                     single application process for the final              for the delivery of TILA disclosures (see


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                                        68212            Federal Register / Vol. 73, No. 222 / Monday, November 17, 2008 / Rules and Regulations

                                        revisions of 12 CFR 226.119(a), 73 FR                     If a loan originator receives                       advocates pointed out that some states
                                        44522, July 30, 2008).                                  information indicating that changed                   prohibit the collection of an application
                                           After the GFE has been received, the                 circumstances necessitate the issuance                fee before credit has been extended and
                                        loan originator may collect additional                  of a new GFE, such new GFE must be                    that HUD’s proposal would be
                                        fees needed to proceed to final                         provided to the borrower within 3                     inconsistent with such laws. The
                                        underwriting for borrowers who decide                   business days of receipt of such                      consumer advocates asserted that HUD’s
                                        to proceed with a loan from that                        information. The 3-day requirement is                 proposal could be read to preempt these
                                        originator. As noted, at that time,                     in response to comments on the                        state laws. The consumer advocates
                                        verification information or any other                   proposed rule that stated that providing              recommended that HUD remain silent
                                        information could be required from the                  a new GFE within one day is not                       on the collection of such fees in relation
                                        applicant, such as bank statements and                  workable.                                             to the GFE and should in no way
                                        W–2 forms, to confirm representations                     The approach set forth in this rule                 support it.
                                        made by the applicant in the                            furthers HUD’s goal to promote
                                        application.                                                                                                  Industry Representatives
                                                                                                consumer shopping among mortgage
                                           None of the information collected by                 originators, because it does not overly                 Industry comments reflected some
                                        the originator prior to issuing the GFE                 burden a consumer at an early stage.                  confusion as to whether and to what
                                        may later become the basis for a                        Rather, a consumer provides                           extent fees can be charged in connection
                                        ‘‘changed circumstance’’ upon which a                   information that is easily communicated               with the GFE. Some industry
                                        loan originator may offer a revised GFE,                and pays a nominal fee in order to get                commenters understood the proposal to
                                        unless the loan originator can                          a GFE.                                                mean that lenders can charge a fee once
                                        demonstrate that there was a change in                    As noted, this public policy is further             a borrower submits a ‘‘mortgage
                                        the particular information or that it was               supported by the Federal Reserve Board                application.’’ Other industry
                                        inaccurate, or that the loan originator                 through its recently issued final rule                commenters sought clarification about
                                        did not rely on that particular                         limiting fees that can be charged for the             what exactly can be charged in
                                        information in issuing the GFE. A loan                  delivery of the TILA disclosure. Under                connection with the GFE. They
                                        originator would have the burden of                     this rule, borrowers must receive the                 indicated that meeting the 3-business
                                        demonstrating nonreliance on the                        TILA disclosure before paying or                      day requirement for delivery of the GFE
                                        collected information, but may do so by                 incurring any fee imposed by a creditor               to the borrower and completing the
                                        various means, including through, for                   or other person in connection with the                lengthy GFE form would be time
                                        example, a documented record in the                     consumer’s application for a closed-end               consuming and costly.
                                        underwriting file or an established                     mortgage, except that creditors may
                                        policy of relying on a more limited set                                                                         Further, in a situation in which a
                                                                                                charge a bona fide and reasonable fee for             borrower seeks an accelerated process
                                        of information in providing GFEs. If a
                                                                                                obtaining the consumer’s credit history.              for getting a loan, industry
                                        loan originator issues a revised GFE
                                                                                                Whether an application under a                        representatives stated that the borrower
                                        based on information previously
                                                                                                particular set of facts triggers ECOA or              should be able to pay necessary fees for
                                        collected in issuing the original GFE
                                                                                                HMDA requirements must be                             such items as, for example, an appraisal.
                                        and ‘‘changed circumstances,’’ it must
                                                                                                determined under Regulation B or                      Industry representatives also opined
                                        document the reasons for issuing the
                                                                                                Regulation C, as interpreted by the                   that under RESPA, HUD has no
                                        revised GFE, including, for example, its
                                                                                                Federal Reserve Board’s Official Staff                authority in their view to require
                                        nonreliance on that information or the
                                                                                                Commentary.                                           lenders to offer GFEs without adequate
                                        inaccuracy of the information, and
                                        retain that documentation for at least 3                2. Up-Front Fees That Impede Shopping                 compensation.
                                        years. Additional guidance on what                                                                            Other Commenters
                                                                                                  Proposed Rule. The March 2008
                                        constitutes ‘‘changed circumstances’’
                                                                                                proposed rule provided that a loan                      CSBS, AARMR, and NACCA
                                        will be provided by HUD during the
                                                                                                originator, at its option, could collect a            commented that a consumer should not
                                        implementation period.
                                           Furthermore, the loan originator is                  fee limited to the cost of providing the              be charged for the GFE because to do so
                                        presumed to have relied on the                          GFE, including the cost of an initial                 locks the consumer into the transaction.
                                        borrower’s name, the borrower’s                         credit report, as a condition of providing            These commenters stated that if HUD
                                        monthly income, the property address,                   the GFE to a prospective borrower. The                insists on permitting a fee to be charged,
                                        an estimate of the value of the property,               loan originator was not permitted to                  the fee charged should be limited to a
                                        the mortgage loan amount sought, and                    collect, as a condition of providing a                credit report.
                                        any information contained in any credit                 GFE, any fee for an appraisal,
                                                                                                inspection, or other similar service                  HUD Determination
                                        report obtained by the loan originator
                                        before providing the GFE. The loan                      needed for final underwriting.                          HUD has long supported a public
                                        originator cannot base a revision of the                Comments                                              policy goal of creating a circumstance
                                        GFE on this information, unless it                                                                            where consumers can shop for a
                                        changes or is later found to be                         Consumer Representatives                              mortgage loan among loan originators
                                        inaccurate. HUD determined that this                       Consumer representatives expressed                 without paying significant upfront fees
                                        approach provides the flexibility                       concerns about the opportunity for                    that impede shopping. To this end, and
                                        originators need to properly underwrite,                consumers to be charged a fee for a GFE               consistent with the Federal Reserve
                                        while limiting bait-and-switch methods                  and a credit report. They are concerned               Board’s recently issued revised
                                        whereby the originator uses the GFE to                  such costs would discourage borrowers                 regulations limiting the fees that a
                                        draw in a borrower and, after a                         from shopping for a mortgage. They                    consumer may be charged for the
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                                        significant application fee is paid or                  stated that lenders would charge a fee                delivery of TILA disclosures (73 FR
                                        burdensome documentation demands                        for the GFE to offset lenders’ costs for              44522, July 30, 2008), HUD, in this final
                                        are made, claims that a material change                 issuing the GFE, because the cost of                  rule, is limiting the charge originators
                                        has resulted in a more expensive loan                   preparation of the GFE cannot otherwise               may impose on consumers for delivery
                                        offering.                                               be passed on to consumers. Consumer                   of the GFE.


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                                                         Federal Register / Vol. 73, No. 222 / Monday, November 17, 2008 / Rules and Regulations                                       68213

                                          The Federal Reserve Board’s rule                      also encourage borrowers to comparison                in consumers’ hands in a consistent,
                                        restricts creditors from imposing a fee                 shop to find the best deal.                           user-friendly format should facilitate
                                        on a consumer in connection with the                      NAMB urged HUD to adopt the FTC                     consumer shopping, market competition
                                        consumer’s application for a mortgage                   prototype disclosures in place of the                 and transparency.’’ They characterized
                                        before the consumer has received the                    proposed mortgage broker compensation                 HUD’s summary sheet as striking a
                                        TILA disclosure. The Federal Reserve                    language. However, NAMB                               balance between disclosing critical
                                        Board makes an exception that allows                    recommended that, if the FTC forms are                information and preventing information
                                        imposition of a fee that is bona fide and               not adopted in their entirety, HUD                    overload.
                                        reasonable in amount for obtaining the                  should incorporate the FTC language in                   CRL presented a legal argument
                                        consumer’s credit history. In an effort to              the GFE earlier than on page 3, and in                supporting HUD’s authority to require
                                        create consistency among regulatory                     a more prominent typeface than the                    disclosure of loan terms. CRL pointed
                                        requirements and serve the best                         typeface used for the proposed language               out that settlement costs are so
                                        interests of consumers, HUD is similarly                on comparative shopping.                              intertwined with loan terms that those
                                        limiting the fee for the GFE to the cost                                                                      terms must be disclosed for the
                                                                                                HUD Determination
                                        of a credit report. Also, as in the                                                                           settlement costs to have any meaning.
                                        proposed rule, a loan originator is                        HUD’s consumer testing of the form                 Other consumer groups also pointed out
                                        expressly not permitted to charge, as a                 demonstrated that consumers better                    that these terms affect the overall price
                                        condition of providing a GFE, any fee                   understood the function of the GFE and                and risk for the consumer. CRL, which
                                        for an appraisal, inspection, or similar                its role in the shopping process as a                 is affiliated with a small nonprofit
                                        settlement service.                                     result of language on the form.                       lender that will have to comply with the
                                                                                                Accordingly, HUD has determined to                    new rule, stated that the rule is
                                        3. Introductory Language on the GFE                     maintain the language on the form that                administratively feasible for larger and
                                        Form                                                    describes the purpose of the GFE and                  smaller lenders.
                                                                                                informs the borrower that only they can                  In addition to supporting loan terms
                                          Proposed Rule. The March 2008
                                                                                                shop for the best loan for them.                      disclosure, consumer advocacy
                                        proposed rule included a proposed
                                                                                                However, in the interest of streamlining              organizations suggested several changes
                                        required GFE form that explained to the
                                                                                                the form, the revised form now                        to make disclosure even more effective.
                                        borrower: (1) On page 1, the purpose of                 includes, on page 1, the information                  They suggested that there should be a
                                        the GFE, i.e., that it is an ‘‘* * *                    about shopping for a loan that was on                 more strict legal mechanism for binding
                                        estimate of your settlement costs and                   page 3 of the proposed GFE.                           originators to the loan terms after
                                        loan terms if you are approved for this
                                                                                                4. Terms on the GFE (Summary of Loan                  disclosing them. Some consumer
                                        loan’’; and (2) on page 3, that the
                                                                                                Details)                                              advocates argued for inclusion of the
                                        borrower is the ‘‘* * * only one who
                                                                                                                                                      APR on the GFE, perhaps instead of the
                                        can shop for the best loan for you. You                    Proposed Rule. The proposed GFE                    note rate, stating that inclusion of the
                                        should shop and compare this GFE with                   included a summary of the key loan                    APR would make comparisons easier.
                                        other loan offers. By comparing loan                    terms. The form required the disclosure               Some suggested that the adjustable rate
                                        offers, you can shop for the best loan.’’               of the initial loan amount; the loan term;            disclosure should include the date
                                        Comments                                                the initial interest rate on the loan; the            when the first adjustment happens, in
                                                                                                initial monthly payment owed for                      order to help avoid payment shock.
                                           Consumers did not comment on this                    principal, interest, and any mortgage                 Commenters pointed out that a monthly
                                        issue. NAMB stated that the                             insurance; and the rate lock period. The              payment disclosure that includes taxes
                                        introductory language of the GFE and                    form also required the loan originator to             and different types of insurance will be
                                        the language encouraging comparative                    disclose whether the interest rate could              more useful in judging affordability and
                                        shopping should be improved.                            rise; whether the loan balance could                  for making comparisons to the current
                                        Specifically, NAMB stated that the                      rise; whether the monthly amount owed                 mortgage, when applying to refinance.
                                        language encouraging comparative                        for principal, interest, and any mortgage             They also suggested that the maximum
                                        shopping incorrectly characterizes the                  insurance could rise; whether the loan                interest rate disclosure is not likely to
                                        GFE as a ‘‘loan offer.’’ NAMB stated that               had a prepayment penalty or a balloon                 help borrowers and may be misleading.
                                        this is misleading because it leaves                    payment; and whether the loan                         The commenters stated that actual
                                        borrowers with the impression that they                 included a monthly escrow payment for                 dollar figures are more readily
                                        have been approved for the loan and                     property taxes and possibly other                     understandable. The commenters also
                                        that is not the case. NAMB suggested                    obligations. The proposed rule required               stated that the GFE should include a
                                        that the ‘‘loan offer’’ reference be                    the terms ‘‘prepayment penalty’’ and                  clear statement that loan terms are
                                        changed to ‘‘other estimates.’’                         ‘‘balloon payment’’ to be interpreted                 negotiable, and all the disclosures
                                           NAMB also recommended that the                       consistent with TILA (15 U.S.C. 1601 et               should be more carefully harmonized
                                        language encouraging comparative                        seq.). The APR was not included on the                with TILA.
                                        shopping be made more conspicuous                       proposed GFE.                                            NCLC, Consumer Action, the
                                        and informative. NAMB encouraged                        Comments                                              Consumer Federation of America, and
                                        HUD to adopt language set forth in the                                                                        the National Association of Consumer
                                        prototype disclosure forms developed                    Consumer Representatives                              Advocates stated that they ‘‘applaud’’
                                        by FTC. Those forms include prominent                      As part of their general support for the           inclusion of the maximum payment
                                        legends in large typeface that expressly                proposed rule, consumer advocacy                      amount and the maximum loan balance
                                        advise borrowers that mortgage                          organizations were positive about the                 because these help consumers
                                        originators, including both brokers and                 inclusion of loan terms on the GFE.                   understand a loan’s risks, especially the
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                                        lenders, do not represent borrowers, and                NCLC, in a joint letter with Consumer                 risks of nontraditional loans, and help
                                        that the ‘‘lender or broker providing this              Action, Consumer Federation of                        consumers judge a loan’s affordability.
                                        loan is not necessarily shopping on your                America, and National Association of                  However, these organizations suggested
                                        behalf or providing you with the lowest                 Consumer Advocates, commented that                    that HUD provide guidance to
                                        cost loan.’’ The FTC prototype forms                    ‘‘[p]lacing the most critical information             originators on how to calculate


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                                        maximum payment and maximum loan                        HUD has the authority to require                      Federal Agencies
                                        balance.                                                disclosure of settlement costs only, and                 FTC staff stated that its experience
                                           One consumer organization pointed                    that loan terms are not settlement costs.             and research suggest that ‘‘consumers in
                                        out that much research, including an                    They stated that the disclosures                      both the prime and subprime markets
                                        FTC study, found that borrowers often                   required by HUD would overlap or                      would benefit most from the
                                        do not understand exactly what                          conflict with disclosures under TILA                  development of a single mortgage
                                        ‘‘prepayment penalties’’ are and how                    and potentially with ECOA and HMDA.                   disclosure document that consolidates
                                        they work. Therefore, the organization                  One lender also stated that some of                   information on the key costs and
                                        recommended that HUD include in the                     these disclosures would overlap with                  features of their loans, presents the
                                        prepayment penalty disclosure the                       state-mandated disclosures.                           information in a language and format
                                        following brief explanation: ‘‘[p]ayment
                                                                                                   Industry representatives commented                 that is easy to understand, and is
                                        to lender if you refinance, sell home, or
                                                                                                that the Federal Reserve Board and                    provided early in the transaction to aid
                                        pay your loan off early’’.
                                           Consumer groups were concerned                       lenders have experience and expertise                 consumer shopping.’’ However, FTC
                                        that, because the proposed GFE                          in developing disclosures and                         staff stated their belief that HUD’s GFE
                                        highlighted settlement costs, it might                  informational materials on adjustable                 did not go far enough in requiring these
                                        mislead borrowers into believing that                   rate mortgages, and that HUD should                   disclosures, and that even the GFE and
                                        interest costs are less important. They                 coordinate efforts to provide improved                the TILA form together did not disclose
                                        suggested that interest is usually much                 disclosures and informational materials.              the necessary information. FTC staff
                                        more expensive than closing costs, and                  Industry commenters also stated that                  also stated that inconsistencies between
                                        should be more effectively emphasized.                  disclosures related to ARMs give rise to              the GFE and TILA forms could lead to
                                                                                                different concerns than settlement costs              consumer confusion.
                                        Industry Representatives                                under RESPA and that HUD should                          The FDIC commended HUD for
                                           Most lenders and lender organizations                follow the Federal Reserve Board’s lead               proposing revisions to its RESPA
                                        urged that loan terms be left off the GFE,              in this respect. A lender stated that the             regulations, and stated that ‘‘[t]he earlier
                                        submitting that loan terms are more                     rate adjustment disclosure on the                     availability of and more relevant
                                        properly viewed as TILA disclosures.                    proposed GFE is biased against ARMs,                  information on the GFE should promote
                                        These commenters stated that double                     since it only shows that payments can                 comparative shopping that will enable
                                        disclosure of loan terms will be                        increase, not decrease. This same lender              consumers to make more informed
                                        confusing to borrowers, especially since                suggested that it would be better to have             financing decisions.’’ Like the consumer
                                        much of the terminology proposed to be                  full ARM disclosure, which industry                   organizations, the FDIC expressed its
                                        used in HUD’s GFE is different from that                needs because current ARM disclosures                 view that the GFE needs to include
                                        used in the TILA (e.g., ‘‘loan amount’’                 are inadequate.                                       disclosure of when the first interest rate
                                        vs. ‘‘amount financed’’) and some                          NAMB supported HUD’s inclusion of                  adjustment happens, in order to avoid
                                        calculations are different. These                       loan terms on the GFE, and suggested                  payment shock.
                                        organizations suggested that loan term                  that more monthly expenses should be                     The Federal Reserve Board staff
                                        disclosures should be coordinated with                  disclosed, such as homeowner’s                        agreed with the need for disclosure of
                                        TILA, and be less lengthy. A lender                     association dues, if applicable.                      the first rate adjustment, and stated that
                                        proposed that originators should be                                                                           because the GFE’s ARM disclosures are
                                        allowed to substitute early TILA                           The Mortgage Insurance Companies of                less complete than TILA disclosures, the
                                        disclosure for the loan terms sheet.                    America (MICA) objected to the fact that              GFE’s ARM disclosures may not be as
                                        Another lender organization stated that                 mortgage insurance costs were included                beneficial to consumers’ understanding
                                        loan terms should be included only if                   in the monthly payment for purposes of                of how their loans work. The Federal
                                        there is a combined RESPA/TILA form.                    the question, ‘‘Can your monthly                      Reserve Board staff’s main concern,
                                        Some credit unions stated that the APR                  amount owed for principal, interest, and              though, was that duplication of
                                        should be included in the GFE loan                      any mortgage insurance rise? ’’ MICA                  disclosures and information, and, in
                                        terms.                                                  commented that this disclosure may                    some instances, inconsistency between
                                           Some lenders stated other aspects of                 mislead borrowers into believing that                 the loan terms on the GFE and the TILA
                                        the loan terms disclosure would confuse                 their mortgage insurance payments can                 form will create confusion for
                                        borrowers. A lender organization                        rise, when they are in fact set at the time           consumers. The Federal Reserve Board
                                        suggested that use of the format ‘‘Your                 of origination. MICA also suggested that              staff suggested that because RESPA and
                                        * * * is’’ to describe the loan details                 mortgage insurance would be disclosed                 TILA overlap, the Federal Reserve Board
                                        would create misunderstanding,                          in the ‘‘Required services that the loan              and HUD should work together to
                                        because these were loan terms being                     originator selects’’ category, and would              develop a single RESPA/TILA form. In
                                        applied for, not final loan terms. The                  also be included in the escrow                        addition, the Federal Reserve Board staff
                                        same organization also believed that                    disclosure.                                           stated, similar to a consumer
                                        inclusion of mortgage insurance in the                  Other Commenters                                      organization comment, that the absence
                                        monthly payment, without disclosing                                                                           of taxes and insurance in the monthly
                                        whether mortgage insurance is required,                   CSBS, AARMR, and NACCA                              payment disclosure will interfere with
                                        would confuse borrowers. In addition,                   commented that HUD should be aware                    borrowers’ ability to gauge affordability.
                                        the organization stated that some of the                that several states already require loan
                                                                                                originators to disclose various loan                  HUD Determination
                                        mechanisms behind these loan terms are
                                        too complex for single-line disclosure.                 terms, and that the GFE should avoid                     After reviewing the comments, HUD
                                           Many lenders and lender                              conflicting with these requirements.                  continues to believe that consumer
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                                        organizations submitted that HUD has                    This group also suggested that, in order              understanding of mortgage loans and of
                                        no authority under RESPA to require                     to avoid consumer confusion, HUD                      their settlement costs will be greatly
                                        disclosure of loan terms, because loan                  should coordinate more closely with the               enhanced by requiring disclosure of
                                        terms are not part of the settlement                    Federal Reserve Board’s TILA                          certain loan terms in a clear, user-
                                        process. These lenders submitted that                   disclosures.                                          friendly format on the GFE. Therefore,


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                                        the final rule includes the proposed                    costs, and TILA’s is to inform                        that a good faith estimate of the costs
                                        loan summary chart on the first page of                 consumers about loan terms, these                     associated with this specific settlement
                                        the revised GFE, with some revisions to                 purposes overlap. Settlement costs may                service include key information about
                                        address commenters’ suggestions. To                     include loan origination fees, and                    the ‘‘specific’’ service. Without this
                                        fully understand the cost of a loan for                 consumers may finance their settlement                information, the origination charges and
                                        which a borrower is paying, the                         costs.’’ Under section 19(a) of RESPA,                other fees associated with the loan will
                                        borrower needs to know the terms of the                 the Secretary of HUD has the authority                be meaningless. Through RESPA,
                                        loan product. Loan terms, such as the                   to issue such regulations ‘‘as may be                 Congress entrusts HUD with
                                        interest rate, can have a direct                        necessary to achieve the purposes of                  establishing the contents of the GFE,
                                        relationship to the borrower’s settlement               this Act.’’ The added information                     and it is within HUD’s discretion, and
                                        costs, including mortgage broker                        provided by the new GFE clearly                       its responsibilities under RESPA, to
                                        compensation and other loan                             furthers RESPA’s purpose to ‘‘provide                 ensure that consumers receive enough
                                        origination charges. HUD has                            more effective advance disclosure to                  information to make intelligent
                                        emphasized the importance of                            homebuyers and sellers of settlement                  shopping decisions about the costs of
                                        disclosing the relationship between the                 costs.’’ HUD agrees with those                        their loans. As noted previously in this
                                        interest rate and settlement charges in                 commenters who asserted that                          preamble, given the current problems in
                                        statements of policy on mortgage broker                 disclosure of other settlement costs is               the mortgage market, HUD decided to
                                        compensation and past RESPA                             meaningless (and therefore ineffective),              move forward with its improved
                                        rulemaking efforts. Disclosure of this                  absent the context provided by                        mortgage disclosures, including this
                                        relationship continues to be a central                  simultaneous disclosure of some loan                  new first page of the GFE. The CRL, in
                                        element of this rule.                                   terms. More effective disclosure also                 its comment on the 2008 proposed rule,
                                           Making it easier to understand the                   leads to, through borrowers’ improved                 stated:
                                        relationship between loan terms and                     ability to shop for mortgages, reduced                   ‘‘In today’s mortgage market, settlement
                                        loan costs is a key element in enhancing                mortgage settlement costs for borrowers,              costs are so intertwined with loan terms, and
                                        a borrower’s ability to shop for the best-              a key purpose behind RESPA. HUD                       the illusory trade-off between rate and points
                                        priced loan, including settlement                       believes its new GFE, and its enhanced                is so problematic * * * loan terms simply
                                        charges. A borrower should know that a                  usefulness to borrowers as a shopping                 must be included for the disclosure of
                                        loan may have certain features—for                      document, will provide an effective                   settlement costs to be even remotely
                                        example, a prepayment penalty or a                      complement to the TILA disclosure, to                 effective. HUD’s authority to require them,
                                                                                                                                                      therefore, is unambiguous.’’
                                        balloon payment—that may affect the                     provide borrowers with a more
                                        borrower’s charges for that loan,                       complete picture of their mortgage                       In response to comments, HUD has
                                        including by affecting the mortgage                     loans.                                                revised several aspects of the loan
                                        broker’s indirect compensation or other,                   Some commenters, primarily                         summary chart on page 1 of the GFE, to
                                        direct loan origination charges. The new                industry, requested that HUD delay its                better inform borrowers of the key loan
                                        GFE brings together all of the relevant                 disclosure reform efforts in this                     terms. First, the title of this section of
                                        pricing information, including certain                  rulemaking, pending a joint effort at                 the GFE has been simplified to
                                        loan terms, on one form, thus allowing                  disclosure reform with the Federal                    ‘‘Summary of your loan.’’ To improve
                                        the consumer to understand and                          Reserve Board. HUD remains ready to                   clarity, the summary chart now refers to
                                        compare loans much more easily. As                      coordinate with the Federal Reserve                   ‘‘initial loan amount’’ instead of ‘‘initial
                                        stated by the National Consumer Law                     Board to ensure consistency in mortgage               loan balance.’’ As in the proposed rule,
                                        Center, in its comment on behalf of                     disclosure forms. As discussed earlier in             the revised form requires disclosure of
                                        itself, Consumer Action, the Consumer                   this preamble, however, HUD                           the terms of the loan; initial interest
                                        Federation of America, and the National                 determined that it must move forward                  rate; and initial amount owed for
                                        Association of Consumer Advocates:                      with this rulemaking to provide                       principal, interest, and any mortgage
                                           ‘‘Using a loan summary sheet is a terrific           prospective homebuyers and other                      insurance. However, the information on
                                        advance. As HUD recognizes, consumer                    mortgage borrowers the benefits of the                the rate lock period has been moved out
                                        shopping is facilitated when loan                       better disclosure provided by the                     of this section of the GFE and into the
                                        information is condensed and summarized.                revised forms and requirements in this                ‘‘Important dates’’ section.
                                        Placing the most critical information in                rule. These revisions are particularly                   While some commenters
                                        consumers’ hands in a consistent, user                  important given the current mortgage                  recommended that the ‘‘annual
                                        friendly format should facilitate consumer              crisis, which is due in part to borrowers’            percentage rate’’ or ‘‘APR’’ be added to
                                        shopping, market competition, and                                                                             the summary chart, HUD has
                                                                                                misunderstanding or lack of knowledge
                                        transparency.’’                                                                                               determined not to add ‘‘APR’’ to the
                                                                                                about the fundamental details of their
                                           HUD has determined that disclosure                   mortgage loans.                                       GFE. HUD recognizes that APR is a
                                        of major loan terms on the GFE is                          HUD also examined the comments                     complex term, calculated without the
                                        necessary to provide effective advanced                 regarding its authority to require                    inclusion of certain significant costs in
                                        disclosure to homebuyers of settlement                  disclosure of loan terms on the GFE, and              a mortgage loan transaction, and has a
                                        costs, which is a key purpose of RESPA.                 concludes that it does have such                      unique purpose as a broad cost-of-credit
                                        HUD disagrees with those industry                       authority. Section 5(c) of RESPA                      measure central to the TILA disclosure.
                                        commenters that asserted that the GFE                   provides for ‘‘a good faith estimate of               Consumers will be apprised of the APR
                                        cannot list loan terms associated with                  the amount or range of charges for                    on the TILA disclosure they receive at
                                        settlement costs because the TILA                       specific settlement services the                      the same time that they receive the GFE.
                                        disclosure is the appropriate form for                  borrower is likely to incur in connection             Accordingly, due to the specific TILA
                                        loan terms. The Federal Reserve Board,                  with the settlement as prescribed by the              purposes of the APR and its inclusion
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                                        in its comment on the rule, noted an                    Secretary.’’ Because, under RESPA’s                   on the concurrent TILA disclosure, HUD
                                        ‘‘overlap’’ between the RESPA and                       definitions, loan origination, or the                 does not believe it is necessary to
                                        TILA’s purposes in this regard:                         making of a mortgage loan, is a                       include the APR on the GFE.
                                        ‘‘Although RESPA’s purpose is to                        ‘‘settlement service,’’ HUD determined                   HUD has, however, included on the
                                        inform consumers about settlement                       that it is within its authority to require            GFE form other terms that are included


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                                        in the TILA disclosure required by the                  then make a decision to return to a                     NAMB stated that it is meaningless,
                                        Federal Reserve Board, but that are                     particular originator, particularly                   and potentially misleading, to suggest
                                        important to borrowers’ understanding                   without an interest rate lock. NCLC                   that a borrower would receive a specific
                                        the costs of their mortgage loans. For                  noted that industry practice generally                interest rate prior to final application.
                                        example, the GFE requires a general                     assumes that, in the purchase money                   NAMB recommended that more specific
                                        disclosure about the existence of                       context, a minimum of 30 days is                      language be included on the form
                                        prepayment penalties and balloon                        needed to shop for and obtain a binding               indicating that the rate may change until
                                        payments. Under the final rule, HUD                     mortgage commitment.                                  locked. They also recommended that the
                                        would continue to interpret these terms                    CRL also noted that the 10-business-               10-business-day period during which
                                        consistent with TILA, as HUD had                        day period does not apply to the interest             estimated settlement charges would be
                                        indicated it would do in its March 2008                 rate, which can come with no guarantee                available, be changed to 10 ‘‘calendar’’
                                        proposed rule (73 FR at 14036).                         at all. NCLC and CRL stated that an                   days, since this would conform more
                                           Some commenters recommended that                     interest rate lock must be required in                closely to market realities.
                                        the form warn borrowers about the first                 order for the GFE to be effective.                    HUD Determination
                                        change in the interest rate, to prevent                 According to CRL, not including a
                                        payment shock. The revised form                         requirement for an interest rate lock will               HUD has determined to retain the
                                        requires disclosure of the length of time               force consumers to shop on settlement                 time periods set forth in the proposed
                                        before that first change. In addition, the              costs alone, which are a relatively small             rule. A central purpose of RESPA
                                        revised form clarifies whether, even                                                                          regulatory reform is to facilitate
                                                                                                component of the total home settlement
                                        when the borrower makes payments on                                                                           shopping in order to lower settlement
                                                                                                cost. CLR stated that, in addition, not
                                        time, the loan balance can rise and the                                                                       costs, and there is legitimate concern
                                                                                                requiring a rate lock makes it too easy
                                        monthly amount owed for principal,                                                                            that requiring GFEs to be open for too
                                                                                                for loan originators to engage in baiting
                                        interest, and any mortgage insurance                                                                          long a shopping period could
                                                                                                and switching; that is, offering low
                                        can rise. The revised form also requires                                                                      unintentionally operate to increase
                                                                                                settlement costs, only to recoup those
                                        disclosure of the period of time of the                                                                       borrower costs. This could occur if loan
                                                                                                costs by increasing the interest rate
                                        first possible increase in the monthly                                                                        originators are required to commit to
                                                                                                when the consumer returns 3 business
                                        amount owed, the amount to which it                                                                           prices for too long a period or if the
                                                                                                days later. NCLC stated that, because
                                        can rise at that time, and the maximum                                                                        length of the period necessitates that
                                                                                                interest is the largest component of the              originators make contingency plans for
                                        to which it can ever rise. The final rule               price of a mortgage, if interest rates are            a large number of loans, when the yield
                                        requires the same information as in the                 allowed to float, while settlement costs              of actual borrowers that can be expected
                                        proposed form about prepayment                          are fixed, consumers will be encouraged               to commit to the originator is uncertain.
                                        penalties and balloon payments.                         to shop on the smallest portion of                    Accordingly, the final rule provides that
                                        Finally, the final rule, with some                      mortgage costs, the settlement costs, and             the interest rate stated on the GFE will
                                        revision of the proposed rule language,                 that lenders will be encouraged to play               be available until a date set by the loan
                                        requires information on whether the                     bait and switch games with the offered                originator for the loan. HUD is not
                                        lender requires an escrow account for                   interest rate. Thus, according to NCLC,               requiring the interest rate to be available
                                        the loan, for the payment of property                   in order for the GFE to be an effective               for any specific length of time. The final
                                        taxes and possibly other obligations.                   shopping tool, all costs must be fixed at             rule provides that the loan originator
                                        5. Period During Which the GFE Terms                    the time the GFE is delivered.                        indicate on the GFE the period during
                                        Are Available to the Borrower                           Industry Representatives                              which the interest rate is available. After
                                                                                                                                                      that time period, the interest rate, the
                                           Proposed Rule. Under the proposed                      MBA stated that the information                     interest rate related charges, and loan
                                        rule, the interest rate stated on the GFE               concerning how long the costs and                     terms, including some of the loan
                                        would be available until a date set by                  interest rate are open to borrower                    originator charges, the per diem interest,
                                        the loan originator for the loan. After                 acceptance needs greater clarification                and the monthly payment estimate for
                                        that date, the interest rate, some of the               and could be provided in accompanying                 the loan could change until the interest
                                        loan originator charges, the per diem                   materials, and not the GFE. MBA stated                rate is locked. The final rule also
                                        interest, and the monthly payment                       that if such information is included on               provides that the estimate for all other
                                        estimate for the loan could change until                the GFE, the rule should make clear that              settlement charges and loan terms must
                                        the interest rate is locked. The proposed               the interest rate on the GFE may be                   be available for 10 business days from
                                        rule also provided that the estimate for                available until a specified hour and                  when the GFE is provided, but could
                                        all the other charges would be available                date, since interest rates frequently                 remain available longer if the loan
                                        until 10 business days from when the                    change several times a day.                           originator chooses to extend the period
                                        GFE is provided, but could remain                         The Consumer Mortgage Coalition                     of availability. The 10-business day
                                        available longer, if the loan originator                (CMC) stated that RESPA already                       requirement for settlement costs
                                        extended the period of availability.                    provides for good faith estimates of                  essentially provides that the GFE will be
                                        Comments                                                closing costs, and that it is unreasonable            available for 2 weeks, thereby providing
                                                                                                to interpret RESPA to limit changes in                borrowers with sufficient time to shop
                                        Consumer Representatives                                closing costs where the estimates were                among various providers.
                                           NCRC, CRL, and NCLC all stated that                  made in good faith. In addition,
                                        a 10-business-day time period is                        according to CMC, nothing in RESPA                    6. Option To Pay Settlement Costs
                                        insufficient for shopping and                           would appear to justify requiring                        Proposed Rule. The proposed GFE
                                        recommended a 30-day binding period                     lenders to keep an interest rate available            advised the borrower regarding how the
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                                        as more fair to consumers. NCLC stated                  for a potential borrower who has not                  interest rate would affect a borrower’s
                                        that the 10-business day period does not                actually applied for a loan. Therefore,               settlement costs. The proposed GFE
                                        seem to be sufficient time for consumers                CMC recommended that the ‘‘important                  would have required the loan originator
                                        to shop for a different mortgage, obtain                dates’’ section on the proposed GFE be                to complete a tradeoff table that
                                        alternative GFEs, compare them, and                     removed.                                              informed the borrower that the borrower


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                                        could choose from among the following:                  table implies that there is a one-to-one              HUD Determination
                                        (1) The loan presented in the GFE; (2)                  relationship between the interest rate                   HUD has determined to retain the
                                        an otherwise identical loan with a lower                and the settlement costs. They stated                 tradeoff table on the GFE. However,
                                        interest rate and monthly payments that                 this is not the case, and, in many                    recognizing that not all loan originators
                                        will raise settlement costs by a specific               circumstances, the lender-paid broker                 offer various loan products, full
                                        amount; or (3) an otherwise identical                   compensation leads to both higher                     completion of the table is at the option
                                        loan with a higher interest rate and                    settlement charges and higher interest                of the loan originator. While a loan
                                        monthly payments that will lower                        rates. In addition, they stated that the              originator is required to complete the
                                        settlement costs by a specific amount. If               tradeoff table cannot effectively disclose            left hand column of the table that
                                        a higher or lower interest rate was not                 the tradeoffs when lender-paid broker                 describes the loan offered in the GFE, it
                                        in fact available from the originator, the              compensation is based on loan features                is not required to complete the table
                                        originator would have been required to                  other than an increase in the interest                with respect to the middle column
                                        provide those options that are available                rate; as for example, lenders that                    reflecting a loan with a lower interest
                                        and indicate ‘‘not available’’ on the                   commonly pay brokers for loans with                   rate, or the right hand column, reflecting
                                        form, for those options that were not                   prepayment penalties.                                 a loan with lower settlement charges.
                                        available. The proposed rule invited                       Some consumer representatives                      Filling out these last two columns is
                                        comments on whether the loan                            expressed support for a requirement that              optional for the loan originator, even if
                                        originator should be required to include                an originator be required to offer a no-              the loan originator has another loan for
                                        a ‘‘no cost loan’’ on the tradeoff table as             cost loan on the tradeoff table if the                which the borrower may be eligible.
                                        one of the alternative loans if the loan                originator has that type of product                   However, HUD encourages loan
                                        offered to the borrower is not the loan                 available and the borrower qualifies for              originators to complete the tradeoff
                                        for which the GFE is written.                           such a loan. These commenters also                    table, in light of HUD’s consumer testing
                                        Comments                                                stated that a meaningful tradeoff                     of the form that revealed that consumers
                                                                                                between settlement charges and interest               found the tradeoff table to be one of the
                                        Consumer Representatives                                rates would arise in the context of a no-             most useful and informative aspects of
                                          Consumer representatives supported                    cost loan.                                            the GFE. The tradeoff table focuses
                                        the concept of the tradeoff table but                                                                         consumers’ attention on the information
                                        recommended some changes. They                          Industry Representatives                              in the box on the top of page 2 of the
                                        stated that only loans for which the                       Industry representatives                           GFE, empowering them to better shop
                                        borrower actually qualifies should be                   recommended that the tradeoff table on                for a mortgage. HUD strongly urges loan
                                        included in the table. They also stated                 page 3 of the GFE be moved to                         originators to fill out the tradeoff table
                                        that shopping on monthly payments                       explanatory materials, including the                  in its entirety so that borrowers can
                                        through the tradeoff table, proposed in                 special information booklet. One lender               better understand: (1) The disclosure of
                                        HUD’s RESPA rule, only works if the                     expressed confusion over what HUD                     the ‘‘charge or credit (points) for the
                                        loan terms are the same. If loan terms                  intended by ‘‘two other options.’’ The                specific interest rate chosen’’ on page 2
                                        vary, shopping on the monthly payment                   lender stated that it was not clear                   of the GFE, and (2) what other loans
                                        can be misleading to consumers and                      whether HUD meant different loan                      may be available.
                                        have devastating results. These                         types, rate/point structures, down                       As many commenters expressed
                                        commenters also expressed concerns                      payment amounts, or something else. A                 concern and confusion over the
                                        about the definition of ‘‘otherwise                     major lender trade organization                       requirement to provide information
                                        identical,’’ which anticipates that the                 commented that lenders should not be                  about alternative loans and about
                                        loans offered on the tradeoff chart                     required to offer a no-cost loan on the               ‘‘otherwise identical’’ loans, HUD is
                                        would vary only by interest rate. As                    tradeoff table. A major lender stated that            clarifying the scope of what qualifies as
                                        outlined by these commenters, the                       since HUD has not defined what it                     an ‘‘otherwise identical’’ loan. Should a
                                        problem is that if the lender pays the                  means by ‘‘no cost,’’ it is difficult to              loan originator determine to complete
                                        closing costs, the interest rate will be                provide a comment. This lender stated                 the table, the loan originator has to
                                        higher, and, if the borrower pays the                   that many lenders now offer no-cost                   disclose only those loans for which the
                                        closing costs, in many cases, the                       loan products and to force these lenders              borrower would qualify under the
                                        borrower will finance such costs                        into making such disclosures would                    lender’s underwriting practices. For
                                        through a higher loan amount. The                       only result in consumer confusion.                    purposes of completing the tradeoff
                                        commenters stated that the tradeoff                                                                           table, an ‘‘otherwise identical’’ loan is a
                                        table would not address this                               One lender commented that                          loan where the loan amount, the
                                        circumstance.                                           disclosing two mortgage products on the               number and schedule of payments, the
                                          These commenters also recommend                       tradeoff table, in addition to the product            nature of the interest rate, the index and
                                        that the definition of ‘‘otherwise                      contemplated on the GFE, would be                     margin for any adjustable rate mortgage,
                                        identical’’ be clarified, to include loans              problematic, because this particular                  the loan terms, and characteristics such
                                        where the number and schedule of                        lender offers only two mortgage                       as whether there is a prepayment
                                        payments, the nature of the interest rate,              products.                                             penalty or a balloon payment are
                                        whether fixed or adjustable, the index                  Other Commenters                                      consistent with the loan presented in
                                        and margin for any adjustable rate                                                                            the GFE. The only loan characteristic
                                        mortgage, and the other loan                              CSBS, AARMR and NACCA                               that may vary from the loan presented
                                        characteristics, are held constant, with                commented that the tradeoff table does                in the GFE is the interest rate.
                                        the exception that the interest rate and                not disclose that the choice a borrower                  No-cost loans are not required to be
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                                        loan amount can be lower or higher than                 makes between a charge and a credit                   presented as one of the alternative
                                        the loan reflected in the GFE.                          will have an impact on the overall                    loans. However, if the baseline GFE is
                                          Consumer representatives also                         amount of the loan or monthly payment.                for a no-cost loan so that the origination
                                        expressed concerns that the                             The disclosure should reflect such a                  charge in Box 1 or the credit shown in
                                        introductory language on the tradeoff                   choice.                                               Box 2 of the GFE offset the total of other


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                                        settlement service charges in Boxes 3                   identified by the originator, and                     provision permitting disclosure of a
                                        through 11 (i.e., total estimated                       optional owner’s title insurance, if the              range of charges for settlement services.
                                        settlement costs are zero), the originator              borrower uses a provider identified by                   Trade groups representing other
                                        would complete the tradeoff table by                    the originator) would have been                       settlement servicer providers, especially
                                        showing the same loan amount with                       prohibited from increasing at settlement              realtors and title companies, focused on
                                        positive closing costs (effectively the                 by more than 10 percent of the sum for                the alleged potential anticompetitive
                                        positive difference between the charge                  services presented on the GFE, absent                 effects of the tolerance provisions.
                                        or credit for the GFE interest rate and                 unforeseeable circumstances. Thus, a                  These groups suggested that large
                                        that for the specified lower interest rate)             specific charge would have been able to               lenders would seek to manage the risks
                                        as the first alternative to the GFE loan,               increase by more than 10 percent, so                  associated with tolerances by
                                        and the same loan with a higher interest                long as the sum of all the services                   contracting with large third party
                                        rate and negative closing costs                         subject to the 10 percent tolerance did               settlement service providers, thereby
                                        (effectively the negative difference                    not increase by more than 10 percent.                 placing small settlement service
                                        between the charge or credit for the GFE                                                                      providers at a competitive disadvantage.
                                        interest rate and that for the specified                Comments                                                 Lenders and trade groups representing
                                        lower interest rate) as the second                                                                            lenders and some other settlement
                                                                                                Supporters of Tolerances
                                        alternative. The primary purpose of the                                                                       service providers also strongly
                                        GFE tradeoff table is to ensure that                       Many commenters expressed various                  supported removing government
                                        borrowers understand there is a trade off               degrees of support for the concept of                 recording and transfer charges from the
                                        between interest rates and settlement                   tolerances. A trade group, representing               tolerances. They stated that these
                                        costs and to help them better                           mortgage brokers as well as some large                charges are outside of the control of the
                                        understand the ‘‘Your credit or charge                  lenders, expressed support for the                    loan originator and cannot be known
                                        (points) for the specific interest rate’’               concept of tolerances, albeit with certain            with any certainty at the time the GFE
                                        disclosure on page 2. It may also help                  clarifications or modifications.                      is provided.
                                                                                                However, the strongest support for                       Several lenders and trade groups
                                        borrowers become aware of alternative
                                                                                                tolerances came from federal banking                  representing lenders suggested
                                        loans that are potentially available.
                                                                                                regulators and groups representing                    alternatives to the proposed tolerance
                                        However, it is not meant to be an
                                                                                                consumer interests. These commenters                  provisions. For example, certain trade
                                        exhaustive range of potential alternative
                                                                                                agreed that unexpected increases in                   groups representing lenders
                                        loan products to the borrower. Loan
                                                                                                costs between those provided in the                   recommended that tolerances not apply
                                        originators are encouraged to discuss
                                                                                                GFE and those actually charged at                     to the initial GFE, which would be used
                                        any alternative loan products with
                                                                                                settlement are a significant problem for              as a shopping tool, but tolerances would
                                        borrowers and provide them with their
                                                                                                prospective borrowers, and that the                   apply only to a ‘‘final’’ GFE that would
                                        own versions of tradeoff tables showing
                                                                                                tolerances proposed by HUD would be                   be provided after a full mortgage
                                        the effects of the alternative loan terms                                                                     application had been completed. These
                                        on interest rates, monthly payments,                    an effective way of preventing such
                                                                                                                                                      trade groups also supported more
                                        loan amounts, and settlement costs.                     surprises. These commenters made
                                                                                                                                                      flexibility in the tolerance for the loan
                                                                                                various suggestions for strengthening
                                        7. Establishing Meaningful Standards                                                                          originator’s own charges, and suggested
                                                                                                the tolerance provisions to provide
                                        for GFEs                                                                                                      a 5 percent tolerance rather than a ‘‘zero
                                                                                                additional protections for borrowers.
                                                                                                                                                      tolerance.’’ Another alternative
                                        a. Tolerances                                           Suggestions included calculating the
                                                                                                                                                      suggested by at least one lender was to
                                           Proposed Rule. Under the March 2008                  tolerances item-by-item rather than by
                                                                                                                                                      evaluate overall compliance with
                                        proposed rule, loan originators would                   grouping certain items together and
                                                                                                                                                      tolerances rather than compliance on a
                                        have been prohibited from exceeding at                  strengthening enforcement.
                                                                                                                                                      loan-by-loan basis. This suggestion,
                                        settlement the amount listed as ‘‘our                   Opponents of Tolerances                               according to the commenter, would
                                        service charge’’ on the GFE, absent                                                                           alleviate many of the difficulties in
                                        unforeseeable circumstances. The                           Most lenders, trade groups                         anticipating unusual aspects of
                                        proposed rule also would have                           representing lenders, and trade groups                individual loans but still hold lenders
                                        prohibited the amount listed as the                     representing other settlement service                 accountable for providing GFEs that, as
                                        charge or credit to the borrower for the                providers were generally opposed to the               a rule, accurately reflect charges at
                                        interest rate chosen, if the interest rate              proposed tolerance provisions. These                  settlement. Another suggestion offered
                                        was locked, absent unforeseeable                        commenters stated that tolerances and                 was to make providing a list of third
                                        circumstances, from being exceeded at                   particularly the zero tolerance for loan              party settlement service providers to
                                        settlement. In addition, the proposed                   originator charges are equivalent to a                prospective borrowers optional, with
                                        rule would have prohibited Item A on                    settlement cost guarantee, and therefore              tolerances applying only where the loan
                                        the GFE, ‘‘Your Adjusted Origination                    conflict with the explicit statutory                  originator selected the service provider
                                        Charges,’’ from increasing at settlement                requirement for an estimate of                        or where the loan originator provided a
                                        once the interest rate was locked. The                  settlement charges. Several commenters                list of service providers.
                                        proposed rule also would have                           reviewed the legislative history of
                                        prohibited government and recording                     section 5 of RESPA, emphasizing that                  HUD Determination
                                        fees from increasing at settlement,                     the statute was designed ‘‘to provide the               Based on the comments received in
                                        absent unforeseeable circumstances.                     prospective homebuyer with general                    response to the proposed rule, HUD has
                                           Under the March 2008 proposed rule,                  information as to what their costs will               revised a number of provisions dealing
                                        the sum of all the other services subject               be at the time of settlement.’’ (See H.R.             with the tolerances. In particular, HUD
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                                        to a tolerance (originator-required                     Rep. No. 667, 94th Cong., 1st Sess., at               has clarified the situations where the
                                        services where the originator selects the               2, 1975 U.S.C.C.A.N. 2448, 2449 (Nov.                 loan originator would no longer be
                                        third party provider, originator-required               14, 1975) (emphasis added).) These                    bound by the tolerances. However, HUD
                                        services where the borrower selects                     commenters also stated that tolerances                has determined that only limited
                                        from a list of third party providers                    may be inconsistent with the statutory                changes are necessary in the tolerance


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                                        amounts for settlement service                          categories: government recording                      the charges estimated on the GFE with
                                        categories in the rule. The final rule                  charges, and transfer taxes.                          those actually imposed at settlement.
                                        seeks to balance the borrower’s interest                   Transfer taxes should generally be                    The opportunity to cure violations of
                                        in receiving an accurate GFE early in the               known at the time the GFE is provided,                the tolerances is an important tool for
                                        application process to enable the                       so those taxes continue to be subject to              loan originators to manage compliance
                                        borrower to shop effectively, with the                  a zero tolerance. If there are changes in             with the tolerance requirements. Many
                                        lender’s interest in maintaining                        the tax rates or in the price of the                  lenders and groups representing lenders
                                        flexibility to address the many issues                  property after a GFE is provided, those               and other settlement service providers
                                        that can arise in a complex process such                changes would either constitute                       objected to the imposition of tolerances
                                        as loan origination.                                    changed circumstances or new                          because of the difficulty of providing
                                           Many commenters recommended                          information that would be the basis for               accurate estimates to prospective
                                        changes to the size of the tolerances for               providing a revised GFE. It is HUD’s                  borrowers early in the application
                                        different categories of settlement costs,               view that these provisions will provide               process. The opportunity to cure will
                                        especially the zero tolerance for loan                  sufficient flexibility to protect loan                permit loan originators to give an
                                        originator charges. With one exception                  originators from changes outside their                estimate of expected settlement charges
                                        described below, the final rule does not                control, while still preventing loan                  in good faith, without subjecting them
                                        change the amounts of the tolerances                    originators from providing ‘‘low-ball’’               to harsh penalties if the estimate turns
                                        permitted for the different categories of               estimates of transfer taxes on the GFE                out to be lower than the actual charges
                                        settlement costs. As noted in the                       that could mislead prospective                        at settlement.
                                        proposed rule, HUD considered the best                  borrowers. Government recording                          HUD has also made clarifying changes
                                        available data on the variation in the                  charges, in contrast, often may not be                to the proposed provision describing the
                                        costs of settlement services, in                        known with any certainty at the time                  circumstances in which the GFE can be
                                        particular, for title services, in                      the GFE is provided, and in many cases                revised. As described in more detail
                                        determining that a 10 percent tolerance                 not until close to, or at, closing.                   below, changed circumstances that
                                        is reasonable. No commenters submitted                  Therefore, HUD has determined that                    result in higher costs can be a basis for
                                        or identified any alternative data                      these charges should be included with                 providing a revised GFE. In addition,
                                        sources that would support expanding                    the third party charges that are subject              information that was either not known
                                        the tolerances beyond 10 percent.                       to an overall 10 percent tolerance.                   or not relied on at the time the original
                                           With respect to the zero tolerance for               Because the government recording                      GFE was provided may also be the basis
                                        a loan originator’s own charges, HUD                    charges typically are small in relation to            for providing a modified GFE.
                                        recognizes the comments characterizing                  other settlement costs, this should                   b. Unforeseeable Circumstances
                                        the tolerance as a potential settlement                 provide ample flexibility to loan
                                        cost guarantee. However, the final rule                 originators on these charges without                     Proposed Rule. The March 2008
                                        provides substantial flexibility to loan                unduly impacting the permitted                        proposed rule provided that loan
                                        originators in providing a revised GFE                  tolerances for other third party                      originators would not be held to
                                        when circumstances necessitate                          settlement charges.                                   tolerances where actions by the
                                        changes. By providing such flexibility,                    As noted earlier in this preamble,                 borrower or circumstances concerning
                                        HUD intends to prevent only those                       HUD has made a number of changes to                   the borrower’s particular transaction
                                        increases in the loan originator’s charges              the tolerances provisions to clarify and              result in higher costs that could not
                                        that are made in ‘‘bad faith.’’ Section                 provide additional flexibility in                     have reasonably been foreseen at the
                                        19(a) provides explicit authority for the               managing the tolerances. As in the                    time of the GFE application, or where
                                        Secretary to make such interpretations                  proposed rule, the final rule adds a                  other legitimate circumstances beyond
                                        as may be necessary to achieve the                      paragraph to the current regulations that             the originator’s control result in such
                                        purposes of RESPA. Providing a clear,                   provides that a loan originator that                  higher costs. The proposed rule also
                                        objective standard for what constitutes                 violates the GFE requirements, which                  provided that if unforeseeable
                                        ‘‘good faith’’ under section 5 of RESPA                 include the tolerance requirements,                   circumstances would result in a change
                                        is necessary to provide more effective                  shall be deemed to have violated section              in the borrower’s eligibility for the
                                        advance disclosure to homebuyers and                    5 of RESPA. However, the final rule also              specific loan terms identified in the
                                        sellers of settlement costs, and as such,               provides a loan originator with an                    GFE, the borrower must be notified of
                                        falls directly within the Secretary’s                   opportunity to cure any violation of the              the rejection for the loan and be
                                        interpretive authority under section                    tolerance by reimbursing the borrower                 provided a new GFE if another loan is
                                        19(a). In the context of residential                    any amount by which the tolerances                    made available.
                                        mortgage negotiations, HUD finds that                   were exceeded. This reimbursement
                                                                                                                                                      Comments
                                        the term ‘‘good faith’’ requires that, once             may be made at settlement or within 30
                                        a loan provider has quoted in writing a                 calendar days after settlement. HUD will                 Most of the commenters who
                                        certain price as the cost of its own                    deem a payment to have been provided                  commented on unforeseeable
                                        services in a specific transaction and                  in a timely fashion if it is placed in the            circumstances generally supported the
                                        absent the ‘‘changed circumstances’’                    mail by the loan originator within 30                 proposed rule’s provision on this
                                        provided for elsewhere in the rule, the                 calendar days after settlement. HUD has               matter, but many recommended changes
                                        provider must adhere to the quoted                      determined, based on the comments                     or additions to the proposed definition
                                        price.                                                  received, that 30 calendar days provides              of unforeseeable circumstances. Several
                                           The one exception to the amounts of                  sufficient time for loan originators to               lenders and trade groups representing
                                        the tolerances remaining the same as in                 identify and cure any tolerance                       lenders indicated that, while
                                        the proposed rule is the tolerance for the              violations through their post-closing                 ‘‘unforeseeable circumstances’’
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                                        government recording and transfer                       review process. In most cases, HUD                    encompasses many things that would
                                        charges. HUD has adjusted how these                     expects that violations will be identified            fall under the statutory requirement that
                                        charges are treated under the tolerances.               at or before settlement when completing               estimates of settlement costs be in ‘‘good
                                        The final rule splits the government                    the revised HUD–1 form, which                         faith,’’ the two concepts are not always
                                        recording and transfer charges into two                 provides a clear format for comparing                 equivalent. Some commenters suggested


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                                        68220            Federal Register / Vol. 73, No. 222 / Monday, November 17, 2008 / Rules and Regulations

                                        that the definition be expanded or                      of, or technical changes to, the                      would have the option of providing a
                                        clarified to include any situation that is              definition of unforeseeable                           modified GFE. Conversely, as an
                                        outside the lender’s control, even if                   circumstances. Because many of the                    example, if the borrower’s total assets
                                        such a situation involves a change that                 changes described in the proposed                     were relied on in providing the original
                                        occurs often enough to be ‘‘foreseeable’’               definition of ‘‘unforeseeable                         GFE, and those assets are not materially
                                        in some sense. An example offered of                    circumstances’’ happen frequently                     different from what was stated at
                                        such situation is one in which the                      enough that they could be ‘‘reasonably                application, then the borrower’s total
                                        changes in the price of the property or                 foreseen,’’ the final rule replaces the               assets may not be used as a basis for
                                        in the estimated value of the collateral                definition of ‘‘unforeseeable                         providing a revised or modified GFE.
                                        may necessitate new information about                   circumstances’’ with a new definition                    While these changes are intended to
                                        the credit quality of the borrower that is              for ‘‘changed circumstances.’’ However,               provide loan originators with more
                                        developed during the underwriting                       the types of circumstances included in                flexibility in providing revised GFEs,
                                        process, or any other situation for which               the new definition are similar to the                 HUD is also mindful of the potential for
                                        there is a reasonable explanation and                   types of circumstances that were                      abuse. Unscrupulous loan originators
                                        that is still consistent with ‘‘good faith.’’           included in the proposed rule. The first              might seek to avoid providing a reliable
                                           Several commenters, including FTC                    clause in the new definition of                       GFE by claiming not to have relied on
                                        staff and a trade group representing                    ‘‘changed circumstances’’ in the final                information provided by the prospective
                                        mortgage brokers, found the proposed                    rule still includes acts of God, war,                 borrower. In order to discourage loan
                                        definition of ‘‘unforeseeable                           disaster, or other emergencies as was                 originators from providing ‘‘generic’’
                                        circumstances’’ to be vague. They                       included in the proposed rule. The final              GFEs that are not based on a
                                        suggested adding specific examples of                   rule clarifies that the other                         preliminary evaluation of a particular
                                        common situations to clarify the scope                  circumstances in the second clause are                borrower, the final rule limits the ability
                                        of ‘‘unforeseeable circumstances.’’                     separate from and in addition to the                  of loan originators to provide a revised
                                           These commenters also offered                        circumstances listed in the first clause.             GFE based on information that was
                                        suggestions regarding the definition. A                 The final rule also clarifies that the                collected from the borrower prior to
                                        group representing consumer interests                   other circumstances include situations                providing the GFE. However, if a loan
                                        recommended that HUD carefully                          where information particular to the                   originator documents that it relies on a
                                        monitor how often unforeseeable                         borrower or the transaction either                    limited range of information in
                                        circumstances override the tolerance                    changes or is later found to be different             providing GFEs to borrowers, the loan
                                        requirements, to ensure that the                        from what was known at the time the                   originator may provide a revised GFE
                                        exception does not swallow the rule. A                  GFE was provided. For example, new                    based on any other information that
                                        joint comment letter from groups                        information affecting the borrower’s                  results in increased settlement costs or
                                        representing state regulators suggested                 credit quality or a change in the loan                a change in the borrower’s eligibility,
                                        that a provision be included requiring                  amount might occur often enough to be                 even if the information was received by
                                        loan originators to provide written                     ‘‘reasonably foreseeable’’, but it would              the loan originator prior to providing
                                        notice to borrowers describing the                      still fall within the types of                        the GFE, subject to the provisions of the
                                        ‘‘unforeseeable circumstance’’ that                     circumstances included in the second                  rule. Loan originators are presumed to
                                        resulted in the higher costs.                           clause of the definition of ‘‘changed                 have relied on the same minimum
                                                                                                circumstances.’’                                      information that must be collected by
                                        HUD Determination
                                                                                                   Under the final rule, changed                      the loan originator before providing a
                                           Based on the comments received in                    circumstances that result in an increase              GFE; namely, the borrower’s name, the
                                        response to the proposed rule, HUD has                  in settlement costs, such that the                    borrower’s monthly income, the
                                        made a number of changes to the                         tolerances would be exceeded, or that                 property address, an estimate of the
                                        proposed provisions describing the                      result in a change in a borrower’s                    value of the property, the amount of the
                                        circumstances in which the GFE can be                   eligibility for the loan offered, may be              mortgage loan sought, and any credit
                                        revised. HUD has determined that                        the basis for providing a revised GFE.                report that is obtained by the loan
                                        changes are needed to the proposed                      For example, if the actual loan amount                originator before providing the GFE.
                                        grounds for providing a revised GFE.                    turns out to be higher than the loan                  These limitations on providing a revised
                                           The final rule clarifies the different               amount indicated by the borrower at the               GFE apply only if subsequent
                                        types of circumstances (‘‘changed                       time the GFE was provided, and certain                underwriting and verification confirm
                                        circumstances’’) that can be a basis for                settlement charges that are based on the              that the information remains
                                        providing a revised GFE. The final rule                 loan amount increase as a result, the                 substantially the same as the
                                        continues to emphasize that market                      loan originator may provide a revised                 information provided by the borrower at
                                        price fluctuations by themselves are not                GFE reflecting those higher amounts.                  the time of the GFE. For example, if the
                                        changed circumstances. For example, if                  Compliance with the tolerance                         borrower’s monthly income turns out to
                                        an appraiser that a loan originator                     provisions would be evaluated by                      be substantially less than the monthly
                                        intends to use for a particular                         comparing the revised GFE with the                    income stated by the borrower in the
                                        transaction raises its prices by $50 after              actual amounts charged at settlement.                 initial application, the final rule would
                                        the loan originator has already provided                   Similarly, if underwriting and                     not prevent the loan originator from
                                        a GFE, that increase would not have                     verification show that a borrower’s                   either providing a revised GFE or from
                                        constituted an unforeseeable                            monthly income is different from the                  denying the loan altogether. If the loan
                                        circumstance under the proposed rule.                   income relied on in providing the                     originator decides to provide a revised
                                        This result would continue under the                    original GFE, and the difference results              GFE, HUD encourages the loan
                                        final rule, i.e., such a price increase by              in a change in the borrower’s eligibility             originator to explain to the borrower the
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                                        the appraiser would not be a ‘‘changed                  for that loan with those particular terms,            reasons for providing a revised GFE
                                        circumstance’’ allowing the issuance of                 the loan originator would no longer be                based on the changed circumstances.
                                        a new GFE.                                              bound by the original GFE. If a loan                     Several other provisions in the final
                                           HUD recognizes that numerous                         with different terms is available for that            rule that permit revisions to the GFE
                                        commenters recommended elaborations                     borrower, then the loan originator                    have not changed significantly from


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                                                         Federal Register / Vol. 73, No. 222 / Monday, November 17, 2008 / Rules and Regulations                                        68221

                                        those proposed. The final rule provides                 to maintain that documentation for 3                  Other Commenters
                                        that a revised GFE may be provided if                   years after settlement.
                                        a borrower requests changes in the loan                                                                         FTC staff commented that the lender
                                        product, such as changing from a 30-                    8. Lender Disclosure                                  disclosure is misleading and will cause
                                        year term to a 15-year term, or from a                                                                        confusion because it does not make
                                                                                                  Proposed Rule. The proposed GFE
                                        fixed-rate mortgage to an adjustable rate                                                                     clear that the terms of the loan may be
                                                                                                included information for the borrower
                                        mortgage. A revised GFE would be                                                                              dependent on anticipation of the
                                                                                                to note that lenders can receive
                                        permitted whether such change is first                                                                        secondary market fees described. FTC
                                                                                                additional fees from other sources by
                                        suggested by the loan originator, or by                                                                       staff said there should be more explicit
                                                                                                selling the loan at some point after
                                        any other party. The final rule also                                                                          disclosure in the origination charge
                                                                                                settlement. However, the borrower was
                                        provides that if a prospective borrower                                                                       section of the GFE, making clear that
                                                                                                also informed that once the loan is
                                        does not express an intent to continue                                                                        lenders also get higher fees for a higher
                                                                                                obtained at settlement, the loan terms,
                                        with an application within 10 business                  the borrower’s adjusted origination                   interest rate.
                                        days of receiving the original GFE, or                  charges, and total settlement charges                 HUD Determination
                                        such longer time specified by the loan                  cannot change. The language on the
                                        originator on the GFE, the loan                         proposed GFE also indicated that after                   After consideration of the comments,
                                        originator is no longer bound by the                    settlement, any fees lenders receive in               HUD has determined to retain the
                                        GFE. While HUD does not intend for the                  the future cannot change the loan                     lender disclosure on the GFE. HUD is
                                        GFE form to in any way affect state laws                received or the charges paid at                       retaining the lender disclosure on the
                                        regarding contract formation, this                      settlement by the borrower.                           GFE because HUD believes that it is
                                        provision is intended to make clear that                                                                      important for borrowers to be aware that
                                        the estimated charges on a GFE are not                  Comments                                              lenders may receive additional fees by
                                        open-ended.                                             Lender Representatives                                selling the loan after settlement.
                                           The final rule also clarifies that,
                                                                                                                                                      However, the disclosure has been
                                        where a borrower has not locked a                         Lenders and lender organizations                    streamlined. The disclosure on the
                                        particular interest rate, or where an                   commented that the disclosure                         revised form informs the borrower that
                                        interest rate lock has expired, all                     regarding lender compensation on page
                                        interest rate-dependent charges on the                                                                        some lenders may sell the loan after
                                                                                                4 of the GFE is misleading and                        settlement and any fees received by the
                                        GFE are subject to change. The charges                  unnecessary, and should therefore be
                                        that may change include the charge or                                                                         lender for selling the loan cannot
                                                                                                removed. These commenters suggested                   change the borrower’s loan or the
                                        credit for the interest rate chosen, the                that because borrowers already
                                        adjusted origination charges, and per                                                                         charges paid by the borrower at
                                                                                                understand how lenders are                            settlement.
                                        diem interest. The loan originator’s                    compensated, through origination
                                        origination charge, shown in Block 1 on                 charges and interest, lenders are already             9. Enforcement and Cure
                                        page 2 of the GFE, is not subject to                    required to make full compensation
                                        change, even if the interest rate floats.               disclosures. Sale of the loan after                      Proposed Rule. The March 2008
                                        Of course, the various specific places                  settlement merely allows the lender to                proposed rule provided that HUD would
                                        where the interest rate is identified on                collect the present value of that interest.           deem violations of the requirements for
                                        the GFE would also be subject to change                 One lender argued that secondary                      the GFE in 24 CFR 3500.7 to be
                                        if the interest rate is not locked. If the              market sale of the loan actually reduces              violations of section 5 of RESPA. This
                                        borrower later locks the interest rate, a               costs to borrowers rather than increasing             would include instances where the
                                        revised GFE should be provided at that                  them. Lenders also commented that the                 charges listed on the GFE are exceeded
                                        time to show the revised information.                   disclosure is biased against lenders                  at settlement by more than the
                                           Finally, the final rule includes the                                                                       tolerances permitted under § 3500.7(e).
                                                                                                because it does not point out that they
                                        proposed provision on revision of the                                                                         In similar fashion, the proposed rule
                                                                                                can lose money selling the loan later. In
                                        GFE for transactions involving new                                                                            provided that HUD would deem
                                                                                                addition, one lender said that the
                                        home purchases. HUD recognizes that in                                                                        violations of the requirements for the
                                        cases of new construction, the original                 current servicing disclosure already
                                                                                                covers this information. Lenders also                 HUD–1/1A in § 3500.8 to be violations
                                        GFE may be provided long before                                                                               of section 4 of RESPA.
                                        settlement is anticipated to occur. In                  suggested that because the text of the
                                        those cases, the loan originator may                    disclosure does not concern settlement                   HUD invited comments on whether a
                                        provide a clear and conspicuous                         costs or issues, the disclosure is outside            provision should be added to the
                                        disclosure to the borrower that a revised               the purview of RESPA.                                 RESPA regulations that allow a loan
                                        GFE may be provided at any time up                      Mortgage Broker Representatives                       originator, for a limited time after
                                        until 60 calendar days prior to closing.                                                                      closing, to address the failure to comply
                                        If no such disclosure is provided, or if                   NAMB supported HUD’s inclusion of                  with tolerances under the proposed GFE
                                        no revised GFE is actually given, then                  the lender disclosure information, but                requirements, and if so, how such a
                                        compliance with the tolerances will be                  felt that such information should be                  provision should be structured. HUD
                                        evaluated by comparing the charges on                   presented with greater emphasis and in                sought comments on whether such a
                                        the original GFE with the actual charges                more detail. NAMB suggested moving                    provision would be useful and, if so,
                                        at settlement. During the 60 calendar                   the information to page two of the GFE                what the appropriate time frame would
                                        days prior to closing, a revised GFE may                and presenting it as part of the YSP                  be for finding and refunding excess
                                        be provided only in accordance with the                 disclosure, in order to make clear to                 charges. HUD also invited comments on
                                        other paragraphs in this section.                       consumers the similarity in the two                   whether the potential for abuse of such
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                                           In any case where a revised or                       charges. According to NAMB, this                      a provision would be harmful to
                                        modified GFE is provided to a                           change would help achieve parity of                   consumers. Comments were also sought
                                        prospective borrower, the loan                          disclosures between lenders and                       on whether the ability of prosecutors to
                                        originator is required to document the                  mortgage brokers, which is essential for              exercise enforcement discretion would
                                        reasons for changes that are made and                   effective consumer disclosure.                        obviate the need for such a provision.


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                                        Comments                                                that a violation of any of the                        HUD Determination
                                           Many comments were received on the                   requirements for completing the HUD–                     HUD has determined to proceed with
                                        advisability of allowing loan originators               1/1A shall be deemed to be a violation                adoption of a 12-month implementation
                                        to cure potential violations of the                     of section 4 of RESPA. However, the                   period. HUD recognizes that operational
                                        tolerances on the GFE. Lenders and                      rule provides that an inadvertent or                  changes will be required in order to
                                        trade groups representing lenders and                   technical error in completing the HUD–                implement the new rule, in addition to
                                        some settlement service providers                       1/1A shall not be deemed a violation of               training staff on the new requirements.
                                        strongly supported the addition of a                    section 4 of RESPA, if a revised HUD–                 However, the need for a standardized
                                        provision allowing loan originators to                  1/1A is provided to the borrower and/                 GFE with relevant information about the
                                        cure potential violations of the                        or seller within 30 calendar days of                  loan and settlement charges is critical in
                                        tolerances. Several lenders reiterated                  settlement. This opportunity to cure                  light of the problems in the current
                                        their previous comment that HUD lacks                   errors on the HUD–1/1A is consistent                  market, and further delay is not
                                        authority to impose tolerance                           with HUD’s longstanding policy                        warranted. HUD believes that a 12-
                                        requirements on the GFE, but that if a                  permitting settlement agents to provide               month implementation period will
                                        tolerance provision were authorized by                  revised HUD–1/1A settlement                           provide sufficient time for systems
                                        statute, they would support the                         statements where errors are discovered                changes and training to occur.
                                        inclusion of a cure provision. Among                    after settlement.                                     Therefore, use of the new GFE and the
                                        the lenders and lender trade groups that                                                                      new HUD–1/1A will be required as of
                                                                                                10. Implementation Period                             January 1, 2010. During the transition
                                        supported inclusion of a cure provision,
                                        the comments were almost evenly                            Proposed Rule. In the March 2008                   period, the current RESPA requirements
                                        divided between those suggesting a 60-                  proposed rule, HUD stated that it                     with respect to the GFE and the HUD–
                                        calendar-day period to cure potential                   intended to include a 12-month                        1/1A remain in effect and settlement
                                        violations of the tolerances, and those                 transition period in the final rule.                  service providers may choose to proceed
                                        suggesting a 90-calendar-day period.                    During the 12-month transition period,                under either the current GFE and HUD–
                                        Another commenter recommended that                      settlement service providers and other                1/1A requirements or may choose to
                                        HUD consider adding a cure provision                    persons could comply with either the                  proceed under the new GFE and HUD–
                                        for the HUD–1 and closing script.                       current RESPA requirements or with the                1/1A requirements. However, any
                                           Consumer groups were generally                       revised requirements of the amended                   settlement service provider who
                                        supportive of stronger enforcement of                   provisions. HUD invited comments on                   delivers the new GFE prior to January 1,
                                        RESPA’s disclosure requirements,                        whether such a transition period is                   2010, will be subject to all of the
                                        including enactment of statutory                        appropriate.                                          requirements related to the new GFE,
                                        changes that would include civil money                                                                        including compliance with the tolerance
                                        penalties for violations of those                       Comments                                              provisions and use of the required
                                        requirements. A consumer group that                                                                           HUD–1/1A.
                                                                                                   Consumer representatives generally                    Other provisions of this final rule,
                                        responded to HUD’s question regarding
                                                                                                favored a 12-month implementation                     including the average charge and
                                        a cure provision expressed its
                                                                                                period, while lenders and their trade                 required use provisions and the
                                        opposition to adding such a provision.
                                        Consumer groups, generally, raised the                  associations sought a longer                          technical amendments, are
                                        possibility that a cure provision could                 implementation period on the basis that               implemented immediately upon the
                                        be abused by offering only partial                      12 months is insufficient time to                     effective date of the rule.
                                        reimbursement to a borrower. These                      prepare for compliance with the new                      As previously stated, HUD will issue
                                        commenters suggested that loan                          requirements. According to one major                  guidance on compliance with the rule’s
                                        originators would have an incentive to                  lender, a 12-month period is far too                  provisions during the implementation
                                        cure violations even without a specific                 short, given the extensive nature of the              period.
                                        provision exempting them from liability                 changes. This lender estimated that an
                                                                                                                                                      C. Lender Payments to Mortgage
                                        if a potential violation is cured.                      18–24 month period will be required for
                                                                                                                                                      Brokers—Yield Spread Premiums
                                                                                                implementation of the proposal, as
                                        HUD Determination                                                                                             (YSPs)
                                                                                                published on March 14, 2008.
                                          Based on the comments received in                     According to other major lenders, the                 1. Disclosure of YSP on GFE
                                        response to the proposed rule and                       proposed rule would require significant                  The March 2008 proposed rule
                                        further consideration of this issue by                  systems and operational changes well                  provided that lender payments to
                                        HUD, HUD has determined that a cure                     beyond the complex forms changes, and                 mortgage brokers in table-funded and
                                        provision is important to allow loan                    would take a minimum of 2 years to                    intermediary transactions be clearly
                                        originators to more effectively manage                  implement. A lender association stated                disclosed to consumers on the GFE and
                                        any uncertainty in costs associated with                that requiring the industry to implement              the HUD–1 settlement statements, as set
                                        the required tolerances on the GFE. By                  changes to RESPA disclosures and then                 forth below. The rule also proposed to
                                        including a cure provision, HUD                         to later implement changes to TILA                    streamline the current regulatory
                                        recognizes that some errors are                         disclosures would result in significant               definition of ‘‘mortgage broker.’’
                                        inevitable when handling large numbers                  and duplicative costs for systems                        Under the March 2008 proposed rule,
                                        of complex transactions, and HUD does                   changes, training, and staffing that                  the first page of the GFE presented the
                                        not intend for the tolerance                            would ultimately be borne by                          net origination charge as ‘‘your adjusted
                                        requirements to create liability for                    consumers. This association expressed                 origination charges.’’ The second page
                                        inadvertent errors.                                     support for an implementation period                  of the proposed GFE informed the
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                                          As described in more detail above,                    beginning 18 months after the effective               consumer how the adjusted origination
                                        HUD has built an opportunity to cure                    date of the rule, or 18 months after the              charge was computed. Block 1 disclosed
                                        violations of the tolerances into the                   implementation period for the Federal                 as ‘‘Our service charge’’ the originator’s
                                        requirements establishing the                           Reserve Board’s TILA rule, whichever is               total charge to the borrower for the loan.
                                        tolerances. The final rule also provides                later.                                                The rule proposed that in the case of


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                                        loans originated by mortgage brokers,                   money, when in fact the disclosure is                 finance charge under TILA to the extent
                                        the amount in Block 1 would have to                     doing the opposite. CRL also objected to              included in the interest rate and are not
                                        include all charges received by the                     the disclosure on the grounds that the                always included in points and fees
                                        broker and any other originator for, or                 disclosure does not make clear that this              calculations. According to this
                                        as a result of, the mortgage loan                       is a fee paid to a broker. In addition,               commenter, the proposed definition will
                                        origination, including any payments                     CRL stated that it found the disclosure               artificially force more loans into the
                                        from the lender to the broker for the                   confusing, and noted that HUD has not                 ‘‘high cost’’ category which will further
                                        origination. In the case of loans                       tested the effectiveness of the disclosure            limit credit because many lenders do
                                        originated by originators other than                    outside of controlled circumstances.                  not originate these loans.
                                        mortgage brokers, the amount in Block                   Both CRL and NCLC recommended an                         CMC stated that the proposed
                                        1 would have to include all charges to                  alternative formulation for disclosure of             mortgage broker compensation
                                        be paid by the borrower that are to be                  mortgage broker compensation.                         disclosure wrongly conflates mortgage
                                        received by the originator for, or as a                    NCLC also stated that the proposed                 brokers and mortgage lenders. CMC
                                        result of, the loan origination to the                  disclosure potentially complicates TILA               noted that there are important
                                        borrower, except any amounts                            review. According to NCLC, without                    differences between mortgage brokers
                                        denominated by the lender as discount                   guidance from the Federal Reserve                     and mortgage lenders in terms of roles
                                        points and which would be disclosed in                  Board, it is not clear what effect treating           in the transaction, compensation, and
                                        Block 2.                                                the lender-paid broker compensation as                risk posed to consumers. CMC stated
                                           In loans originated by mortgage                      a credit will have on the central TILA                that the mortgage broker disclosure
                                        brokers, Block 2 of the second page of                  disclosures, which are the finance                    proposal fails to adequately address
                                        the proposed GFE would have disclosed                   charge and the APR.                                   these differences. CMC expressed
                                        whether there is any charge or credit to                                                                      opposition to consolidating the charges
                                                                                                Industry Representatives
                                        the borrower for the specific interest                                                                        of the lender and the broker together in
                                        rate chosen for the GFE. The second                        Lenders generally were opposed to                  a single ‘‘service charge’’ because,
                                        check box would have indicated                          the proposed YSP disclosure. Many                     according to CMC, such consolidation
                                        whether there was a payment for a                       lenders and their trade associations                  effectively hides the amount of the
                                                                                                asserted that the proposed approach for               broker’s total compensation from the
                                        higher interest rate loan, described as
                                                                                                disclosing YSP conflicts with pending                 borrower. CMC believes that borrowers
                                        the ‘‘credit of $lllfor this interest
                                                                                                TILA and HOEPA rule changes                           should have this information and that
                                        rate of lll%. This credit reduces
                                                                                                proposed by the Federal Reserve Board,                failure or omission to disclose could
                                        your upfront charges.’’ The third check
                                                                                                and is also inconsistent with Advisory                cause harm. CMC stated that disclosing
                                        box would have indicated a ‘‘charge of
                                                                                                Letter 2003–3 of the Office of the                    YSP as a credit and lumping the YSP
                                        $lll for the interest rate of lll%.
                                                                                                Comptroller of the Currency (OCC).                    together with (or offsetting it against)
                                        This payment (discount points)
                                                                                                These lenders stated that it would be                 lender fees or discounts hides the YSP
                                        increases your upfront charges.’’ Any
                                                                                                costly and confusing for the banking                  in a way that is confusing and
                                        lender payment would have been
                                                                                                industry if HUD and the Federal Reserve               potentially harmful to the borrower.
                                        subtracted and any points would have                    Board issued varying rules, revisions,
                                        been added to arrive at ‘‘your adjusted                                                                       CMC recommended that broker
                                                                                                and disclosures independently. Other                  compensation be disclosed as shown in
                                        origination charge’’ that would also                    lenders stated that, because in their
                                        have been disclosed on the first page of                                                                      the RESPA/TILA forms and ‘‘mortgage
                                                                                                view HUD assumed that the only way                    broker fee agreement and disclosure’’
                                        the form. The proposed rule provided                    for a lender to calculate payment to the
                                        that for mortgage brokers, the amounts                                                                        submitted with their comments.
                                                                                                broker is by tying the compensation to                   MBA asserted that the proposed
                                        of any charge or credit in Block 2 would                the borrower’s interest rate, neither the             disclosure will be unclear to borrowers
                                        have to equal the difference between the                proposed GFE nor the proposed HUD–                    while the costs occasioned by the
                                        price the wholesale lender pays the                     1 can accommodate a lender’s                          adoption of new terminology for
                                        broker for the loan and the initial loan                compensation payment to the broker                    mortgage broker fees will, in its opinion,
                                        amount.                                                 based on the loan amount, or based on                 be enormous. MBA noted that, in its
                                        Comments                                                a flat dollar amount. According to these              opinion, the proposed disclosure does
                                                                                                lenders, if a lender were to pay broker               not allow for the possibility that, in the
                                        Consumer Representatives                                compensation that is not tied to the                  future, some brokers will be paid on a
                                          Some consumer groups opposed the                      interest rate, there would be no way to               basis other than the loan’s interest rate.
                                        proposed YSP disclosure on several                      disclose the payment without artificially             In addition, MBA stated that as lenders
                                        grounds. These groups asserted that to                  inflating the charges paid by the                     and brokers perform distinct functions
                                        describe lender-paid broker                             borrower.                                             in the marketplace and are perceived
                                        compensation as a credit to reduce                         A major lender noted that if a broker              differently by consumers, applying the
                                        settlement costs is misleading. NCLC                    intends to rely primarily on the lender               same rules to them is ill-advised. MBA
                                        stated that there is no requirement that                for compensation, the dollar-for-dollar               proposed an alternative mortgage broker
                                        the lender payment will actually be                     offset of the YSP against other service               compensation disclosure that discloses
                                        used in this manner. CRL stated that the                charges will necessitate that the broker              the total compensation for the broker’s
                                        proposed language presumes a trade off                  increase the disclosed consumer paid                  services and the amounts paid by the
                                        through a reduction in upfront costs,                   fees. The lender commented that this                  lender to the broker on the borrower’s
                                        and research shows that this does not                   has regulatory impacts under other                    behalf.
                                        occur, except in limited circumstances.                 laws. The lender stated that the                         NAMB reasserted its opposition to
                                        According to CRL, the disclosure’s                      origination fee is a finance charge under             carving out one component of the cost
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                                        characterization of the YSP as a ‘‘credit’’             TILA. The lender also stated that the                 of a mortgage loan for the ‘‘putative
                                        only exacerbates the issue of the                       origination fee is also normally included             purpose of clarification and
                                        nonexistent trade off. CRL expressed                    in the points and fees definitions under              simplification.’’ NAMB asserted that the
                                        concern that the disclosure suggests that               several state high-cost laws and HOEPA,               proposed YSP disclosure would achieve
                                        the arrangement is saving the consumer                  whereas YSP payments are only a                       the opposite result and would detract


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                                        from the consumer’s ability to                          focused only on how, not whether, to                  and YSPs. According to NAR, calling
                                        understand and comparison shop.                         disclose YSP. NAMB stated that in                     the YSP a ‘‘credit’’ to the borrower
                                        NAMB recommended that direct                            doing so, the proposal ignored FTC’s                  without explaining or making it clear
                                        competitors should be treated the same                  earlier finding that disclosing just                  that the YSP is tied to the interest rate
                                        to facilitate shopping and promote                      broker compensation created confusion                 may mislead or confuse a consumer.
                                        consumer understanding. NAMB stated                     and led consumers to make decisions                     The Conference of State Bank
                                        that if HUD continues to require                        contrary to their best interests.                     Supervisors, the American Association
                                        disclosure of originator compensation,                     NAMB also asserted that HUD’s                      of Residential Mortgage Regulators, and
                                        HUD must require all originators to                     testing was flawed because the testing                the National Association of Consumer
                                        disclose the premium value created by                   was not conducted among actual                        Credit Administrators commented that
                                        interest on the loan, and that HUD must                 borrowers dealing with actual loan                    the proposed disclosure of YSP is not
                                        provide a method for making that                        originators. According to NAMB, the                   parallel with the Federal Reserve
                                        calculation.                                            tests fail to assess the consequences of              Board’s proposed rule amending
                                           According to NAMB, the proposed                      disparate disclosures in actual                       Regulation Z. These commenters urged
                                        disclosure makes distinctions among                     competitive markets. NAMB noted that,                 HUD to work closely with the Federal
                                        mortgage originators with no basis for                  in 2004 and 2007, FTC conducted                       Reserve Board to develop seamless
                                        doing so, and in disregard of market                    extensive studies on consumer mortgage                regulations before finalizing the
                                        realities. NAMB stated that the proposal                disclosures, with a particular focus on               proposed rule.
                                        seeks to enhance regulatory distinctions                mortgage broker compensation
                                                                                                                                                      Federal Agencies
                                        among groups of originators, long after                 disclosures. NAMB further stated that
                                        such labels have lost their meaning in                  the 2007 FTC study restated the                          FTC staff expressed support for the
                                        the marketplace. NAMB also criticized                   conclusion of the earlier study, noting               goal of improving consumer
                                        the proposal because it would, in                       that disclosure of broker compensation                understanding of the costs and terms of
                                        NAMB’s opinion, isolate a single                        ‘‘created a substantial consumer bias                 mortgage loans. However, based on the
                                        component of cost—compensation—                         against broker loans, even when the                   results of past FTC and HUD mortgage
                                        rather than aggregate cost. According to                broker loans cost the same or less than               disclosure research, FTC staff urged
                                        NAMB, compensation is relevant only                     direct lender loans, because the                      HUD to consider reevaluating its
                                        to the extent that compensation serves                  disclosures would have been required of               proposed broker compensation
                                        as a ‘‘rough proxy for the difference                   brokers, but not direct lenders.’’ (See               disclosures, because they may adversely
                                        between the par, or wholesale, loan rate                2007 FTC Study at 6, n. 14). NAMB also                affect consumers and competition. FTC
                                        and the rate quoted to the consumer.’’                  objected to the proposed mortgage                     staff stated that alternative disclosures
                                        In the case of mortgage brokers, that                   broker compensation disclosure on the                 that clarify the role of mortgage
                                        difference is called ‘‘yield spread                     grounds that the proposed rule fails to               originators, applied equally to all
                                        premium’’ or YSP; in the case of                        evaluate how the proposed broker                      originators, could provide greater
                                        lenders, that difference is called                      disclosure would relate to any of the                 benefits to consumers and avoid adverse
                                        ‘‘service release premium’’ or SRP.                     currently mandated disclosures.                       effects on consumers and competition.
                                        NAMB asserted that in both cases, that                  According to NAMB, all 50 states                      FTC staff urged HUD to evaluate and
                                        differential may be readily determined                  regulate brokers and their compensation               test alternative disclosures to determine
                                        prior to closing at the time the interest               in various respects. Industry practice                the type or types of disclosures that will
                                        rate is locked and should be disclosed.                 and lender requirements mandate                       most benefit consumers. FTC staff also
                                        NAMB also asserted that the lender’s                    further disclosures. NAMB asserted that               suggested that HUD consider, and
                                        compensation after the loan is sold is                  to limit complexity and information                   possibly test, whether other disclosures
                                        irrelevant, since such compensation                     overload, HUD should consider how all                 such as one that clarifies the role of all
                                        does not affect the price paid by the                   current mortgage broker disclosures                   mortgage originators would be more
                                        borrower. According to NAMB, what is                    would relate to its proposal.                         beneficial for consumers.
                                        relevant is the incremental cost to the                    NAMB also commented that HUD has                      The FDIC expressed some concerns
                                        consumer assessed at the time of closing                not adequately addressed how its                      about the proposal’s approach to YSP
                                        that is attributable to the differential                proposed mortgage broker compensation                 disclosure. The FDIC stated that the
                                        between the loan rate and the wholesale                 disclosure relates to the Federal Reserve             proposed GFE does not clarify that YSP
                                        rate. NAMB asserted that that figure can                Board’s proposed amendments to                        is a payment made by a lender to a
                                        be computed and disclosed prior to                      Regulation Z, or how HUD’s proposal                   mortgage broker in exchange for
                                        closing and recommended that HUD                        relates to the risk-based pricing                     referring a borrower willing to pay an
                                        specify how that computation should be                  regulations recently proposed by the                  above par interest rate, nor does the GFE
                                        done, and require disclosure of the                     Federal Reserve Board and FTC                         state the amount of the YSP to be paid
                                        resulting figure, or in the alternative, not            pursuant to the Fair and Accurate Credit              to a broker. Instead, according to the
                                        require such disclosure by any                          Transactions Act of 2003 (73 FR 28 966                FDIC, the GFE seems to presume that
                                        originators.                                            (May 19, 2008)). NAMB recommended                     the lender will apply the YSP as a
                                           NAMB asserted that the methodology                   that HUD seek public comment on the                   ‘‘credit’’ that will lower settlement costs
                                        of HUD’s testing is flawed in two                       interaction between HUD’s proposal, the               by a corresponding amount. The FDIC
                                        respects. According to NAMB, the                        proposed amendments to Regulation Z,                  noted that the proposal does not impose
                                        contractor failed to test consumer                      and the pending risk-based pricing                    the condition that YSP must actually
                                        understanding of loan terms and of                      regulations before proceeding to finalize             function as a credit to a borrower as a
                                        comparative shopping when YSP was                       the March 2008 proposed rule.                         requirement on lenders or brokers. The
                                        not disclosed. Instead, according to                                                                          FDIC further stated that while HUD’s
                                                                                                Other Commenters
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                                        NAMB, the contractor assumed the                                                                              effort, through the March 2008 proposed
                                        answer to the fundamental question of                     The National Association of Realtors                rule, to provide borrowers with more
                                        whether YSP disclosure aided                            (NAR) stated that it is unclear whether               information about the trade off between
                                        consumers in comparative shopping.                      consumers will understand the                         interest rates and settlement costs is
                                        NAMB also stated that the testing                       proposed disclosure of discount points                positive, this information alone does not


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                                        provide borrowers with an                               that no bias against brokers resulted                    The revised GFE form in today’s rule
                                        understanding of the economic                           from such disclosure. As noted below,                 is the result of an iterative testing
                                        incentives motivating the lenders and                   while the substance of the broker                     process, comprised of six rounds of
                                        brokers with whom the borrowers are                     disclosure remains the same in the final              consumer testing of the form during the
                                        dealing.                                                rule as it was in the proposed rule, some             period 2003 through 2007. An
                                           The FDIC recommended that HUD                        minor stylistic changes have been made                additional round of testing was
                                        ban YSPs to ensure that broker                          to draw the borrower’s attention to                   conducted in the summer of 2008.
                                        compensation will not be based on                       specific terminology in the disclosure                Working with HUD, HUD’s testing
                                        steering the consumer to a loan that is                 that HUD believes will improve the                    contractor used the data collected
                                        more expensive than one for which the                   disclosure.                                           during each round to improve and
                                        borrower otherwise would qualify. The                      Since 1992, HUD has required the                   modify the form throughout the testing
                                        FDIC recommended that HUD ban any                       disclosure of YSPs on the GFE and                     process. A summary report on each
                                        mortgage broker compensation that is                    HUD–1 settlement statements as a                      round of testing is available at: http://
                                        not a flat or point-based fee.                          ‘‘payment outside closing’’ or ‘‘POC.’’               www.huduser.org/publications/hsgfin/
                                           If YSPs continue to be permitted, the                This means of disclosure has proved to                GoodFaith.html.
                                        FDIC recommended that their purpose                     be of little use to consumers. Moreover,                 HUD disagrees that its contractor’s
                                        and cost be clearly disclosed. The FDIC                 notwithstanding that lender payments                  consumer testing of the GFE form was
                                        recommended that the disclosure                         to brokers are directly based on the rate             flawed. Independent reviews by experts
                                        inform the consumer that the broker is                  of the borrower’s loan, under current                 in consumer testing and forms
                                        receiving a payment from the lender for                 HUD guidance such lender payments                     development found no flaws in the
                                        placing the consumer in a loan with a                   are not required to be included in the                design of the tests. NAMB’s suggestion
                                        higher interest rate. The FDIC stated that              calculation of the broker’s total charges             of testing forms in actual transactions is
                                        a YSP should not be identified as a                     for the transaction, nor are they clearly             not necessary or workable. Properly
                                        ‘‘credit,’’ because such language would                 listed as an expense to the borrower.                 designed and implemented testing does
                                        tend to make consumers believe that                     This omission is exacerbated by the fact              produce correct results through an
                                        they are deriving a financial benefit                                                                         iterative process. The most difficult
                                                                                                that many brokers hold themselves out
                                        from a YSP. The FDIC further                                                                                  aspect of testing actual transactions
                                                                                                as shopping among various funding
                                        recommended removal of the statement                                                                          would likely be finding loan originators
                                                                                                sources for the best loan for the
                                        ‘‘(T)his credit reduces your upfront                                                                          (both brokers and lenders) willing to
                                                                                                borrower, while failing to explain to the
                                        charge,’’ because this language is not                                                                        develop and test a form that is designed
                                                                                                borrower that the payment they receive
                                        balanced by a corresponding statement                                                                         to improve consumer understanding in
                                                                                                from the lender is derived from the
                                        that informs consumers that the YSP                                                                           actual transactions and thereby reduce
                                                                                                borrower’s interest rate. While some
                                        will result in them paying a                                                                                  the originators’ information advantage
                                                                                                brokers tell customers how they can use
                                        substantially higher interest rate over                                                                       and market power in those transactions.
                                                                                                lender payments to lower the customer’s
                                        the life of the loan.                                                                                         Perhaps as difficult would be keeping
                                                                                                upfront settlement costs, others do not.
                                        HUD Determination                                                                                             tested consumers from shopping outside
                                                                                                   Policy Statement 2001–1 made clear                 of the experimental group of originators
                                           Having reviewed the comments, and                    that earlier disclosure and the entry of              to keep the test valid, especially since
                                        based on its testing of the forms, HUD                  YSPs as credits to borrowers would                    the forms so strongly urge consumers to
                                        has determined to retain the mortgage                   ‘‘offer greater assurance that lender                 shop among different originators.
                                        broker disclosure as proposed, with                     payments to mortgage brokers serve                       The NAMB’s second criticism is also
                                        clarifying modifications. However, in                   borrowers’ best interests.’’(See 66 FR                not valid as the third round of testing
                                        order to better explain how the                         53056.) HUD could not mandate new                     was exactly on the point of whether to
                                        disclosure works, HUD is removing,                      disclosure requirements in the Policy                 disclose the YSP. The purpose of the
                                        from § 3500.2 of the regulations, the                   Statement. HUD did, however, commit                   YSP disclosure is to inform consumers
                                        definition of the term ‘‘charge or credit               itself in that Policy Statement to making             about the full cost of originating loans
                                        for the interest rate chosen’’ and at the               full use of its regulatory authority to               through a broker and to help them to
                                        same time inserting expanded                            establish clearer requirements for                    understand the tradeoff between interest
                                        information in the instructions on how                  disclosure of mortgage broker fees, and               rates/monthly payments and origination
                                        to disclose the credit or charge to                     to improve the settlement process for                 costs so that consumers can use the
                                        provide additional guidance.                            lenders, mortgage brokers, and                        relationship to their benefit. The third
                                           In reaching the determination to                     consumers. (See 66 FR 53053).                         round of testing did not include the YSP
                                        retain the mortgage broker disclosure,                     It is for this reason that HUD                     disclosure, and the important finding
                                        HUD is mindful of the concerns                          proposed its new disclosure                           was that, without the YSP disclosure,
                                        expressed by the commenters, but                        requirements. HUD maintains that while                consumers did not understand the
                                        believes that the mortgage broker                       rate-based payments to mortgage brokers               existence of the tradeoff between
                                        disclosure, read in conjunction with the                must be clearly disclosed to borrowers,               interest rates and origination charges as
                                        tradeoff table on the form, will help the               at the same time, mortgage brokers also               well as when the YSP was disclosed.
                                        borrower understand the relationship                    must not be disadvantaged in the                      Helping consumers understand this
                                        between the interest rate and the                       marketplace, since such disadvantage                  tradeoff is a fundamental goal of HUD’s
                                        settlement charges. While many                          will only result in decreased                         RESPA reform effort and of the design
                                        commenters claimed that the mortgage                    competition and higher costs to                       of the GFE form. The third round of
                                        broker disclosure as proposed was                       consumers. Many mortgage brokers offer                testing confirmed that inclusion of the
                                        confusing and would result in bias                      products that are competitive with and                YSP disclosure helped consumers
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                                        against mortgage brokers, HUD’s testing                 frequently lower priced than the                      understand the tradeoff, and that if they
                                        of the form demonstrated that                           products of retail lenders, and HUD                   take a loan with a relatively high
                                        consumers understood the relationship                   wishes to preserve continued                          interest rate, they should pay lower
                                        between the interest rate and settlement                competition and lower prices for                      settlement charges. Since the need for
                                        charges as presented on the form and                    consumers, as well as consumer choice.                the YSP disclosure to improve


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                                        consumer understanding of the tradeoff                  proposed form to be more consistent                   loans from mortgage brokers and loans
                                        was established in round 3, whether a                   with other terminology on the form. The               from lenders even when the YSP is
                                        YSP disclosure should be included was                   third check box indicates any ‘‘charge of             included in the calculation of the
                                        not the subject of later rounds of testing.             $lll for this interest rate of lll%.                  adjusted origination charge.
                                        Rather, later rounds of form                            This charge (points) increases your total             Nevertheless, to assure that borrowers
                                        development and testing were aimed at                   settlement charges.’’ Any lender                      choose the best value loan without
                                        making the YSP disclosure free of anti-                 payment is then subtracted and any                    being confused by the presence of a
                                        broker bias. This effort was successful.                points are added to arrive at ‘‘your                  YSP, HUD established the first page of
                                        HUD’s testing found that participants                   adjusted origination charges’’. The final             the GFE as a summary page that only
                                        using HUD’s GFE were successful more                    rule also requires that in the case where             includes total estimated settlement
                                        than 90 percent of the time in                          a lender compensates a broker based on                charges. HUD also considered the
                                        identifying the cheapest loan whether                   a flat dollar amount, or based on the                 comments that its proposed mortgage
                                        the GFE loan was from a lender,                         loan amount, the second box in Block 2                broker disclosure requirement might be
                                        mortgage broker, or the two loans cost                  on page 2 must be checked.                            inconsistent with the approach taken by
                                        the same.                                                  At page 2, while lenders are not                   the Federal Reserve Board in its
                                           As indicated, HUD has maintained                     required to check the second or third                 proposed rule to amend Regulation Z of
                                        the disclosure on the top of page two of                boxes of Block 2, in loans where they do              TILA, 16 U.S.C. 1601, et seq. (73 FR
                                        the revised GFE, while making some                      not make such disclosures, they are                   1672, January 9, 2008). However, the
                                        stylistic changes to this portion of the                required to check Box 1 that indicates                Federal Reserve Board recently
                                        form in the interest of borrower                        that ‘‘The credit or charge for the                   announced that it has withdrawn its
                                        comprehension. The top of page 2 refers                 interest rate of lll% is included in                  proposed mortgage broker fee agreement
                                        to ‘‘Your Adjusted Origination Charges’’                ‘Our origination charge.’ ’’ If lenders               requirement set forth in its proposed
                                        instead of ‘‘Your Loan Details’’ on the                 separately denominate any amounts due                 rule (73 FR 44522, July 30, 2008).
                                        proposed form because this is the                       from the borrower as ‘‘points,’’ they                    In its consultations with the Federal
                                        section of the disclosure that sets forth               must check the third box indicating that              Reserve Board staff, HUD raised the
                                        the origination charges. The box on the                 there are charges for the interest rate               concerns expressed by some
                                        top of page 2 informs the borrower how                  and enter the appropriate amount for                  commenters that treating lender
                                        the adjusted origination charge is                      points as a positive number. If lenders               payments to mortgage brokers as a credit
                                        computed. In response to comments                       separately denominate any amounts as a                toward the origination charges could
                                        recommending that ‘‘service’’ charge be                 credit to the borrower for the particular             increase the points and fees of each
                                        deleted from the form, Block 1 now                      interest rate covered by the GFE, they                brokered mortgage loan, thereby
                                        discloses as ‘‘Our origination charge’’                 must check the second box and enter                   resulting in more loans coming under
                                        the originators’ total charge to the                    the appropriate amount as a negative                  HOEPA coverage. Federal Reserve Board
                                        borrower for the loan.                                  number. Lenders must also add any                     staff advised HUD that notwithstanding
                                           The final rule requires that in the case             such positive amounts or deduct any                   HUD’s changed requirements,
                                        of loans originated by mortgage brokers,                negative amounts to arrive at ‘‘Your                  determinations of whether payments to
                                        the amount in Block 1 must include all                  Adjusted Origination Charges,’’ listed                a mortgage broker must be included in
                                        charges to be paid by the borrower that                 on Line A of page two of the form.                    the finance charge and whether a loan
                                        are to be received by the broker and any                   In reaching its determination, HUD                 is covered by HOEPA are based on the
                                        other originator for, or as a result of, the            considered providing only the adjusted                statutory definitions and requirements
                                        mortgage loan origination, including                    origination charge without the                        in TILA, as implemented by the Federal
                                        any payments from the lender to the                     calculation, and disclosing the YSP and               Reserve Board’s Regulation Z, which are
                                        broker for the origination. In the case of              points elsewhere on the form. HUD                     unaffected by HUD’s RESPA
                                        loans originated by originators other                   concluded, however, that a complete                   rulemaking.
                                        than mortgage brokers, the amount in                    disclosure of the payments to the
                                        Block 1 must include all charges to be                  mortgage broker as presented on page 2                2. Definition of ‘‘Mortgage Broker’’
                                        paid by the borrower that are to be                     of the revised form, especially when                     The March 2008 proposed rule would
                                        received by the originator for, or as a                 read in conjunction with the tradeoff                 have streamlined the current regulatory
                                        result of, the loan origination to the                  table on page 3, is valuable to borrower              definition of ‘‘mortgage broker.’’ Under
                                        borrower, except any amounts                            understanding of: (1) The broker’s total              the proposed definition, ‘‘mortgage
                                        denominated by the lender as discount                   compensation; (2) how rate-based                      broker’’ would mean a person (not an
                                        points, which are disclosed in Block 2.                 payments from lenders can help reduce                 employee of the lender) or entity that
                                           Block 2 discloses for loans originated               borrowers’ upfront origination charges                renders origination services in a table-
                                        by mortgage brokers whether there is                    and settlement costs in brokered loans;               funded or intermediary transaction. The
                                        any charge or a credit to the borrower                  and (3) how payments to reduce the                    definition would also have applied to a
                                        for the specific interest rate chosen for               interest rate and monthly charges                     loan correspondent approved under 24
                                        its GFE. The heading for Block 2 of the                 increase upfront charges.                             CFR 202.8 for FHA programs. The
                                        proposed form included the term                            As discussed above, testing by HUD’s               proposed definition would have
                                        ‘‘points’’ at the end of the sentence. On               contractor demonstrated that disclosure               eliminated the current exclusion of an
                                        the final form, this sentence now states,               of the YSP out of context was not useful              ‘‘exclusive agent’’ of a lender from the
                                        ‘‘Your credit or charge (points) for the                to consumers. On the other hand, a form               current definition of ‘‘mortgage broker.’’
                                        specific interest rate chosen.’’ The                    that requires that lenders disclose that              Therefore, under the proposed rule, an
                                        second check box indicates whether                      credits or charges may be included in                 ‘‘exclusive agent’’ of a lender who was
                                        there is a payment for a higher interest                their service charge as well, even when               not an employee of the lender, but who
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                                        rate loan described as the ‘‘credit of                  the calculation for brokered loans is on              renders origination services in a table
                                        $lll for this interest rate of lll%.                    the form, was not confusing for                       funded or intermediary transaction,
                                        This credit reduces your settlement                     borrowers. HUD’s testing demonstrated                 would have been subject to the mortgage
                                        charges.’’ The word ‘‘settlement’’ has                  that borrowers correctly compared                     broker disclosure requirements set forth
                                        replaced the word ‘‘upfront’’ from the                  adjusted origination charges between                  in the proposed rule.


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                                                         Federal Register / Vol. 73, No. 222 / Monday, November 17, 2008 / Rules and Regulations                                          68227

                                        Comments                                                who renders origination services and                     raise origination fee limits, this should
                                           Consumer groups did not comment on                   serves as an intermediary between the                    be done only in conjunction with
                                        this issue. A lender association                        lender and the borrower, is essentially                  establishing reasonable limits on YSPs.
                                        commented that the proposed change                      acting as a mortgage broker, and will be                 This commenter stated that by
                                        may be inconsistent with Regulation Z                   subject to the mortgage broker                           establishing standard limits on
                                        Comments 226.19–b–2(i) and 226.19(b)–                   disclosure requirements, as set forth in                 origination fees and YSPs, the FHA loan
                                        3 concerning intermediary agents or                     the rule. This definition will also apply                product can keep the nongovernment
                                        brokers and the timing of disclosures.                  to a loan correspondent approved under                   guaranteed products competing by
                                                                                                24 CFR 202.8 for Federal Housing                         constraining direct fee and YSP costs.
                                        MBA stated that the definition should
                                                                                                Administration (FHA) programs.
                                        not be changed to include exclusive                                                                              HUD Determination
                                                                                                   The revised definition clarifies that a
                                        agents of lenders. MBA commented that                   mortgage broker also means a person or                      HUD believes that its RESPA policy
                                        because mortgage lenders, including                     entity that renders origination services                 statements on lender payments to
                                        their agents and employees, are                         and serves as an intermediary between                    mortgage brokers restrict the total
                                        functionally different from mortgage                    a borrower and a lender in a transaction                 origination charges for mortgages,
                                        brokers, they should be treated                         involving a federally related mortgage                   including FHA mortgages, to reasonable
                                        differently. MBA stated that it does not                loan, including such a person or entity                  compensation for goods, facilities, or
                                        believe that mortgage lenders or their                  that closes the loan in its own name in                  services. (See Statement of Policy 1999–
                                        exclusive agents warrant the same                       a table-funded transaction.                              1, 64 FR 10080, March 1, 1999, and
                                        treatment as mortgage brokers. MBA                                                                               Statement of Policy 2001–1, 66 FR
                                        asserted that borrowers do not perceive                 3. FHA Limitation on Origination Fees
                                                                                                                                                         53052, October 18, 2001.) Moreover, the
                                        brokers in the same way as lenders and                  of Mortgagees
                                                                                                                                                         improvements to the disclosure
                                        brokers do not present the same risks as                   Under its codified regulations, HUD                   requirements for all loans sought to be
                                        lenders. MBA also stated that that term                 places specific limits on the amount a                   achieved as a result of this rulemaking
                                        ‘‘intermediary’’ should not be injected                 mortgagee may collect from a mortgagor                   should make total loan charges more
                                        into the definition at all, unless this                 to compensate the mortgagee for                          transparent and allow market forces to
                                        term is clearly defined to cover                        expenses incurred in originating and                     lower these charges for all borrowers,
                                        independent mortgage brokers.                           closing a FHA-insured mortgage loan                      including FHA borrowers. Therefore,
                                        According to MBA, because the term is                   (see 24 CFR 203.27).1 The March 2008                     HUD has determined to finalize the
                                        undefined, ‘‘intermediary’’ could be                    proposed rule would have removed the                     proposed rule to remove the current
                                        misinterpreted to cover some loan                       current specific limitations on the                      specific limitations on the amounts
                                        officers who work for lenders and may                   amounts mortgagees are presently                         mortgagees presently are allowed to
                                        be independent contractors.                             allowed to charge borrowers directly for                 charge borrowers directly for originating
                                           NAMB expressed opposition to the                     originating and closing an FHA loan.                     and closing an FHA loan. The FHA
                                        proposed change because, according to                   Under HUD’s proposal, the FHA                            Commissioner retains authority to set
                                        NAMB, it would perpetuate distinctions                  Commissioner would have retained                         limits on the amount of any fees that
                                        among mortgage originators that no                      authority to set limits on the amount of                 mortgagees charge borrowers directly for
                                        longer have meaning in the marketplace.                 any fees that mortgagees charge                          obtaining an FHA loan.
                                        NAMB noted that the roles of mortgage                   borrowers directly for obtaining an FHA
                                        brokers and other originators have                      loan. In addition, the proposed rule                     IV. Modification of the HUD–1/1A
                                        converged with the ubiquity of the                      would have also permitted other                          Settlement Statement
                                        ‘‘originate to distribute’’ model of                    government program charges to be                         A. Overall Comments on Proposed
                                        mortgage finance, and that the                          disclosed on the blank lines in Section                  Changes to HUD–1/1A Settlement
                                        regulatory structure under RESPA                        800 of the HUD–1/1A.                                     Statement
                                        should reflect that fact. NAMB
                                                                                                Comments                                                    Proposed Rule. Under the March 2008
                                        recommended that, at a minimum, the
                                        definition of ‘‘mortgage broker’’ be                       There was little comment on this                      proposed rule, the current HUD–1/1A
                                        expanded to include any originator that                 issue. NCRC disagreed with the                           Settlement Statements would have been
                                        sells loans where servicing is released                 proposal to remove the specific                          modified to allow the borrower to easily
                                        within 6 months of origination, rather                  limitations on the amount mortgagees                     compare specific charges at closing with
                                        than securitizing them or holding them                  are allowed to charge for originating and                the estimated charges listed on the GFE.
                                        in portfolio.                                           closing an FHA loan. NCRC stated that                    The proposed changes would have
                                           CSBS, AARMR, and NACCA                               a government-guaranteed loan product                     facilitated comparison of the two
                                        supported the proposed change in the                    should shield borrowers from excessive                   documents by inserting, on the relevant
                                        definition of mortgage broker, but                      charges by establishing reasonable                       lines of the HUD–1/1A, a reference to
                                        recommended that HUD define                             limits on fees. According to NCRC,                       the corresponding block on the GFE,
                                        ‘‘intermediary transaction.’’ These                     while it may be acceptable to carefully                  thereby replacing the existing line
                                        commenters stated that by failing to                                                                             descriptions on the current HUD–1/1A.
                                        define ‘‘intermediary transaction,’’ HUD
                                                                                                  1 Under 24 CFR 203.27(a)(2)(i), origination fees
                                                                                                                                                         The proposed instructions for
                                                                                                are limited to one percent of the mortgage amount.       completing the HUD–1/1A would have
                                        has created potential confusion among                   For new construction involving construction
                                        industry participants and regulators.                   advances, that charge may be increased to a              clarified the extent to which charges for
                                                                                                maximum of 2.5 percent of the original principal         individual services must be itemized.
                                        HUD Determination                                       amount of the mortgage to compensate the
                                                                                                mortgagee for necessary inspections and                  Comments
                                          HUD has determined to revise the                      administrative costs connected with making
                                                                                                                                                         Consumer Representatives
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                                        definition of ‘‘mortgage broker.’’ While                construction advances. For mortgages on properties
                                        HUD recognizes that mortgage lenders                    requiring repair or rehabilitation, mortgagor charges      A consumer group stated that while
                                                                                                may be assessed at a maximum of 2.5 percent of the
                                        are functionally different from mortgage                mortgage attributable to the repair or rehabilitation,
                                                                                                                                                         referencing the GFE lines on the
                                        brokers, an exclusive agent of a lender                 plus one percent on the balance of the mortgage.         settlement statement is an important
                                        who is not an employee of a lender, but                 (See 24 CFR 203.27(a)(2)(ii), and (iii).)                step, HUD should mandate a summary


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                                        68228            Federal Register / Vol. 73, No. 222 / Monday, November 17, 2008 / Rules and Regulations

                                        settlement sheet that corresponds                       Mortgage Broker Representatives                       underwriting fee,’’ ‘‘table funding fee,’’
                                        exactly to the summary sheet of the                        Mortgage brokers commented that the                and ‘‘MERS fee.’’ This attorney also
                                        GFE. According to this group, doing so                  HUD–1 and GFE should mirror each                      pointed to other operational problems
                                        would obviate the need for a crosswalk                  other and promote clarity,                            with the HUD–1 and suggested that the
                                        between the GFE and the settlement                      understanding, and ease of use for                    agent/underwriter split in the title
                                        statement. The consumer group stated                    consumers. However, because the                       insurance premium serves no useful
                                        that the HUD–1 should be easily                         proposed GFE, at four pages, is less                  purpose.
                                        comparable to the GFE and should                        user-friendly in their opinion than the               HUD Determination
                                        facilitate, rather than hinder TILA and                 current version, mirroring the HUD–1
                                        HOEPA compliance. The consumer                                                                                   HUD continues to agree with the
                                                                                                after the proposed document will not                  many commenters who pointed out the
                                        group expressed concern that HUD’s                      make it easier for consumers to                       importance of comparability between
                                        improvement of disclosures in the                       understand and use. In regard to                      the GFE and the HUD–1. Accordingly,
                                        settlement context could impede review                  specific items on the new HUD–1, one                  to facilitate comparison between the
                                        of lender compliance with the                           broker commented that specific lines                  HUD–1 and the GFE, each designated
                                        disclosure requirements under TILA.                     such as the splitting of title insurance              line in Section L on the final HUD–1
                                        This commenter noted that the                           between lenders and owners would not                  includes a reference to the relevant line
                                        proposed HUD–1 would require lenders                    work properly. In addition, the broker                from the GFE. Borrowers will be able to
                                        to disclose as a lump sum their                         commented that the form of disclosure                 easily compare the designated line on
                                        origination charges and all title services.             for closing services would interfere with             the HUD–1 with the appropriate
                                        While this group stated that such an                    ‘‘title only’’ agencies, and that the form            category on the GFE. Terminology on
                                        approach is an improvement from the                     of the HUD–1 would not leave room for                 the HUD–1 has been modified as
                                        perspective of consumer understanding,                  an acknowledgment and certification.                  necessary to conform to the terminology
                                        the group stated that not all origination               Title and Closing Industry                            of the GFE. For example, since Block 2
                                        and title services are clearly all in, or all           Representatives                                       on the GFE is designated as ‘‘your credit
                                        out of, the TILA finance charge. Under                                                                        or charge (points) for the specific
                                        TILA, for example, title insurance is                      Commenters from the title industry                 interest rate chosen’’, Line 802 on the
                                        excluded from the finance charge. The                   said that the HUD–1 was still not easily              HUD–1 is also designated ‘‘your credit
                                        commenter stated that other charges                     comparable to the GFE. They also                      or charge (points) for the specific
                                        related to title insurance, including the               suggested that the title insurance                    interest rate chosen.’’ Because Block 3 of
                                        settlement fee, courier fee, or document                disclosure requirements would conflict                the GFE ‘‘Required services that we
                                        preparation fees, may be included in the                with the laws of some states. One title               select’’ will include multiple services
                                        finance charge, particularly if they are                insurance company recommended that                    such as appraisal, credit report, tax
                                        not bona fide and reasonable. This                      title and closing charges be kept                     service and flood certification, each of
                                        commenter noted that similar                            separate.                                             these services are designated on
                                        inconsistencies are true of other                          The title industry was opposed to the              separate lines of the HUD–1, with a
                                        origination fees. The commenter stated                  breakout of the title premium between                 notation that each is from GFE Block 3.
                                        that absent coordination with the                       the agent and the underwriter. It was                 The amount listed on the HUD–1 to be
                                        Federal Reserve Board on a more useful                  suggested that this was a private                     paid in advance for the mortgage
                                        and expansive definition of the finance                 business matter and that this breakout                insurance premium (included in the 900
                                        charge, and statutory changes to TILA                   had no effect on the amount of the                    series on the HUD–1) also contains a
                                        itself, the final settlement statement                  premium charged. Also, the breakout                   notation that the advance payment is
                                        should not bundle either all title or all               does not appear on the GFE, so it will                from GFE Block 3. By noting the
                                                                                                not help the consumer to see it at                    appropriate block from the GFE on each
                                        origination charges. The commenter also
                                                                                                closing.                                              designated line of the HUD–1,
                                        called for itemization of all title services
                                                                                                   One escrow company objected to                     borrowers will be able to easily compare
                                        on both the GFE and HUD–1, so that
                                                                                                HUD referring to tax and insurance                    the charges listed on the HUD–1 with
                                        consumers are aware of the variety of
                                                                                                deposits as ‘‘escrows’’ and said that the             the charges listed on the GFE.
                                        fees.
                                                                                                proper term was ‘‘impounds.’’ Escrow                     With respect to the 1100 series for
                                        Lender Representatives                                  companies also objected to HUD’s                      Title Insurance, the final HUD–1
                                                                                                reference to ‘‘optional’’ owner’s title               includes designated lines for title
                                          Lenders commenting on the March                       insurance and felt such reference might               services and lender’s title insurance at
                                        2008 proposed rule generally stated that                lead borrowers to forego needed                       line 1101, with a notation that this
                                        the HUD–1 should be in the same                         protection. One suggested that the term               amount is from GFE Block 4. Unlike the
                                        format as the GFE, to enable                            ‘‘non-required’’ would be preferable, but             proposed HUD–1, the final HUD–1
                                        comparisons of estimated and actual                     pointed out that in some states owner’s               includes a designated line for the
                                        charges. A lender association stated that               title insurance actually is required.                 settlement or closing fee at line 1102,
                                        the proposed changes to the HUD–1 fall                     One escrow company commented that                  which is also from GFE Block 4.
                                        short of making the GFE and HUD–1                       HUD tested only its own forms, not the                However, in order to limit unnecessary
                                        correspond. Many lenders expressed the                  forms submitted by others, so there was               itemization of the component parts of
                                        concern that the way the proposed                       no evidence that HUD’s forms were                     the charge for title services,
                                        HUD–1 forms are to be completed                         better. This commenter went on to say                 administrative and processing services
                                        would require many changes with                         that it does not believe that consumers               related to title services must be included
                                        significant operational and technology                  in a real-world situation will use these              at line 1101 with the overall charge for
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                                        impacts. A major lender stated that                     forms in the intended manner.                         title services. Because the final rule
                                        changes to the HUD–1 that consolidate                      One closing attorney commented that                more clearly specifies the extent of
                                        disclosures raise questions about the                   the limiting of lender charges to line 801            itemization permitted, HUD has
                                        lenders’ ability to complete post-closing               will interfere with disclosure of such                determined that it is no longer necessary
                                        checks of finance charge calculations.                  fees as an ‘‘underwriting fee,’’ ‘‘desk               to define ‘‘primary title services’’ as a


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                                        particular set of title services. In                    that the script would not be useful to                and attorneys better able to address
                                        addition, the final HUD–1 includes a                    borrowers who are not fluent in English               borrowers’ questions.
                                        designated line for owner’s title                       and to hearing-impaired borrowers. One                  Many settlement agents also stated
                                        insurance at line 1103, from GFE Block                  consumer group expressed concern for                  that they were unable to address
                                        5, but the reference to ‘‘optional’’                    circumstances when a borrower does                    borrower questions since they were not
                                        owner’s title insurance was dropped                     not have an escrow account. In this                   privy to discussions and decisions
                                        from the proposed rule in response to                   event, the group expressed its hope that              between the loan originator and
                                        comments. HUD has determined to                         the closing script would provide an                   borrower. ALTA suggested that the
                                        retain the designated lines for the                     estimate of monthly payments for taxes                lender should bear the duty of preparing
                                        agent’s portion of the total title                      and hazard insurance.                                 and delivering the closing script to the
                                        insurance premium (Line 1107) and the                                                                         borrower.
                                        underwriter’s portion of the total title                Industry Representatives
                                                                                                                                                      Lenders
                                        insurance premium (Line 1108).                          Title and Settlement Agents and
                                        Although inclusion of the agent/                                                                                 Lenders and their trade associations
                                                                                                Notaries
                                        underwriter split on the HUD–1 differs                                                                        were generally opposed to the closing
                                        from the GFE, it is HUD’s view that this                   Most comments from title and                       script requirement. Lenders commented
                                        breakdown will help consumers better                    settlement agents opposed the concept                 that a mandatory closing script is
                                        understand their title charges.                         of the closing script and expressed the               unnecessary and will add new,
                                           To further facilitate comparability                  concern that any requirement to read a                substantive burdens to both lenders and
                                        between the GFE and HUD–1, HUD has                      closing script to the borrower and                    settlement agents and ultimately
                                        determined to include a third page to                   explain discrepancies between the GFE,                increase closing costs. These
                                        the HUD–1 that includes a chart                         the HUD–1 and the loan documents                      commenters further asserted that the
                                        comparing the amounts listed for                        would constitute the ‘‘unauthorized                   additional time involved in preparing
                                        particular settlement costs on the GFE                  practice of law.’’ ALTA commented that                the script and reading it at each closing
                                        with the total costs listed for those                   in many states, settlement agents risk                will, over time, result in an increase in
                                        charges on the HUD–1. For further                       engaging in the unauthorized practice of              fees charged by lenders and settlement
                                        discussion of this chart, see the                       law by reviewing loan documents and                   agents.
                                        discussion of the Closing Script issue in               answering borrower questions about                       MBA stated that the script would
                                        the next section.                                       final loan terms. ALTA also stated that               ‘‘raise legal concerns, be too costly,
                                                                                                even in states where there are no                     provide little benefit to the consumer at
                                        B. Proposed Addendum to the HUD–1,                      concerns about the unauthorized                       closing and raise significant operational
                                        the Closing Script                                      practice of law, the proposed closing                 concerns.’’ MBA also questioned HUD’s
                                          Proposed Rule. Under the March 2008                   script requirements would add a                       authority to require an ‘‘additional
                                        proposed rule, an addendum would                        significant additional amount of time to              disclosure.’’
                                        have been added to the HUD–1/1A that                    each closing, leading to a decrease in                   Bank of America commented that it
                                        would have compared the loan terms                      the number of closings a settlement                   agreed with HUD’s goal of reducing
                                        and settlement charges estimated on the                 agent can perform. According to ALTA,                 consumer confusion and dissatisfaction
                                        GFE to the final charges on the HUD–                    this will result in higher closing fees               with the closing process, but asserted
                                        1 and would have described in detail                    charged to the borrower and the seller.               that the closing script will not resolve
                                        the loan terms for the specific mortgage                ALTA and others also raised concerns                  those issues. Bank of America stated
                                        loan and related settlement information.                about how the closing script                          that the disclosure of loan terms by use
                                        The settlement agent would have been                    requirement would be implemented in                   of a closing script would detract from
                                        required to read the addendum aloud to                  those jurisdictions that do not conduct               the information that is disclosed in the
                                        the borrower at settlement and provide                  in-person closings. These commenters                  TILA disclosure and could create more
                                        a copy of the addendum at settlement.                   also questioned how the closing script                confusion than clarity. This commenter
                                                                                                requirement would be implemented if                   also asserted that the script does not
                                        Comments                                                                                                      take into account the realities of
                                                                                                the borrower’s primary language was
                                        Consumer Representatives                                other than English.                                   different closing practices in different
                                                                                                                                                      parts of the country.
                                           NCLC, while supportive of the closing                   The National Notary Association and                   Peoples National Bank stated its belief
                                        script, requested that HUD ‘‘clarify that               the American Society of Notaries (ASN)                that the script would add little to
                                        lenders are responsible for the accurate                commented that notaries are not                       consumers’ knowledge but would add
                                        delivery of the closing script’’ and                    attorneys or actual settlement agents                 significantly to the number and cost of
                                        ‘‘clarify that settlement agents also are               and do not have the authority to explain              documents the lender must produce:
                                        responsible to the borrower for the                     settlement terms to borrowers. The ASN                ‘‘The fact that some predatory lenders
                                        accurate delivery of the closing script.’’              also noted that ‘‘[b]y statute, notaries are          have intentionally deceived consumers
                                        NCRC supported the Department’s                         strictly prohibited from explaining                   will not be cured by additional
                                        inclusion of the closing script. It                     documents or giving any advice that can               disclosures, whether on provided paper
                                        commented that the script would                         be seen as unlicensed practice of law.’’              or read aloud.’’ This commenter
                                        ‘‘instill integrity and prevent lenders                 Other notaries and signing agents                     encouraged HUD to address issues
                                        from changing loan terms and costs                      questioned what they would be required                related to deceptive practices through
                                        between the application stage and loan                  to do if GFE tolerances were exceeded                 ‘‘more effective investigation and
                                        closing.’’ NCRC stated that the script                  or the borrowers asked questions they                 enforcement.’’
                                        would lead borrowers to have a ‘‘clearer                were unable to answer. They were
                                                                                                                                                      Mortgage Brokers
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                                        understanding of loan terms and                         particularly concerned that the
                                        conditions.’’                                           requirement of reading, explaining, and                  NAMB expressed its opposition to the
                                           The California Reinvestment Coalition                noting any inconsistencies such as a                  closing script because it would
                                        also supported the inclusion of the                     GFE tolerance violation would cause                   ‘‘increase costs for consumers and lower
                                        closing script, but expressed concern                   them to be replaced by settlement agents              the number of loans that can be closed


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                                        in a day.’’ Further, NAMB estimated                     unintentionally release the settlement                should be apprised of their loan terms
                                        that the additional time and resources                  agent and/or loan originator from                     at the closing and should also be
                                        that would be consumed by                               liability. CSBS stated ‘‘[p]erhaps of                 apprised of any differences between the
                                        implementing the closing script would                   greatest concern to state supervisors,                amounts stated on the GFE and the
                                        average approximately $500 per loan,                    however, is if a consumer signs an                    amounts listed on the HUD–1 settlement
                                        with ‘‘no commensurate, or even                         acknowledgment stating they have been                 statement. Accordingly, to ensure that
                                        discernible, benefit to consumers in                    presented with the closing script and                 borrowers are made aware of the final
                                        light of disclosures already mandated.’’                understand all portions therein, the                  settlement charges and the terms of their
                                        NAMB further questioned whether the                     lender will effectively be granted safe               loan, and to help make certain that
                                        script would bring mortgage brokers                     harbor if accused of deceptive tactics.’’             borrowers get the settlement charges
                                        into an advisory role that might then                   They recommended that the                             and loan terms to which they agreed,
                                        trigger ‘‘state regulatory and licensing                acknowledgment be changed to indicate                 HUD is requiring an additional page on
                                        requirements’’ and liability.                           merely that the borrower was                          the HUD–1/1A settlement statement that
                                                                                                ‘‘presented with the closing script,’’ in             sets forth a comparison between the
                                        Other Industry Representatives
                                                                                                order to avoid granting the lender safe               charges listed on the GFE and the
                                           The Real Estate Service Providers                    harbor.                                               charges listed on the HUD–1/1A, and
                                        Council (RESPRO) opposed the closing                                                                          summarizes the final loan terms of the
                                        script concept and raised the concern                   Federal Agency Commenters
                                                                                                                                                      borrower’s loan.
                                        that reading the script aloud in the                       The FDIC commented that the closing                   By eliminating the closing script, as
                                        presence of third parties raises privacy                script is helpful in making plain the                 proposed, and including information
                                        issues under the Gramm-Leach-Bliley                     negative financial consequences for a                 about the loan on the additional page of
                                        Act, which prohibits the dissemination                  consumer of entering into an                          the HUD–1/1A Settlement Statement,
                                        of personal information.                                ‘‘unconventional loan product such as                 borrowers will receive the essential
                                           HomeServices of America, Inc.                        an interest-only loan.’’ However, the                 information that was included in the
                                        (HomeServices) wrote that ‘‘the                         FDIC stated that one shortcoming of the               proposed closing script while
                                        proposed closing script requirement is                  script is that there is no information                eliminating potential operational
                                        problematic and should not be                           about what a consumer can do if the                   challenges posed by the proposed
                                        implemented [because it] will not fulfill               loan originator exceeds the permissible               closing script.
                                        the purpose for which it is intended                    tolerance.                                               The instructions for completing the
                                        because it comes too late in the process                   The Office of Thrift Supervision                   HUD–1/1A settlement statement
                                        and would be too costly.’’ HomeServices                 (OTS) stated that while well intended,                provide that the loan originator shall
                                        asserted that the closing script would be               the proposed closing script requirement               transmit sufficient information to the
                                        ineffectual because ‘‘many buyers                       would be ‘‘time consuming and may                     closing agent to allow the closing agent
                                        would be contractually obligated to                     neither be viable nor appropriate in all              to prepare the HUD–1/1A, including the
                                        conclude the real estate transaction                    cases.’’ OTS suggested that if the final              new last page. The first half of the new
                                        regardless of any inconsistencies                       rule contains a closing script                        page includes a comparison chart that
                                        between the GFE, the HUD–1 Settlement                   requirement, a written script may                     sets forth the settlement charges from
                                        Statement and other loan documents                      suffice.                                              the GFE and the settlement charges from
                                        and shown in the closing script.’’                         While expressing its general support
                                                                                                                                                      the HUD–1/1A to allow the borrower to
                                                                                                of the script, the FTC staff suggested
                                        Other Commenters                                                                                              easily compare whether the settlement
                                                                                                that HUD consider modifications to the
                                           The National Association of Insurance                                                                      charges exceed the charges stated on the
                                                                                                current proposal. FTC staff
                                        Commissioners, while expressing                                                                               GFE. The second half of the new page
                                                                                                recommended placing responsibility for
                                        general support for the closing script,                                                                       sets forth the loan terms for the loan
                                                                                                creating the script on lenders, rather
                                        expressed its belief that borrowers                                                                           received at settlement in a format that
                                                                                                than settlement agents and stated that,
                                        would be better protected ‘‘if the same                                                                       reflects the summary of loan terms on
                                                                                                at a minimum, lenders should have the
                                        information would be provided in                                                                              the first page of the GFE, but with
                                                                                                responsibility of completing as much of
                                        writing earlier in the real estate                                                                            additional related information that
                                                                                                the closing script as possible, to
                                        transaction.’’ The Office of the Illinois                                                                     would be available at closing. By
                                                                                                decrease the risk of inaccuracies. In
                                        Attorney General supported the closing                                                                        presenting the comparison chart and the
                                                                                                addition, FTC staff recommended that
                                        script and expressed the hope that by                                                                         loan terms on the new page of the HUD–
                                                                                                HUD consider making the closing script
                                        highlighting changes in terms and fees                                                                        1, the borrower will be made aware of
                                                                                                and the comparison chart more
                                        that have occurred since the GFE stage,                                                                       any changes to the settlement charges or
                                                                                                consistent with the revised GFE and
                                        ‘‘(t)he script will discourage loan                                                                           loan terms and be able to confirm those
                                                                                                HUD–1 formats. FTC staff also
                                        originators from changing key loan                                                                            changes.
                                                                                                recommended that the final rule address
                                        terms and imposing additional charges                   the responsibilities of settlement agents             V. Permissibility of Average Cost
                                        at closing, practices commonly seen in                  if there are inconsistencies between the              Pricing and Negotiated Discounts—
                                        investigations conducted by our office.’’               loan terms and charges in the GFE and                 Discussion of Public Comments
                                        This commenter further recommended                      those in the HUD–1 and other loan
                                        that the HUD–1 Settlement Statement                                                                           A. Overview and Definition of ‘‘Thing of
                                                                                                documents and also recommended
                                        and closing script addendum ‘‘be                                                                              Value’’
                                                                                                additional consumer testing of the
                                        required to be given to all borrowers 24                script.                                                 Proposed Rule. The March 2008
                                        hours in advance, in addition to the                                                                          proposed rule would recognize pricing
                                        requirement that the script be read                     HUD Determination                                     techniques that result in greater
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                                        aloud at closing.’’                                       In response to comments received on                 competition and lower costs to
                                           CSBS, AARMR and NACCA, while                         the proposed rule and HUD’s further                   consumers, specifically average cost
                                        supporting the closing script, expressed                review, HUD has eliminated the closing                pricing and some discounts among
                                        concern about the acknowledgment                        script requirement. However, HUD                      settlement service providers, including
                                        page, believing that the script may                     continues to believe that borrowers                   volume based discounts. The rule


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                                        proposed to amend 24 CFR 3500.8 and                        The ABA and the Independent                           ALTA also noted that although the
                                        would have explained that charges for                   Community Bankers of America (ICBA)                   proposed rule would allow settlement
                                        third party services may be calculated                  expressed concern that volume                         service providers to offer negotiated
                                        using average cost pricing mechanisms                   discounts may put smaller market                      volume discounts, such a provision is in
                                        based on appropriate methods                            participants such as community banks                  direct contrast to many state title
                                        established by HUD. These mechanisms                    at a disadvantage, since most discounts               insurance laws that prohibit title
                                        would also have accommodated volume                     will be negotiated on a volume basis.                 insurance companies and agencies from
                                        based discounts. The proposed rule                      According to these commenters, smaller                discounting the title premium or
                                        would have allowed loan originators to                  banks, making fewer loans, will not be                offering a rebate on title insurance fees,
                                        disclose on the HUD–1 an average cost                   able to negotiate as many or as deep                  especially in states with ‘‘all-inclusive’’
                                        price in accordance with one of several                 discounts as larger lenders. ABA also                 rates. Similarly, the National
                                        specific methods. The proposed rule                     commented that lenders should be                      Association of Insurance Commissioners
                                        also would have amended 24 CFR                          allowed to benefit as well from                       (NAIC) stated that volume based
                                        3500.14(d) and the definition of ‘‘thing                negotiated discounts by not being                     discounts would be a violation of
                                        of value’’ to clarify that it would be                  required to pass along the entire savings             several states anti-rebating laws. NAIC
                                        permissible for settlement service                      to the borrower, or there is little                   expressed its concern that the rule could
                                        providers to negotiate discounts in the                 incentive for them to enter into such                 be found to preempt state laws to the
                                        prices for settlement services, so long as              arrangements.                                         contrary. It recommended that the
                                        the borrower is not charged more than                      CMC supported the proposal to clarify              provision be withdrawn or that HUD
                                        the discounted price.                                   the legality of negotiated discounts and              clarify that the volume based discounts
                                                                                                stated that the proposed change to the                and average cost pricing provisions are
                                        Comments                                                regulations would be most likely to lead              not intended to preempt state law.
                                                                                                to greater competition and lower overall                 Representative Donald A. Manzullo of
                                        Consumer Representatives
                                                                                                prices in situations where the lender or              the U.S. House of Representatives
                                          NCLC and CRL supported volume                         other party negotiating the discount                  expressed concern over volume based
                                        based discounts so long as the discounts                absorbs the cost of the negotiated                    discounts, which he described as a
                                        were passed along to the consumer.                      service and does not pass on the cost to              ‘‘thinly veiled attempt to reintroduce
                                        However, CRL expressed concern that                     the borrower. CMC stated that a                       the concept of ‘bundling’ services.’’ The
                                        discounts may lead originators to steer                 clarification that a negotiated discount              Congressman reiterated his previously
                                        consumers to certain settlement service                 would not constitute a thing of value in              stated concerns that the long term
                                        providers, thus limiting consumers’                     this situation would provide greater                  impact of volume discounts would
                                        choice of servicers. Therefore CRL                      flexibility to negotiate lower prices.                eliminate competition and destroy small
                                        would support additional safeguards to                  CMC urged HUD to clarify that the                     businesses. Rep. Manzullo stated that
                                        ensure that volume based discounts in                   clarification should not be limited to                only large businesses have the resources
                                        fact benefit the consumer.                              discounts negotiated by settlement                    necessary to determine the financial
                                                                                                service providers, but should also apply              terms, negotiate for settlement services,
                                        Lender Representatives                                  to parties who may not be regarded as                 or discount their own services.
                                                                                                settlement service providers such as                  According to Rep. Manzullo, in order to
                                           MBA commended the proposal to                        builders. In addition, CMC stated that                compete, small businesses would be
                                        clarify the legality of volume based                    HUD should allow the discounted price                 forced to reduce their prices and profit
                                        discounts, but said that it did not go far              charged to the borrower to be calculated              margins, driving many of them out of
                                        enough. MBA stated that negotiated                      on an average cost price basis.                       business. He stated that such an
                                        discount arrangements for services and                                                                        anticompetitive environment will allow
                                        materials result in lower costs for                     Other Commenters
                                                                                                                                                      large lenders to raise prices for
                                        consumers and are consistent with                          ALTA and other title industry                      settlement services.
                                        RESPA’s purposes of lowering                            commenters stated that allowing
                                        settlement costs. MBA stated, however,                  settlement service providers to negotiate             Federal Agencies
                                        that by including a requirement that no                 volume based discounts would be                          The FDIC stated that it supports the
                                        more than the reduced price can be                      anticompetitive and disproportionately                requirement in the proposed definition
                                        charged to the borrower, there will be                  harm small businesses. ALTA stated                    of ‘‘thing of value’’ that no more than
                                        little incentive for lenders to enter into              that the ability to negotiate volume                  the discounted price may be charged to
                                        discount arrangements. MBA stated that                  discounts on the local services that are              a borrower and disclosed on the HUD–
                                        scrutiny to ensure that each and every                  incidental to the issuance of a title                 1 form. In contrast, FTC staff stated that
                                        dollar of discount is passed on to the                  policy (such as a title search) will                  while it supports the removal of
                                        consumer presents regulatory risks and                  disadvantage the small title insurance                restrictions against volume based
                                        will make the exception ‘‘uninviting.’’                 agency that does not have the resources               discounts, it believes that the proposed
                                        MBA asserted that such a restriction is                 to guaranty a stream of business to a                 requirement to pass along the entire
                                        unnecessary, since market competition                   third party or discount its own services              discount to the consumer will likely
                                        will result in the consumer receiving the               when the services are performed in-                   limit incentives to negotiate such
                                        benefit of the discounts. MBA also                      house. In addition, ALTA expressed                    discounts. According to FTC staff,
                                        questioned the idea that discounts can                  concern that mortgage lenders and                     requiring that 100 percent of any
                                        be negotiated only by a settlement                      brokers will add to the anticompetitive               negotiated discount be passed on to
                                        service provider, arguably excluding                    effects by favoring affiliated title                  customers reduces incentives of firms to
                                        builders. MBA stated that such an                       companies or those companies that can                 spend resources to negotiate such
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                                        approach could deprive consumers of                     provide title related services on a                   discounts. FTC stated that the proposed
                                        negotiated discounts on house prices                    nationwide basis. ALTA asserted that                  regulation also does not clarify how to
                                        offered by lenders that have joint                      the Regulatory Impact Analysis of the                 account for the overhead costs
                                        ventures and marketing agreements with                  proposed rule did not adequately                      associated with price negotiation
                                        builders.                                               address these issues.                                 activities.


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                                          The Office of Advocacy of the Small                   procure or who help consumers to                      targeted settlement service provider to
                                        Business Administration stated that                     obtain third party settlement services,               demonstrate compliance with a
                                        pricing mechanisms such as volume                       would have been allowed to negotiate                  permissible pricing method through the
                                        based discounts potentially create an                   the pricing of those services by the third            production of relevant records.
                                        uneven playing field for small entities.                party provider. The proposed rule
                                        This office reiterated concerns voiced by               would have made clear that where                      Comments
                                        small businesses that volume based                      average cost pricing is used, the                     Consumer Representatives
                                        discounts will favor large settlement                   evaluation of prices of third party
                                        service providers at the expense of small               services would focus on all of the loan                  NCLC and CRL supported the concept
                                        business. According to the Office of                    originator’s transactions together, rather            of average cost pricing but expressed
                                        Advocacy, some small entities may                       than viewing each transaction                         concern that the proposed rule used the
                                        leave the market, which would                           separately. An individual borrower                    terms ‘‘average pricing’’ and ‘‘average
                                        ultimately result in a decrease in                      might be charged more or less than the                cost pricing’’ interchangeably. These
                                        options and higher prices for                           actual amount paid for that service in an             commenters stated that ‘‘average cost
                                        consumers.                                              individual transaction, provided that                 pricing’’ must be based on the cost of
                                                                                                borrowers are being charged no more                   the settlement service and established
                                        HUD Determination                                                                                             rate of return for the settlement service
                                                                                                than the average price actually received
                                           HUD remains committed to a RESPA                     by third parties during the period in                 provider. They expressed concern that
                                        regulatory scheme that fosters mortgage                 which the average price is computed.                  the proposed rule appeared to allow
                                        settlement pricing mechanisms, that, as                    The proposed rule specified two                    ‘‘average pricing’’ whereby an originator
                                        stated in the preamble to the March                     methods that loan originators could use               charges the consumer an average cost
                                        2008 proposed rule ‘‘result in greater                  to calculate an average price for a                   while paying the third party settlement
                                        competition and lower costs to                          particular settlement service. As set                 provider a different amount for each
                                        consumers’’ (73 FR at 14050).                           forth in the March 2008 proposed rule,                consumer. According to these
                                        Nevertheless, given the comments                        the loan originator would designate a                 commenters, there is no reason that the
                                        received on the proposed change to                      recent 6-month period as the ‘‘averaging              originator should not charge the
                                        HUD’s current regulatory definition of                  period’’ for purposes of calculating the              consumer the actual cost of the third
                                        ‘‘thing of value’’ and the significant                  average price. The same average price                 party service and reflect such cost on
                                        operational and other questions raised                  would then have to be used in every                   the HUD–1.
                                        by the proposed change, HUD has                         transaction in that class of transactions                NCLC stated that the current
                                        decided to give further consideration                   for which a GFE is provided following                 description of acceptable methods for
                                        beyond this rulemaking to a regulatory                  the averaging period until a new                      average cost pricing are inaccurate and
                                        change that explicitly allows negotiated                averaging period is established. The                  should either be eliminated or revised to
                                        discounts, including volume based                       average price would be calculated either              comport with true average cost pricing
                                        discounts, between loan originators and                 as (1) the actual average price for the               formulas. CRL stated that average cost
                                        other settlement service providers and                  settlement service during the averaging               pricing is inappropriate for certain costs
                                        not to implement the proposed change                    period; or (2) a projected average under              that are partially dependent on loan
                                        at this time. HUD wants to ensure that                  a tiered pricing contract, based on the               amount, such as title insurance
                                        any change will adequately protect                      number of transactions that actually                  premiums, recording costs, and transfer
                                        consumers, while at the same time                       closed during the recent averaging                    taxes, since average cost pricing would
                                        provide adequate market flexibility, and                period. If a loan originator used one of              disadvantage those consumers
                                        due consideration to small business                     these methods to calculate the average                purchasing or refinancing less
                                        concerns.                                               price for a settlement service, HUD
                                                                                                                                                      expensive homes.
                                           It remains HUD’s position, however,                  would deem the loan originator to have
                                        that discounts negotiated between loan                  complied with the requirements of the                 Lender Representatives
                                        originators and other settlement service                rule.
                                        providers, or by an individual                             HUD invited comments on its                           MBA supported the proposal to allow
                                        settlement service provider on behalf of                proposed methods for calculating                      average cost pricing with some
                                        a borrower, where the discount is                       average cost prices and on any                        modifications and clarifications. MBA
                                        ultimately passed on to the borrower in                 alternative methods that should be                    suggested, in addition to the approaches
                                        full, is not, depending upon the specific               permitted. Specifically, HUD invited                  provided in the proposal, that the rule
                                        circumstances of a particular                           comments on how to define ‘‘class of                  include another approach or approaches
                                        transaction, a violation of Section 8 of                transactions’’ and noted as an example                that would be less restrictive and
                                        RESPA. If the borrower fully benefits                   that ‘‘class of transactions’’ could be               facilitate entry into average cost pricing
                                        from the discount, these types of                       defined by loan type or loan-to-value                 for other firms in order to benefit
                                        mechanisms that lower consumer costs                    ratio. HUD also invited suggestions on                consumers. MBA recommended an
                                        are within RESPA’s principal purposes.                  alternative average cost pricing methods              approach whereby a firm would charge
                                           In addition to further rulemaking,                   that benefit consumers and are based on               the average cost for a class of
                                        HUD will consider other avenues for                     factors that would lead to charges to the             transactions over a prospective
                                        providing guidance on negotiated                        consumer (and the disclosure of such                  averaging period, during which all
                                        discounts, including through the                        charges) that are easily calculated,                  transactions in the class would be
                                        issuance of statements of policy.                       verified, and enforced, but difficult to              charged a projected average price.
                                                                                                manipulate in an abusive manner.                      Under this approach, as long as the total
                                        B. Methodology for Average Cost Pricing                    The March 2008 proposed rule                       amounts charged on transactions in the
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                                          Proposed Rule. The March 2008                         provided that with regard to any pricing              class do not exceed the amount paid to
                                        proposed rule would have permitted                      method used by a settlement service                   the service providers for such
                                        pricing techniques using average cost                   provider, if a violation of Section 8 of              transactions by more than a small
                                        pricing. Under the proposed rule,                       RESPA is alleged and an investigation                 amount, the average price would be
                                        settlement service providers who                        ensues, the burden would be on the                    permissible.


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                                                         Federal Register / Vol. 73, No. 222 / Monday, November 17, 2008 / Rules and Regulations                                        68233

                                           MBA also recommended that a lender                   total costs charged on the transactions               be limited to small items such as courier
                                        should be given maximum latitude to                     remain within the applicable tolerance.               fees and recording costs. According to
                                        define a ‘‘class of transactions’’ based on                In addition, CMC urged HUD to                      NAR, if average cost pricing is allowed
                                        type of service, type of property, loan                 clarify that average cost pricing may be              for larger items such as appraisals, the
                                        type and/or geographic region.                          used in situations where there is more                consumer will end up paying more for
                                        According to MBA, the lender should                     than one settlement service provider.                 an ‘‘average cost’’ if, for example, the
                                        also have latitude to define an ‘‘average               CMC stated that the exemption for                     calculation includes a disproportionate
                                        period’’ and the ‘‘average price’’ as long              average cost pricing will be of limited               number of expensive appraisals during
                                        as the approach is ‘‘reasonable.’’ MBA                  value unless such pricing is available                a given 6-month period.
                                        also recommended that the                               when multiple providers are providing
                                                                                                the same service and the fees charged by                CSBS, AARMR, and NACCA
                                        documentation requirements be revised
                                        to ensure that they are flexible and do                 these providers vary. CMC also urged                  commented that the proposal to allow
                                        not impede use of the provision by                      HUD to coordinate with the Federal                    loan originators or settlement service
                                        requiring unnecessary burdensome                        Reserve Board regarding how average                   providers to utilize average cost pricing
                                        documentation.                                          cost pricing affects the calculation of the           would be difficult for regulators to
                                                                                                finance charge for purposes of TILA.                  enforce and recommended that the
                                           CMC supported the proposal to allow
                                        average cost pricing, and stated that                   Finally, CMC recommended that HUD                     burden of proof of compliance be placed
                                        such a provision could lead to flexible                 clarify that the average cost pricing                 on the lender. These commenters stated
                                        negotiations for settlement services,                   provision is not limited to loan                      that by allowing loan originators and
                                        thereby increasing price competition                    originators.                                          providers to utilize this pricing
                                        and lowering costs to borrowers.                                                                              mechanism, individual transaction costs
                                                                                                Other Commenters
                                        However, CMC stated that unless such                                                                          could be manipulated and inflated.
                                                                                                   RESPRO expressed support for                       These commenters noted that the
                                        a proposal provides relief from liability               average cost pricing and recommended
                                        under Section 8 of RESPA, there will be                                                                       current regulations can be enforced by
                                                                                                that the rule clarify that average cost               regulators, because actual prices can be
                                        little incentive for loan originators or                pricing is not limited to loan originators.
                                        other settlement service providers to use                                                                     determined.
                                                                                                In addition, RESPRO stated that the
                                        average cost pricing. CMC also stated                   proposed approaches for average cost                  Federal Agencies
                                        that placing the burden of                              pricing need clarification. For example,
                                        demonstrating compliance on the                         RESPRO suggested that HUD clarify                        The FDIC expressed concern with the
                                        settlement service provider is                          what constitutes a ‘‘recent’’ 6-month                 average cost pricing proposal on several
                                        problematic. CMC stated that the two                    period and also clarify whether a loan                grounds. First, the FDIC indicated that
                                        methods set forth in the proposed rule                  originator can divide up its service                  it is not aware of an appropriate means
                                        for calculating an average price leave                  territory into two or more geographical               of evaluating whether overall consumer
                                        open questions as to compliance and                     areas and utilize these areas for                     costs would decline as a result of
                                        workability. According to CMC, since                    averaging purposes.                                   average cost pricing. Second, the agency
                                        circumstances often change, the                            ALTA expressed support for the                     noted that even if some borrowers’
                                        approach set forth in the proposal for                  average cost pricing proposal and                     settlement services costs are reduced
                                        determining the averaging period may                    requested HUD to clarify that average                 under average cost pricing, other
                                        not be practical.                                       cost pricing would be available for all               borrowers will pay more for a service
                                           CMC recommended that a simpler                       settlement service providers. ALTA                    than is warranted for their particular
                                        method would be to let the provider                     maintained that the proposed provision                loan. Third, the FDIC stated that the
                                        who will charge the average cost define                 on average cost pricing should not have               proposal does not include controls to
                                        the class of transactions and a                         been included in the HUD–1 section of                 ensure fairness, such as whether the
                                        prospective averaging period during                     the RESPA regulations, but rather,                    lender calculated the average costs
                                        which all transactions in the class                     should have been written so as to permit              appropriately.
                                        would be charged a projected average                    lenders and others to apply average cost
                                        price. CMC also recommended that as                                                                              FTC staff stated that it supports
                                                                                                pricing without running the risk of
                                        long as the total amounts charged on                                                                          average cost pricing but recommended
                                                                                                violating Section 8(b) of RESPA.
                                        transactions in the class do not exceed                                                                       that HUD consider eliminating
                                                                                                Accordingly, ALTA urged HUD to
                                        the amount paid to the service providers                clarify that average cost pricing is not a            restrictions on how average costs may
                                        for such transactions by more than a                    violation of Section 8(b). ALTA stated                be calculated. FTC staff stated that it
                                        small amount, such as by more than 10                   that if the rule would allow title and                supports removing barriers to average
                                        percent, the average price should be                    settlement companies to use the average               cost pricing because there is ‘‘no
                                        permissible. CMC recommended an                         cost price, particularly as such pricing              economic justification for requiring that
                                        averaging period of up to 18 months                     relates to recording fees, express                    each consumer pay his or her unique
                                        since many contracts are reviewed on an                 delivery charges, and other third party               marginal cost of receiving settlement
                                        annual basis and there are seasonal                     charges for which title companies must                services and because doing so will
                                        variations in volume. With respect to                   pay, consumers would benefit from the                 likely result in lower prices for
                                        how the class of transactions should be                 certainty the average cost provides, and              consumers.’’ FTC staff added that
                                        determined, CMC recommended that                        that the threat of class action litigation            calculating and maintaining records of
                                        HUD not specify a set of factors for use                for title and settlement companies with               such individualized costs and prices
                                        in determining class of transactions, but               respect to recording fees would be                    adds additional accounting and
                                        rather, allow a settlement service                      removed.                                              recordkeeping costs to the transaction
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                                        provider to define the class in any                        NAR stated that average cost pricing               that are not required in other
                                        reasonable manner. CMC also urged                       should be allowed for both borrowers                  competitive markets. FTC staff asserted
                                        HUD to clarify that prices may be                       and sellers, and should be extended to                that by removing such costs, the market
                                        uniformly reduced at any point during                   all settlement service providers. NAR                 will be more efficient and the result will
                                        the averaging period to ensure that the                 stated that average cost pricing should               be lower prices for consumers.


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                                        68234            Federal Register / Vol. 73, No. 222 / Monday, November 17, 2008 / Rules and Regulations

                                        HUD Determination                                       for that service for a particular class of            appropriately and that regulators and
                                           Based on the comments received in                    transactions do not exceed the total                  borrowers are able to determine the
                                        response to the proposed rule, HUD has                  amounts paid to the providers of that                 basis on which the average charge was
                                        revised the average cost pricing                        service for that class of transactions.               determined. Any settlement service
                                        provisions to provide more flexibility                  This approach leaves the method of                    provider that uses an average charge for
                                        and greater clarity.                                    determining the average charge to the                 a particular service must maintain all
                                           Commenters representing some                         discretion of the settlement service                  documents that were used to calculate
                                        consumer interests opposed                              provider. However, the provider must                  the average charge for at least three
                                        implementation of the proposed average                  ensure that the average charge used does              years after any settlement in which the
                                        cost pricing provision, recommending                    not result in borrowers, in the aggregate,
                                                                                                                                                      average charge was used.
                                        that HUD limit charges for third party                  paying more for a particular settlement
                                        services to the actual cost of providing                service than the aggregate price paid for             VI. Prohibition Against Requiring the
                                        those services, plus an established rate                obtaining that service from third parties.            Use of Affiliates—Discussion of Public
                                                                                                HUD has determined that this approach                 Comments
                                        of return. While HUD appreciates these
                                                                                                balances the settlement service
                                        comments, the proposed average cost                                                                              Proposed Rule. Under the March 2008
                                                                                                provider’s interest in flexibility in
                                        pricing provision was not intended to
                                                                                                calculating an average charge with the                proposed rule, the current definition of
                                        limit the amounts charged for settlement
                                                                                                borrower’s interest in preventing                     ‘‘required use’’ in 24 CFR 3500.2 would
                                        services in this fashion, but instead
                                                                                                excessive settlement charges. This                    be changed so that consumers would be
                                        simply provided for an alternative
                                                                                                approach is intended to promote greater               more likely to shop for the homes and
                                        means of calculating and disclosing
                                                                                                efficiencies that ultimately lead to lower            home features, and the loans and
                                        settlement charges on the HUD–1 or
                                                                                                prices for consumers.                                 settlement services, that are best for
                                        HUD–1A settlement statements. In order                     The final rule provides that a
                                        to avoid similar confusion about the                                                                          them, free from the influence of
                                                                                                settlement service provider may define                deceptive referral arrangements.
                                        intent of this provision in the future, the             a class of transactions based on the
                                        final rule uses the term ‘‘average                                                                            Through this proposed change, HUD
                                                                                                period of time, type of loan, and
                                        charge’’ in place of ‘‘average cost                                                                           sought to establish that in a real estate
                                                                                                geographic area. For example, a
                                        pricing.’’ The term ‘‘average charge’’                                                                        transaction covered by RESPA,
                                                                                                settlement service provider might
                                        appropriately focuses on the amount                     calculate an average charge for all                   incentives that consumers may want to
                                        disclosed on the settlement statement,                  purchase money mortgages in the States                accept and disincentives that consumers
                                        rather than the underlying costs of                     of Georgia and South Carolina in a                    may want to avoid should be analyzed
                                        providing a particular settlement                       specified period of time. Alternatively,              similarly for compliance with RESPA.
                                        service.                                                a settlement service provider could                      The proposed change would have
                                           The final rule also clarifies that an                establish the class of transactions in                made clear that HUD views economic
                                        average charge may be used by any                       which it would use a single average                   disincentives that a consumer can avoid
                                        settlement service provider that obtains                charge broadly, e.g., all transactions it             only by purchasing a settlement service
                                        a service from a third party on behalf of               engages in for a period of time,                      from particular providers, or from
                                        a borrower or seller; the provision is not              regardless of loan type or location. The
                                        limited to loan originators. HUD has                                                                          businesses to which the consumer has
                                                                                                settlement service provider must                      been referred, to be potentially as
                                        determined that benefits to consumers                   recalculate the average charge at least
                                        and the benefits of reduced                                                                                   problematic under RESPA as are
                                                                                                every 6 months. In order to prevent
                                        recordkeeping requirements and pricing                                                                        economic incentives that are contingent
                                                                                                selective use of an average charge, the
                                        flexibility from this provision should                                                                        on the consumer’s choice of a particular
                                                                                                final rule provides that if an average
                                        not be limited to one group of                          charge is used in any class of                        settlement service provider. The
                                        settlement service providers. Any                       transactions defined by the settlement                modifications in the proposed rule,
                                        provider that is able to calculate an                   service provider, then that provider                  however, were not intended to prevent
                                        average charge for a service in                         must use the same average charge for                  discounts that are beneficial to
                                        accordance with this provision and that                 every transaction within that class.                  consumers. The proposed definition
                                        is able to meet the provision’s                            The final rule also prohibits the use              stated that the offering by a settlement
                                        recordkeeping requirements is                           of average charges for settlement                     service provider of an optional package
                                        permitted to use an average charge for                  services where the charge is based on                 or combination of bona fide settlement
                                        that service.                                           the loan amount or the value of the                   services to a borrower at a total price
                                           In addition to these clarifying                      property. Permitting average charges for              lower than the sum of the prices of the
                                        changes, HUD has made several other                     those types of services would require                 individual settlement services would
                                        significant changes to provide                          borrowers in transactions with lower                  not constitute a ‘‘required use.’’
                                        additional flexibility in calculating                   loan amounts and property values to
                                        average charges. HUD has determined                                                                              The proposed revision to the
                                                                                                subsidize the costs for borrowers with
                                        that its objective of providing a method                higher loan amounts and property                      ‘‘required use’’ definition would have
                                        that benefits consumers and results in                  values. HUD has determined that such                  continued to apply in two sections of
                                        charges that are easily calculated,                     subsidization is not in the interest of               the regulations: The affiliated business
                                        verified, and enforced is best served by                consumers. This prohibition applies to                exemption in 24 CFR 3500.15, and the
                                        restricting the actual charges imposed                  charges such as transfer taxes, daily                 prohibition on the seller requiring the
                                        on borrowers and sellers rather than by                 interest charges, reserves or escrow, and             buyer to purchase title insurance from a
                                        prescribing a particular method for                     all types of insurance, including                     particular company in § 3500.16.
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                                        calculating those charges.                              mortgage insurance, title insurance, and              However, in light of the other changes
                                           The final rule provides that an                      hazard insurance.                                     that would have been made by the
                                        average charge may be used for any                         The final rule maintains the proposed              proposed rule, the term ‘‘required use’’
                                        settlement service, provided that the                   recordkeeping requirements, to ensure                 would no longer have applied as it does
                                        total amounts received from borrowers                   that average charges are calculated                   currently in § 3500.7(e).


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                                                         Federal Register / Vol. 73, No. 222 / Monday, November 17, 2008 / Rules and Regulations                                         68235

                                        Comments                                                should not confuse legitimate incentive               it would ‘‘prohibit many consumer
                                        Consumer Representatives                                arrangements among affiliated entities                incentives offered by home builders and
                                                                                                with undue influence or required use of               real estate brokers in today’s
                                           NCLC stated that the proposed change                 a product or service.                                 marketplace that provide consumers
                                        to the ‘‘required use’’ definition does                    NAMB, the Maryland Association of                  with lower costs and/or better service; is
                                        not go far enough to protect consumers.                 Mortgage Brokers (MAMB), and the                      based on unsubstantiated and anecdotal
                                        NCLC stated that the settlement services                Idaho Association of Mortgage Brokers                 evidence about alleged abuses; attempts
                                        to obtain a home loan are only a small                  (IAMB) expressed support for the                      to address violations that already are
                                        part of the costs of the loan. According                proposed change in the definition of                  prohibited under RESPA, and is based
                                        to NCLC, the interest rate, the term of                 ‘‘required use.’’ NAMB stated that the                on an inaccurate reading of anti-trust
                                        the loan, and whether a prepayment                      proposed revision should resolve the                  laws.’’ RESPRO asserted that consumer
                                        penalty is permitted, or a balloon                      problems with tying and required use.                 incentives are offered to ensure that
                                        payment is required, are all more                       NAMB recommended that the new                         sales transactions close as quickly and
                                        important elements of the costs of the                  definition avoid setting a threshold                  as efficiently as possible. RESPRO
                                        home loan than are the costs of                         higher than zero for determining what                 recommended that the current
                                        settlement services. NCLC stated that                   constitutes an economic incentive or                  definition of ‘‘required use’’ be retained.
                                        ‘‘(i)t does not make sense for the                      disincentive. NAMB, MAMB, and IAMB                       NAR opposed the proposed change
                                        settlement services to be capped in                     all stated that the threshold for                     and stated that it would have at least
                                        return for a required use, while the more               determining incentives and                            two unintended consequences.
                                        critical components of the costs of the                 disincentives should be ‘‘any thing of                According to NAR, the rule authorizes
                                        loan are not limited, especially where                  value.’’                                              discounts only on the prices of the
                                        the service itself could be discounted                     Builders and builder-affiliated                    recommended provider and this would
                                        while the loan terms are increased.’’                   mortgage companies opposed the                        limit the kind of non-price/services
                                        NCLC proposed to define ‘‘required                      proposed change to the ‘‘required use’’               promotions that joint venture owners
                                        use’’ to include the total cost of the loan             definition. CTX Mortgage Company                      currently and permissibly offer to
                                        in addition to the total of settlement                  asserted that the proposed change                     promote affiliates. NAR noted that real
                                        services. CRL commended HUD’s efforts                   would ‘‘provide a significant road block              estate agents and brokers offer a variety
                                        in this area and agreed with NCLC that                  for future customers to benefit from the              of inducements to clients to promote
                                        the definition of ‘‘required use’’ should               streamlined mortgage and title services               their services, such as by offering a gift
                                        include the total cost of the loan in                   that Centex offers.’’ The National                    certificate to a local business or a free
                                        addition to the cost of total settlement                Association of Home Builders (NAHB)                   home inspection. NAR indicated that it
                                        services.                                               asserted that the change would                        does not believe that HUD intended to
                                           The California Reinvestment Coalition                eliminate bona fide incentives, denying               eliminate a practice which benefits
                                        supported the proposed change to the                    consumers significant savings in their                consumers. In addition, according to
                                        definition of ‘‘required use’’ and stated               home purchases. NAHB characterized                    NAR, the proposal would allow a
                                        that the proposed change will ‘‘benefit                 HUD’s examples of ‘‘required use’’                    discounted combination of settlement
                                        the borrower by leveling the field.’’                   problems as ‘‘ambiguous and                           services only to a borrower, and NAR
                                                                                                incomplete.’’ NAHB asserted that home                 believes that sellers should not be
                                        Industry Representatives
                                                                                                builders with affiliated lenders have                 precluded from receiving discounts as
                                           Generally, lenders expressed                         business incentives to ensure that home               incentives as sellers often pay the
                                        opposition to the proposed change to                    buyers are pleased with the experience                majority of settlement costs in a real
                                        the definition of ‘‘required use’’ on the               of obtaining loans from their affiliated              estate transaction.
                                        grounds that the proposal is difficult to               lenders. NAHB noted that studies of
                                        understand, is overbroad, and would                     builder-affiliated mortgage companies                 Other Commenters
                                        eliminate the ability of builders and                   conducted by an independent research                     The Laborers’ International Union of
                                        others to offer legitimate consumer                     firm have found that such firms have                  North America (LIUNA) supported the
                                        discounts. MBA stated that it would be                  lower per-loan operating costs as                     proposed change to the ‘‘required use’’
                                        sufficient for HUD to indicate that under               compared to outside lenders. According                definition, stating that it ‘‘will promote
                                        its current rules HUD may scrutinize                    to NAHB, while the savings from these                 more comparison shopping by
                                        discounts to assure that they are bona                  economies and the other affiliate                     borrowers and achieve HUD’s intended
                                        fide, rather than risking depriving                     benefits are difficult to quantify, they              goal of protecting consumers from
                                        borrowers of discounts altogether.                      are significant and are passed along to               unnecessarily high settlement costs.’’
                                           The ABA stated that the proposed                     consumers in the form of incentives for                  LIUNA further stated that the ‘‘cost to
                                        change to the ‘‘required’’ use definition               use of a builder affiliate. NAHB stated               the builders of incentives has already
                                        is ‘‘flawed and unreasonable’’ because                  that home builders in general do not                  been built into the sales price, so that it
                                        HUD cited only anecdotal evidence that                  increase the selling price of homes to                is not a true discount, but a penalty for
                                        incentives have been abused by some                     offset these incentives and asserted that             using another company.’’ According to
                                        companies to steer customers to                         the vast majority of builders who                     LIUNA, its research indicates that the
                                        affiliated vendors with high prices and                 provide incentives for buyer use of                   effect of incentives ‘‘dissuade customers
                                        inferior service, but offered ‘‘no                      affiliates do so in a responsible manner              from comparison shopping for lenders.’’
                                        empirical evidence to support this                      that brings substantial benefits to                   Rather, ‘‘customers are steered to loans
                                        assertion.’’ The ABA also stated that the               consumers. NAHB and other                             that are very often more expensive,
                                        proposal runs counter to the plain                      commenters also suggested alternative                 despite the incentives.’’ LIUNA asserted
                                        meaning of the words in the statute                     language to the proposed definition to                that builders have improperly used
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                                        because defining ‘‘required use’’ to                    ensure that consumers are presented                   ‘‘related business relationships at the
                                        mean any incentive offered to use an                    with the option to select an incentive                expense of consumers’’ that ‘‘resulted in
                                        affiliated company contradicts the                      that is bona fide.                                    higher costs for homebuyers * * * and
                                        unambiguous meaning of the statutory                       RESPRO objected to the proposed                    have played a large part in creating the
                                        word ‘‘required.’’ It stated that HUD                   change to ‘‘required use’’ and stated that            current housing crisis.’’ LIUNA


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                                        68236            Federal Register / Vol. 73, No. 222 / Monday, November 17, 2008 / Rules and Regulations

                                        provided statistics indicating that in                  of RESPA and § 3500.15 of HUD’s                       permitted pursuant to the Electronic
                                        February 2006, the average rate for a 30-               regulations, and similarly frames the                 Signatures in Global and National
                                        year fixed-rate mortgage was 6.25                       definition to apply to ‘‘persons’’ rather             Commerce Act (ESIGN) (15 U.S.C.
                                        percent. In contrast, LIUNA noted that                  than only ‘‘borrowers.’’                              7001–7031) apply to all disclosures
                                        although the main benefit of an ARM is                     The change to the definition of                    provided for in HUD’s RESPA
                                        that it has a lower starting interest rate              ‘‘required use’’ will not eliminate the               regulations.
                                        than the equivalent fixed-rate loan,                    ability of anyone to offer legitimate
                                        approximately half of the mortgages                                                                           Comments
                                                                                                consumer discounts. HUD does not
                                        made by certain builders in February                    interpret RESPA as preventing a                          Almost all of the comments that
                                        2006 were ARMs that had starting rates                  settlement service provider or anyone                 addressed the proposed technical
                                        of 6.25 percent or higher. LIUNA stated                 else from offering a discount or other                changes to the rule expressed support
                                        that builders ‘‘have an incentive to sell               thing of value directly to the consumer.              for these changes. Several lenders and
                                        their inventory at the highest possible                 However, RESPA and this final rule                    trade groups representing lenders and
                                        price, and in-house mortgage units                      limit tying such a discount to the use of             mortgage brokers commented favorably
                                        provide the financing to make it                        an affiliated settlement service provider.            on the changes that conform the transfer
                                        possible. There is evidence that during                 HUD believes that consumers will                      of servicing disclosure regulations to the
                                        the housing boom in 2004–2006                           utilize affiliated and preferred                      revised statutory requirements.
                                        builders were only able to sell homes at                businesses if the costs of using those                However, lenders and their trade groups
                                        such inflated prices because of the                     businesses are lower than the costs                   were generally opposed to including the
                                        collaboration with their mortgage                       associated with similar services from                 transfer of servicing disclosure on the
                                        subsidiary and an affiliated appraisal                  other providers. Similarly to the                     revised GFE.
                                        company. This resulted in large                         proposed rule, the final rule continues                  Several groups representing consumer
                                        numbers of homeowners who were                          to provide that settlement service                    interests commented on the transfer of
                                        ‘‘underwater,’’ owing more than the                     providers can offer ‘‘ a combination of               servicing regulation, and strongly
                                        value of their home, from day one.’’                    bona fide settlement services at a total              supported expanding the transfer of
                                           CSBS, AARMR, and NACCA                               price (net of the value of the associated             servicing regulations beyond first lien
                                        supported the proposed change to the                    discount, rebate, or other economic                   mortgage loans. These groups indicated
                                        ‘‘required use’’ definition. However,                   incentive) lower than the sum of the                  that the TILA regulations, which HUD
                                        these commenters recommended that                       market prices of the individual                       cited as the basis for excluding
                                        the definition of ‘‘required use’’ be                   settlement services and will not be                   subordinate lien mortgage loans from
                                        expanded to incorporate situations                      found to have required the use of the                 the transfer of servicing disclosure
                                        where the originator fails to give a                    settlement service providers as long as:              requirements, do not provide equivalent
                                        required Affiliated Business                            (1) The use of any such combination is                protections, and that the transfer of
                                        Arrangement disclosure, or provides a                   optional to the purchaser; and (2) the                servicing requirements should therefore
                                        misleading disclosure that facilitates                  lower price for the combination is not                be expanded to cover all federally
                                        steering of the borrower to an affiliate.               made up by higher costs elsewhere in                  related mortgage loans. Consumer
                                        According to these commenters, absent                   the settlement process.’’                             groups also recommended changes to
                                        information necessary to make the best                                                                        the language used in the proposed
                                        decision, the borrower has effectively                  VII. Technical Amendments                             revision to the transfer of servicing
                                        been required to use a particular                       Proposed Rule                                         disclosure. The consumer group
                                        provider.                                                                                                     commenters indicated that the
                                           The FTC staff recommended that HUD                     The March 2008 proposed rule                        disclosure’s description of the servicing
                                        reconsider the proposed change to the                   included several changes to HUD’s                     function is unrealistically narrow, and
                                        definition of required use. The FTC staff               regulations to reflect current statutory              that it should be revised to state that:
                                        stated that the expanded definition                     provisions. First, the proposed rule
                                        could deprive customers of the lower                    revised the mortgage servicing                          Servicers are responsible for account
                                                                                                disclosure requirements in 24 CFR                     maintenance activities such as sending
                                        prices that can result from bundling                                                                          monthly statements, accepting payments,
                                        related services.                                       3500.21 to be consistent with section                 keeping track of account balances, handling
                                                                                                2103 of the Economic Growth and                       escrow accounts, engaging in loss mitigation
                                        HUD Determination                                       Regulatory Paperwork Reduction Act of                 and prosecuting foreclosures. They handle
                                           After reviewing comments about                       1996 (Title II of the Omnibus                         interest rate adjustments on adjustable rate
                                        HUD’s proposal to change the definition                 Consolidated Appropriations Act, 1997)                mortgages, collect and report information to
                                        of ‘‘required use’’ and re-examining                    (Pub. L. 104–208) and sought public                   national credit bureaus, and remit monies to
                                        aspects of the proposed revised                         comment on whether the mortgage                       the owners of the loan.
                                        definition, HUD has determined to                       servicing disclosure should be included                 Very few comments were received on
                                        retain the concepts in the definition of                as part of the GFE.                                   the proposed revisions to the escrow
                                        ‘‘required use’’ set forth in the proposed                Second, the proposed rule eliminated                accounting regulations, or on the
                                        rule, but with some revisions that better               outdated provisions regarding the                     proposed clarification regarding the
                                        reflect HUD’s intent in applying the                    phase-in period for aggregate accounting              applicability of ESIGN to RESPA. The
                                        definition. The new definition makes it                 for escrow accounts in 24 CFR 3500.17.                comments that were received on these
                                        clear that economic disincentives that                  The phase-in period ended October 27,                 changes were primarily from trade
                                        are used to improperly influence a                      1997. Eliminating those provisions of                 groups representing lenders and
                                        consumer’s choices are as problematic                   the codified RESPA regulations that are               mortgage brokers, and the comments
                                        under RESPA as are incentives that are                  no longer applicable to the home                      were limited to general expressions of
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                                        not true discounts. The revisions made                  settlement process simplifies and                     support for the changes proposed.
                                        in the definition subsequent to the                     clarifies the rules for escrow accounts.
                                        proposed rule clarify how the definition                  Finally, the March 2008 proposed rule               HUD Determination
                                        will apply in the context of the affiliated             would add a new § 3500.23 to make                      Based on the comments received,
                                        business exemption under Section 8(c)                   clear that the electronic disclosures                 HUD has determined that the changes to


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                                        the transfer of servicing requirements                  provision were in favor of making the                 concerns. For example, the Department
                                        should be included in the final rule.                   proposed change.                                      has determined not to adopt the closing
                                        These changes conform HUD’s                                                                                   script requirement set forth in the
                                                                                                VIII. Regulatory Flexibility Act—
                                        regulations to the revised statutory                                                                          proposed rule. In addition, the proposed
                                                                                                Comments of the Office of Advocacy of
                                        requirements, and resolve any questions                                                                       rule language explicitly allowing
                                                                                                the Small Business Administration
                                        about whether lenders must still follow                                                                       negotiated discounts, including volume
                                        the outdated provisions. No commenters                     As part of its statutory duty to review            based discounts between loan
                                        raised objections to the changes                        an agency’s compliance with the                       originators and other settlement service
                                        proposed; the most substantial                          Regulatory Flexibility Act (RFA), as                  providers, has not been included in the
                                        comments received were from consumer                    amended by the Small Business                         final rule. HUD also revised a number
                                        groups that advocated expanding the                     Regulatory Enforcement Fairness Act                   of provisions on tolerances and clarified
                                        coverage of the transfer of servicing                   (SBREFA), the Office of Advocacy of the               the situations where a loan originator
                                        requirements. In light of the numerous                  U.S. Small Business Administration                    would no longer be bound by the
                                        comments from lenders and those trade                   (Advocacy) reviewed the proposed rule                 tolerances.
                                        groups representing lenders that                        and submitted its comments to the                        With respect to the characterization of
                                        opposed inclusion of the transfer of                    Department. In its letter of June 11,                 YSP as a credit to the borrower, HUD
                                        servicing disclosure on the GFE, HUD                    2008, Advocacy expressed the concern                  has designed and tested the GFE form to
                                        has determined not to include that                      that HUD may have underestimated the                  enable borrowers to accurately
                                        disclosure on the revised GFE at this                   economic impact of the proposed rule                  determine the lowest cost loan. Testing
                                        time. However, HUD is not expanding                     on small entities. Advocacy indicated                 of the GFE indicated no bias in the
                                        the coverage of the transfer of servicing               that it had met with a wide range of                  selection of loans with lowest
                                        regulations at this time. While HUD may                 small entity representatives from                     settlement cost, between ‘‘broker’’ loans
                                        consider doing so at a later time,                      different sectors of the industry and                 (YSP reported) and ‘‘lender’’ loans (no
                                        significantly expanding the coverage of                 several of these representatives                      YSP reported).
                                        the transfer of servicing regulations                   indicated that the proposed rule would                   With respect to statements in the
                                        would be beyond the scope of the                        have a greater economic impact than the               Economic Analysis for the RESPA
                                        technical amendments in the proposed                    $548 million in annual recurring                      proposed rule concerning cost impacts
                                        rule and would likely require additional                compliance costs for small businesses as              of the rule on small businesses, HUD
                                        comment from affected parties.                          stated by HUD in the Economic                         recognizes that there will be one-time
                                           The language on the revised model                    Analysis accompanying the proposal.                   adjustment costs and recurring costs on
                                        transfer of servicing disclosure form has               Accordingly, Advocacy advised HUD to                  small businesses. Once incurred, the
                                        been modified somewhat from the                         document the additional costs to small                adjustment costs will not be incurred
                                        proposed rule in light of the comments                  businesses.                                           again. Thus, combining recurring and
                                        received. The transfer of servicing                        In addition, Advocacy expressed the                adjustment costs would be an accurate
                                        disclosure form is not intended to                      following concerns about the proposed                 measure for the burden of the rule
                                        provide a comprehensive list of all                     rule: (1) The proposed rule’s tolerance               during the first year only. The recurring
                                        functions that might be performed by                    levels may be problematic for loan                    costs per loan are equivalent for small
                                        any servicer, but HUD agrees with those                 originators because some settlement                   and large businesses. The aggregate
                                        commenters that suggested that the                      costs can change on a daily basis,                    recurring compliance cost depends on
                                        description of the functions performed                  making the loan originator responsible                loan volume and is not underestimated
                                        by servicers was too narrow.                            for the actions of a third party beyond               for small businesses relative to large
                                        Accordingly, HUD has revised that                       its control; (2) the proposed rule’s                  businesses. Advocacy and some other
                                        sentence on the form to provide a more                  requirement that a closing script be read             commenters questioned aspects of the
                                        accurate description of the functions                   to the borrower at the closing will                   cost estimates of the rule, but did not
                                        performed by loan servicers.                            present problems for small entities; (3)              provide alternative cost estimates
                                           HUD has also determined that the                     the proposal to allow volume discounts                supported by data. HUD carefully
                                        proposed elimination of the phase-in                    will favor large settlement service                   considered an alternative analysis
                                        period for aggregate accounting for                     providers and loan originators at the                 prepared for NAR that was not based on
                                        escrow accounts should be included in                   expense of small businesses; and (4) the              new data. HUD accepted and
                                        the final rule. This change simply                      proposed rule’s characterization of YSP               implemented suggestions in this
                                        eliminates a regulatory provision that is               as a credit to the borrower will put                  analysis to perform a sensitivity analysis
                                        no longer applicable. The only                          mortgage brokers at a competitive                     of the ratio of applications per loan in
                                        significant comments HUD received on                    disadvantage compared to lenders, and                 its Final Regulatory Flexibility Analysis.
                                        this provision were in favor of making                  may create confusion among borrowers.                    With respect to Advocacy’s
                                        the change proposed.                                    Advocacy supported moving forward                     recommendation that HUD allow a
                                           Finally, HUD has determined that the                 without the closing script requirement,               longer implementation period to
                                        new provision clarifying the                            the volume discount language, and the                 mitigate the cost burden associated with
                                        applicability of ESIGN to RESPA should                  yield spread premium classification. In               the new requirements on small
                                        also be included in the final rule. While               addition, Advocacy recommended that                   businesses, HUD has determined that a
                                        the electronic methods of disclosure                    HUD clarify the provision on tolerances               one-year implementation period is
                                        permitted pursuant to ESIGN could be                    and encouraged HUD to provide a delay                 sufficient to make the transition to the
                                        used for disclosures required under                     in the implementation date in the final               new requirements. Many commenters
                                        RESPA, even in the absence of this                      rule to allow small businesses the                    agreed. Instituting a longer
                                        regulatory clarification, this provision                opportunity to absorb the costs and                   implementation period for small
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                                        will allay any doubts that industry                     comply with the new requirements.                     businesses would significantly weaken
                                        participants may have had about the                        HUD carefully considered the                       the effective and orderly
                                        permissibility of electronic disclosures                comments provided by Advocacy and                     implementation of the new rule.
                                        under RESPA. The only significant                       certain modifications have been made in               Allowing small firms to operate under
                                        comments HUD received on this                           the final rule that address Advocacy’s                different rules would create confusion


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                                        in the closing of loans, especially in                  discrimination. The RESPA disclosure                  externalities of a foreclosure to
                                        transactions that involve both large and                statute is meant to address this                      neighboring properties and local
                                        small firms.                                            information asymmetry, but the                        governments, as well as private costs to
                                                                                                evidence shows that the current RESPA                 the borrower and lender. The size of this
                                        IX. Findings and Certifications
                                                                                                regulations have not provided                         social benefit would be in addition to
                                        Paperwork Reduction Act                                 consumers necessary information in a                  the other benefits enumerated in the
                                                                                                way they can use effectively.                         Regulatory Impact Analysis.
                                          The information collection
                                                                                                   The final rule will create a more level-              The costs and benefits are discussed
                                        requirements contained in this rule                     playing field through a more transparent              in more detail in the Regulatory Impact
                                        were submitted to the Office of                         and standard disclosure of loan details               Analysis that accompanies this rule.
                                        Management and Budget (OMB) under                       and settlement costs; tolerances on                      Any changes made to the rule
                                        the Paperwork Reduction Act of 1995                     settlement charges leading to prices that             subsequent to its submission to OMB
                                        (44 U.S.C. 3501–3520), and were                         consumers can rely on; and adding a                   are identified in the docket file, which
                                        assigned OMB control number 2502–                       comparison page to the HUD–1 that                     is available for public inspection in the
                                        0265. In accordance with the Paperwork                  allows the consumer to compare the                    Regulations Division, Office of General
                                        Reduction Act, an agency may not                        amounts listed for particular settlement              Counsel, Department of Housing and
                                        conduct or sponsor, and a person is not                 costs on the GFE with the total costs                 Urban Development, 451 7th Street,
                                        required to respond to, a collection of                 listed for those charges on the HUD–1,                SW., Room 10276, Washington, DC
                                        information, unless the collection                      and to double check the loan details at               20410–0500. The Economic Analysis
                                        displays a currently valid OMB control                  settlement. These changes will                        prepared for this rule is also available
                                        number.                                                 encourage comparison shopping by                      for public inspection in the Regulations
                                        Environmental Impact                                    informed consumers, which will place a                Division. Due to security measures at
                                                                                                competitive pressure on market prices,                the HUD Headquarters building, an
                                          A Finding of No Significant Impact                    and enable consumers to benefit.                      advance appointment to review these
                                        with respect to the environment was                        It is estimated that borrowers will                items must be scheduled by calling the
                                        made at the proposed rule stage in                      save $8.35 billion annually in                        Regulations Division at 202–402–3055
                                        accordance with HUD regulations at 24                   origination and settlement charges. This              (this is not a toll-free number).
                                        CFR part 50, which implement section                    transfer to borrowers from price-                     Individuals with speech or hearing
                                        102(2)(C) of the National Environmental                 discriminating producers constitutes                  impairments may access this number
                                        Policy Act of 1969 (42 U.S.C.                           12.5 percent of total charges, and                    through TTY by calling the Federal
                                        4332(2)(C)). That finding remains                       represents consumer savings of $668 per               Information Relay Service at 800–877–
                                        applicable to this final rule and is                    loan with a range between $500 and                    8339.
                                        available for public inspection between                 $700 per loan.
                                        the hours of 8:00 a.m. and 5:00 p.m.                       The total one-time adjustment costs to             Federalism Impact
                                        weekdays in the Regulations Division,                   the lending and settlement industry of                   This rule does not have federalism
                                        Office of General Counsel, Department                   the proposed GFE and HUD–1 are                        implications and does not impose
                                        of Housing and Urban Development,                       estimated to be $570 million, or $46 per              substantial direct compliance costs on
                                        451 7th Street, SW., Room 10276,                        loan. Total recurring costs are estimated             state and local governments or preempt
                                        Washington, DC 20410–0500. Due to                       to be $918 million annually, or $74 per               State law within the meaning of
                                        security measures at the HUD                            loan. Even if all of the adjustment and               Executive Order 13132 (entitled
                                        Headquarters building, an advance                       recurring costs of the rule were passed               ‘‘Federalism’’).
                                        appointment to review the finding must                  along to consumers, individual
                                        be scheduled by calling the Regulations                 consumers would still enjoy substantial               Regulatory Flexibility Act
                                        Division at 202–402–3055 (this is not a                 benefits. If all of the adjustment and                   The Secretary, in accordance with the
                                        toll-free number). Individuals with                     recurrent costs are passed on to                      Regulatory Flexibility Act (5 U.S.C.
                                        speech or hearing impairments may                       borrowers in the first year and no                    605(b)), has reviewed and approved this
                                        access this number through TTY by                       industry efficiency gains are passed to               rule and determined that the rule would
                                        calling the Federal Information Relay                   consumers, the net consumer savings for               have a significant economic impact on
                                        Service at 800–877–8339.                                the average consumer in the first year                a substantial number of small entities
                                                                                                would be $548 and $594 per loan every                 within the meaning of the Regulatory
                                        Executive Order 12866, Regulatory
                                                                                                year afterwards.                                      Flexibility Act. In accordance with
                                        Planning and Review                                        In addition to the private benefits,               section 603 of the Regulatory Flexibility
                                           The Office of Management and Budget                  there are far reaching social benefits.               Act, a Final Regulatory Flexibility
                                        (OMB) reviewed this rule under                          The lower profitability of seeking out                Analysis (FRFA) has been prepared. The
                                        Executive Order 12866 (entitled                         less-informed borrowers for less-                     FRFA is presented in an Appendix to
                                        ‘‘Regulatory Planning and Review’’).                    competitive loans should lead to a                    this final rule and is included as
                                        This rule was determined economically                   reduction in this non-productive                      Chapter 6 in the Regulatory Impact
                                        significant under the executive order.                  activity. If the decline in this activity             Analysis prepared under Executive
                                           There is strong evidence of                          represented one percent of current loan               Order 12866.
                                        information asymmetry between                           originator effort, this would result in
                                        mortgage originators and settlement                     $420 million in social surplus. Another               Unfunded Mandates Reform Act
                                        service providers and consumers. This                   social benefit of the rule is its                       Title II of the Unfunded Mandates
                                        information asymmetry allows loan                       contribution to sustainable                           Reform Act of 1995 (2 U.S.C. 1531–
                                        originators and settlement service                      homeownership. Consumers who better                   1538) (UMRA) requires federal agencies
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                                        providers to capture much of the                        understand the details of their loans,                to assess the effects of their regulatory
                                        consumer surplus in this market by                      and save money on their and settlement                actions on state, local, and tribal
                                        charging different prices to similar                    costs, are more likely to avoid risky                 governments and on the private sector.
                                        consumers for similar products, a                       loans, default, and foreclosure. There                This rule does not, within the meaning
                                        process economists call price                           are substantial negative economic                     of the UMRA, impose any federal


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                                        mandates on any state, local, or tribal                 3500.22, and 3500.23, and Appendices                  amount sought, and any information
                                        governments nor on the private sector.                  E and MS–1 are applicable commencing                  contained in any credit report obtained
                                                                                                January 16, 2009.                                     by the loan originator prior to providing
                                        Congressional Review of Final Rules                       (2) Section 203.27, the definitions                 the GFE, unless the information changes
                                          This rule constitutes a ‘‘major rule’’ as             other than Required use in § 3500.2,                  or is found to be inaccurate after the
                                        defined in the Congressional Review                     § 3500.7, §§ 3500.8(a) and(c), § 3500.9,              GFE has been provided; or
                                        Act (5 U.S.C. Chapter 8). This rule has                 and Appendices A and C, are applicable                   (ii) Market price fluctuations by
                                        a 60-day delayed effective date and will                commencing January 1, 2010.                           themselves.
                                        be submitted to the Congress in                         ■ 5. In § 3500.2, paragraph (b) is                    *       *   *     *     *
                                        accordance with the requirements of the                 amended by revising the definitions of                   Good faith estimate or GFE means an
                                        Congressional Review Act.                               Application, Good faith estimate,                     estimate of settlement charges a
                                        List of Subjects                                        Mortgage broker, and Required use, and                borrower is likely to incur, as a dollar
                                                                                                by adding, in alphabetical order, the                 amount, and related loan information,
                                        24 CFR Part 203                                         following new definitions of Balloon                  based upon common practice and
                                          Hawaiian Natives, Home                                payment, Changed circumstances, Loan                  experience in the locality of the
                                        improvement, Indians-lands, Loan                        originator, Origination service,                      mortgaged property, as provided on the
                                        programs—housing and community                          Prepayment penalty, Third party, Title                form prescribed in § 3500.7 and
                                        development, Mortgage insurance,                        service, and Tolerance, to read as                    prepared in accordance with the
                                        Reporting and recordkeeping                             follows:                                              Instructions in Appendix C to this part.
                                        requirements, Solar energy                                                                                    *       *   *     *     *
                                                                                                § 3500.2    Definitions.
                                        24 CFR Part 3500                                        *       *    *    *     *                                Loan originator means a lender or
                                          Consumer protection, Condominiums,                       (b) * * *                                          mortgage broker.
                                        Housing, Mortgagees, Mortgage                              Application means the submission of                *       *   *     *     *
                                        servicing, Reporting and recordkeeping                  a borrower’s financial information in                    Mortgage broker means a person (not
                                        requirements.                                           anticipation of a credit decision relating            an employee of a lender) or entity that
                                                                                                to a federally related mortgage loan,                 renders origination services and serves
                                        ■ For the reasons set out in the
                                        preamble, parts 203 and 3500 of title 24                which shall include the borrower’s                    as an intermediary between a borrower
                                        of the Code of Federal Regulations are                  name, the borrower’s monthly income,                  and a lender in a transaction involving
                                        amended as follows:                                     the borrower’s social security number to              a federally related mortgage loan,
                                                                                                obtain a credit report, the property                  including such a person or entity that
                                        PART 203—SINGLE FAMILY                                  address, an estimate of the value of the              closes the loan in its own name in a
                                        MORTGAGE INSURANCE                                      property, the mortgage loan amount                    table funded transaction. A loan
                                                                                                sought, and any other information                     correspondent approved under 24 CFR
                                        ■ 1. The authority citation shall                       deemed necessary by the loan                          202.8 for Federal Housing
                                        continue to read as follows:                            originator. An application may either be              Administration programs is a mortgage
                                          Authority: 12 U.S.C. 1709, 1710, 1715b,               in writing or electronically submitted,               broker for purposes of this part.
                                        1715z–16, and 1715u; 42 U.S.C. 3535(d).                 including a written record of an oral                 *       *   *     *     *
                                        ■ 2. In § 203.27, paragraph (a)(2) is                   application.                                             Origination service means any service
                                        revised to read as follows:                                Balloon payment has the same                       involved in the creation of a mortgage
                                                                                                meaning as ‘‘balloon payment’’ under                  loan, including but not limited to the
                                        § 203.27   Charges, fees or discounts.                  Regulation Z (12 CFR part 226).                       taking of the loan application, loan
                                          (a) * * *                                                Changed circumstances means: (1)(i)                processing, and the underwriting and
                                          (2) A charge to compensate the                        Acts of God, war, disaster, or other                  funding of the loan, and the processing
                                        mortgagee for expenses incurred in                      emergency;                                            and administrative services required to
                                        originating and closing the loan,                          (ii) Information particular to the                 perform these functions.
                                        provided that the Commissioner may                      borrower or transaction that was relied
                                                                                                                                                      *       *   *     *     *
                                        establish limitations on the amount of                  on in providing the GFE and that
                                                                                                                                                         Prepayment penalty has the same
                                        any such charge.                                        changes or is found to be inaccurate
                                                                                                                                                      meaning as ‘‘prepayment penalty’’
                                                                                                after the GFE has been provided. This
                                        PART 3500—REAL ESTATE                                                                                         under Regulation Z (12 CFR part 226).
                                                                                                may include information about the
                                        SETTLEMENT PROCEDURES ACT                               credit quality of the borrower, the                   *       *   *     *     *
                                                                                                amount of the loan, the estimated value                  Required use means a situation in
                                        ■ 3. The authority citation shall                       of the property, or any other information             which a person’s access to some distinct
                                        continue to read as follows:                                                                                  service, property, discount, rebate, or
                                                                                                that was used in providing the GFE;
                                          Authority: 12 U.S.C. 1709, 1710, 1715b,                  (iii) New information particular to the            other economic incentive, or the
                                        1715z–16, and 1715u; 42 U.S.C. 3535(d).                 borrower or transaction that was not                  person’s ability to avoid an economic
                                                                                                relied on in providing the GFE; or                    disincentive or penalty, is contingent
                                        ■ 4. Section 3500.1 is revised to read as
                                                                                                   (iv) Other circumstances that are                  upon the person using or failing to use
                                        follows:
                                                                                                particular to the borrower or                         a referred provider of settlement
                                        § 3500.1   Designation and applicability.               transaction, including boundary                       services. In order to qualify for the
                                          (a) Designation. This part may be                     disputes, the need for flood insurance,               affiliated business exemption under
                                        referred to as Regulation X.                            or environmental problems.                            § 3500.15, a settlement service provider
                                          (b) Applicability. The following                         (2) Changed circumstances do not                   may offer a combination of bona fide
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                                        sections, as revised by the final rule                  include:                                              settlement services at a total price (net
                                        published on November 17, 2008, are                        (i) The borrower’s name, the                       of the value of the associated discount,
                                        applicable as follows:                                  borrower’s monthly income, the                        rebate, or other economic incentive)
                                          (1) The definition of Required use in                 property address, an estimate of the                  lower than the sum of the market prices
                                        § 3500.2, §§ 3500.8(b), 3500.17, 3500.21,               value of the property, the mortgage loan              of the individual settlement services


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                                        and will not be found to have required                  credit report. The lender may not charge                 (c) Availability of GFE terms. Except
                                        the use of the settlement service                       additional fees until after the applicant             as provided in this paragraph, the
                                        providers as long as: (1) The use of any                has received the GFE. If the GFE is                   estimate of the charges and terms for all
                                        such combination is optional to the                     mailed to the applicant, the applicant is             settlement services must be available for
                                        purchaser; and (2) the lower price for                  considered to have received the GFE 3                 at least 10 business days from when the
                                        the combination is not made up by                       calendar days after it is mailed, not                 GFE is provided, but it may remain
                                        higher costs elsewhere in the settlement                including Sundays and the legal public                available longer, if the loan originator
                                        process.                                                holidays specified in 5 U.S.C. 6103(a).               extends the period of availability. The
                                        *      *     *    *     *                                  (5) The lender may at any time collect             estimate for the following charges are
                                           Third party means a settlement                       from the loan applicant any information               excepted from this requirement: the
                                        service provider other than a loan                      that it requires in addition to the                   interest rate, charges and terms
                                        originator.                                             required application information.                     dependent upon the interest rate, which
                                        *      *     *    *     *                               However, the lender is not permitted to               includes the charge or credit for the
                                           Title service means any service                      require, as a condition for providing a               interest rate chosen, the adjusted
                                        involved in the provision of title                      GFE, that an applicant submit                         origination charges, and per diem
                                        insurance (lender’s or owner’s policy),                 supplemental documentation to verify                  interest.
                                        including but not limited to: title                     the information provided on the                          (d) Content and form of GFE. The GFE
                                        examination and evaluation;                             application.                                          form is set out in Appendix C to this
                                        preparation and issuance of title                          (b) Mortgage broker to provide. (1)                part. The loan originator must prepare
                                        commitment; clearance of underwriting                   Except as otherwise provided in                       the GFE in accordance with the
                                        objections; preparation and issuance of                 paragraphs (a), (b), or (h) of this section,          requirements of this section and the
                                        a title insurance policy or policies; and               either the lender or the mortgage broker              Instructions in Appendix C to this part.
                                        the processing and administrative                       must provide a GFE not later than 3                   The instructions in Appendix C to this
                                        services required to perform these                      business days after a mortgage broker                 part allow for flexibility in the
                                        functions. The term also includes the                   receives either an application or                     preparation and distribution of the GFE
                                        service of conducting a settlement.                     information sufficient to complete an                 in hard copy and electronic format.
                                                                                                application. The lender is responsible                   (e) Tolerances for amounts included
                                        *      *     *    *     *                                                                                     on GFE. (1) Except as provided in
                                           Tolerance means the maximum                          for ascertaining whether the GFE has
                                                                                                been provided. If the mortgage broker                 paragraph (f) of this section, the actual
                                        amount by which the charge for a                                                                              charges at settlement may not exceed
                                        category or categories of settlement costs              has provided a GFE, the lender is not
                                                                                                required to provide an additional GFE.                the amounts included on the GFE for:
                                        may exceed the amount of the estimate                                                                            (i) The origination charge;
                                        for such category or categories on a GFE.                  (2) The mortgage broker must provide
                                                                                                the GFE by hand delivery, by placing it                  (ii) While the borrower’s interest rate
                                        ■ 6. In § 3500.7, paragraphs (a) through                                                                      is locked, the credit or charge for the
                                                                                                in the mail, or, if the applicant agrees,
                                        (e) are revised; paragraph (f) is                       by fax, email, or other electronic means.             interest rate chosen;
                                        redesignated as paragraph (h); and new                                                                           (iii) While the borrower’s interest rate
                                                                                                   (3) The mortgage broker is not
                                        paragraphs (f), (g), and (i) are added, as                                                                    is locked, the adjusted origination
                                                                                                required to provide the applicant with
                                        follows:                                                                                                      charge; and
                                                                                                a GFE if, before the end of the 3-
                                                                                                                                                         (iv) Transfer taxes.
                                        § 3500.7   Good faith estimate or GFE.                  business-day period:                                     (2) Except as provided in paragraph (f)
                                           (a) Lender to provide. (1) Except as                    (i) The mortgage broker or lender                  below, the sum of the charges at
                                        otherwise provided in paragraphs (a),                   denies the application; or                            settlement for the following services
                                        (b), or (h) of this section, not later than                (ii) The applicant withdraws the                   may not be greater than 10 percent
                                        3 business days after a lender receives                 application.                                          above the sum of the amounts included
                                        an application, or information sufficient                  (4) The mortgage broker is not                     on the GFE:
                                        to complete an application, the lender                  permitted to charge, as a condition for                  (i) Lender-required settlement
                                        must provide the applicant with a GFE.                  providing a GFE, any fee for an                       services, where the lender selects the
                                        In the case of dealer loans, the lender                 appraisal, inspection, or other similar               third party settlement service provider;
                                        must either provide the GFE or ensure                   settlement service. The mortgage broker                  (ii) Lender-required services, title
                                        that the dealer provides the GFE.                       may, at its option, charge a fee limited              services and required title insurance,
                                           (2) The lender must provide the GFE                  to the cost of a credit report. The                   and owner’s title insurance, when the
                                        to the loan applicant by hand delivery,                 mortgage broker may not charge                        borrower uses a settlement service
                                        by placing it in the mail, or, if the                   additional fees until after the applicant             provider identified by the loan
                                        applicant agrees, by fax, e-mail, or other              has received the GFE. If the GFE is                   originator; and
                                        electronic means.                                       mailed to the applicant, the applicant is                (iii) Government recording charges.
                                           (3) The lender is not required to                    considered to have received the GFE 3                    (3) The amounts charged for all other
                                        provide the applicant with a GFE if,                    calendar days after it is mailed, not                 settlement services included on the GFE
                                        before the end of the 3-business-day                    including Sundays and the legal public                may change at settlement.
                                        period:                                                 holidays specified in 5 U.S.C. 6103(a).                  (f) Binding GFE. The loan originator is
                                           (i) The lender denies the application;                  (5) The mortgage broker may at any                 bound, within the tolerances provided
                                        or                                                      time collect from the loan applicant any              in paragraph (e) of this section, to the
                                           (ii) The applicant withdraws the                     information that it requires in addition              settlement charges and terms listed on
                                        application.                                            to the required application information.              the GFE provided to the borrower,
                                           (4) The lender is not permitted to                   However, the mortgage broker is not                   unless a new GFE is provided prior to
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                                        charge, as a condition for providing a                  permitted to require, as a condition for              settlement consistent with this
                                        GFE, any fee for an appraisal,                          providing a GFE, that an applicant                    paragraph (f). If a loan originator
                                        inspection, or other similar settlement                 submit supplemental documentation to                  provides a revised GFE consistent with
                                        service. The lender may, at its option,                 verify the information provided on the                this paragraph, the loan originator must
                                        charge a fee limited to the cost of a                   application.                                          document the reason that a new GFE


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                                                         Federal Register / Vol. 73, No. 222 / Monday, November 17, 2008 / Rules and Regulations                                         68241

                                        was provided. Loan originators must                     provide the GFE to the borrower with a                information necessary to complete the
                                        retain documentation of any reasons for                 clear and conspicuous disclosure stating              HUD–1 or HUD–1A.
                                        providing a new GFE for no less than 3                  that at any time up until 60 calendar                    (1) In general. The settlement agent
                                        years after settlement.                                 days prior to closing, the loan originator            shall state the actual charges paid by the
                                           (1) Changed circumstances affecting                  may issue a revised GFE. If no such                   borrower and seller on the HUD–1, or by
                                        settlement costs. If changed                            separate disclosure is provided, the loan             the borrower on the HUD–1A. The
                                        circumstances result in increased costs                 originator cannot issue a revised GFE,                settlement agent must separately itemize
                                        for any settlement services such that the               except as otherwise provided in                       each third party charge paid by the
                                        charges at settlement would exceed the                  paragraph (f) of this section.                        borrower and seller. All origination
                                        tolerances for those charges, the loan                    (g) GFE is not a loan commitment.                   services performed by or on behalf of
                                        originator may provide a revised GFE to                 Nothing in this section shall be                      the loan originator must be included in
                                        the borrower. If a revised GFE is to be                 interpreted to require a loan originator              the loan originator’s own charge.
                                        provided, the loan originator must do so                to make a loan to a particular borrower.              Administrative and processing services
                                        within 3 business days of receiving                     The loan originator is not required to                related to title services must be included
                                        information sufficient to establish                     provide a GFE if the loan originator does             in the title underwriter’s or title agent’s
                                        changed circumstances. The revised                      not have available a loan for which the               own charge. The amount stated on the
                                        GFE may increase charges for services                   borrower is eligible.                                 HUD–1 or HUD–1A for any itemized
                                        listed on the GFE only to the extent that                                                                     service cannot exceed the amount
                                                                                                *     *     *     *     *
                                        the changed circumstances actually                                                                            actually received by the settlement
                                                                                                  (i) Violations of section 5 of RESPA
                                        resulted in higher charges.                                                                                   service provider for that itemized
                                           (2) Changed circumstances affecting                  (12 U.S.C. 2604). A loan originator that
                                                                                                                                                      service, unless the charge is an average
                                        loan. If changed circumstances result in                violates the requirements of this section
                                                                                                                                                      charge in accordance with paragraph
                                        a change in the borrower’s eligibility for              shall be deemed to have violated section
                                                                                                                                                      (b)(2) of this section.
                                        the specific loan terms identified in the               5 of RESPA. If any charges at settlement                 (2) Use of average charge. (i) The
                                        GFE, the loan originator may provide a                  exceed the charges listed on the GFE by               average charge for a settlement service
                                        revised GFE to the borrower. If a revised               more than the permitted tolerances, the               shall be no more than the average
                                        GFE is to be provided, the loan                         loan originator may cure the tolerance                amount paid for a settlement service by
                                        originator must do so within 3 business                 violation by reimbursing to the borrower              one settlement service provider to
                                        days of receiving information sufficient                the amount by which the tolerance was                 another settlement service provider on
                                        to establish changed circumstances.                     exceeded, at settlement or within 30                  behalf of borrowers and sellers for a
                                           (3) Borrower-requested changes. If a                 calendar days after settlement. A                     particular class of transactions involving
                                        borrower requests changes to the                        borrower will be deemed to have                       federally related mortgage loans. The
                                        mortgage loan identified in the GFE that                received timely reimbursement if the                  total amounts paid by borrowers and
                                        change the settlement charges or the                    loan originator delivers or places the                sellers for a settlement service based on
                                        terms of the loan, the loan originator                  payment in the mail within 30 calendar                the use of an average charge may not
                                        may provide a revised GFE to the                        days after settlement.                                exceed the total amounts paid to the
                                        borrower. If a revised GFE is to be                     ■ 7. Section 3500.8 is revised to read as             providers of that service for the
                                        provided, the loan originator must do so                follows:                                              particular class of transactions.
                                        within 3 business days of the borrower’s                                                                         (ii) The settlement service provider
                                        request.                                                § 3500.8 Use of HUD–1 or HUD–1A
                                                                                                settlement statements.                                shall define the particular class of
                                           (4) Expiration of original GFE. If a                                                                       transactions for purposes of calculating
                                        borrower does not express an intent to                     (a) Use by settlement agent. The                   the average charge as all transactions
                                        continue with an application within 10                  settlement agent shall use the HUD–1                  involving federally related mortgage
                                        business days after the GFE is provided,                settlement statement in every settlement              loans for:
                                        or such longer time specified by the                    involving a federally related mortgage                   (A) A period of time as determined by
                                        loan originator pursuant to paragraph (c)               loan in which there is a borrower and                 the settlement service provider, but not
                                        above, the loan originator is no longer                 a seller. For transactions in which there             less than 30 calendar days and not more
                                        bound by the GFE.                                       is a borrower and no seller, such as                  than 6 months;
                                           (5) Interest rate dependent charges                  refinancing loans or subordinate lien                    (B) A geographic area as determined
                                        and terms. If the interest rate has not                 loans, the HUD–1 may be utilized by                   by the settlement service provider; and
                                        been locked by the borrower, or a locked                using the borrower’s side of the HUD–                    (C) A type of loan as determined by
                                        interest rate has expired, the charge or                1 statement. Alternatively, the form                  the settlement service provider.
                                        credit for the interest rate chosen, the                HUD–1A may be used for these                             (iii) A settlement service provider
                                        adjusted origination charges, per diem                  transactions. The HUD–1 or HUD–1A                     may use an average charge in the same
                                        interest, and loan terms related to the                 may be modified as permitted under                    class of transactions for which the
                                        interest rate may change. If the borrower               this part. Either the HUD–1 or the HUD–               charge was calculated. If the settlement
                                        later locks the interest rate, a new GFE                1A, as appropriate, shall be used for                 service provider uses the average charge
                                        must be provided showing the revised                    every RESPA-covered transaction,                      for any transaction in the class, the
                                        interest rate-dependent charges and                     unless its use is specifically exempted.              settlement service provider must use the
                                        terms. All other charges and terms must                 The use of the HUD–1 or HUD–1A is                     same average charge in every
                                        remain the same as on the original GFE,                 exempted for open-end lines of credit                 transaction within that class for which
                                        except as otherwise provided in                         (home-equity plans) covered by the                    a GFE was provided.
                                        paragraph (f) of this section.                          Truth in Lending Act and Regulation Z.                   (iv) The use of an average charge is
                                           (6) New home purchases. In                              (b) Charges to be stated. The                      not permitted for any settlement service
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                                        transactions involving new home                         settlement agent shall complete the                   if the charge for the service is based on
                                        purchases, where settlement is                          HUD–1 or HUD–1A, in accordance with                   the loan amount or property value. For
                                        anticipated to occur more than 60                       the instructions set forth in Appendix A              example, an average charge may not be
                                        calendar days from the time a GFE is                    to this part. The loan originator must                used for transfer taxes, interest charges,
                                        provided, the loan originator may                       transmit to the settlement agent all                  reserves or escrow, or any type of


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                                        68242            Federal Register / Vol. 73, No. 222 / Monday, November 17, 2008 / Rules and Regulations

                                        insurance, including mortgage                              (8) Provisions in mortgage documents.              Disclosure Statement. A format for the
                                        insurance, title insurance, or hazard                   The servicer must examine the mortgage                Servicing Disclosure Statement appears
                                        insurance.                                              loan documents to determine the                       as Appendix MS–1 to this part. The
                                          (v) The settlement service provider                   applicable cushion for each escrow                    specific language of the Servicing
                                        must retain all documentation used to                   account. If the mortgage loan documents               Disclosure Statement is not required to
                                        calculate the average charge for a                      provide for lower cushion limits, then                be used. The information set forth in
                                        particular class of transactions for at                 the terms of the loan documents apply.                ‘‘Instructions to Preparer’’ on the
                                        least 3 years after any settlement for                  Where the terms of any mortgage loan                  Servicing Disclosure Statement need not
                                        which that average charge was used.                     document allow greater payments to an                 be included with the information given
                                          (c) Violations of section 4 of RESPA                  escrow account than allowed by this                   to applicants, and material in square
                                        (12 U.S.C. 2604). A violation of any of                 section, then this section controls the               brackets is optional or alternative
                                        the requirements of this section will be                applicable limits. Where the mortgage                 language. The model format may be
                                        deemed to be a violation of section 4 of                loan documents do not specifically                    annotated with additional information
                                        RESPA. An inadvertent or technical                      establish an escrow account, whether a                that clarifies or enhances the model
                                        error in completing the HUD–1 or HUD–                   servicer may establish an escrow                      language. The lender, table funding
                                        1A shall not be deemed a violation of                   account for the loan is a matter for                  mortgage broker, or dealer should use
                                        section 4 of RESPA if a revised HUD–                    determination by other Federal or State               the language that best describes the
                                        1 or HUD–1A is provided in accordance                   law. If the mortgage loan document is                 particular circumstances.
                                        with the requirements of this section                   silent on the escrow account limits and                  (2) The Servicing Disclosure
                                        within 30 calendar days after                           a servicer establishes an escrow account              Statement must indicate whether the
                                        settlement.                                             under other Federal or State law, then                servicing of the loan may be assigned,
                                        ■ 8. In § 3500.9, paragraph (a)(1) is                   the limitations of this section apply                 sold, or transferred to any other person
                                        revised as follows:                                     unless applicable Federal or State law                at any time while the loan is
                                                                                                provides for a lower amount. If the loan              outstanding. If the lender, table funding
                                        § 3500.9 Reproduction of settlement                     documents provide for escrow accounts
                                        statements.
                                                                                                                                                      mortgage broker, or dealer in a first lien
                                                                                                up to the RESPA limits, then the                      dealer loan will engage in the servicing
                                          (a) * * *                                             servicer may require the maximum                      of the mortgage loan for which the
                                          (1) The person reproducing the HUD–                   amounts consistent with this section,                 applicant has applied, the disclosure
                                        1 may insert its business name and logo                 unless an applicable Federal or State                 may consist of a statement that the
                                        in section A and may rearrange, but not                 law sets a lesser amount.                             entity will service such loan and does
                                        delete, the other information that                      *      *    *     *     *                             not intend to sell, transfer, or assign the
                                        appears in section A.                                      (d) Methods of escrow account                      servicing of the loan. If the lender, table
                                        *      *    *     *    *                                analysis. (1) The following sets forth the            funding mortgage broker, or dealer in a
                                        ■ 9. Section 3500.17 is amended:                        steps servicers must use to determine                 first lien dealer loan will not engage in
                                        ■ a. In paragraph (b) by removing the                   whether their use of aggregate analysis               the servicing of the mortgage loan for
                                        definitions of Acceptable accounting                    conforms with the limitations in                      which the applicant has applied, the
                                        method, Conversion date, Phase-in                       § 3500.17(c)(1). The steps set forth in               disclosure may consist of a statement
                                        period, Post-rule account, and Pre-rule                 this section result in maximum limits.                that such entity intends to assign, sell,
                                        account;                                                Servicers may use accounting                          or transfer servicing of such mortgage
                                        ■ b. In paragraph (c) by revising the                   procedures that result in lower target                loan before the first payment is due. In
                                        heading and paragraphs (c)(4), (5), (6),                balances. In particular, servicers may                all other instances, the disclosure must
                                        and (8);                                                use a cushion less than the permissible               state that the servicing of the loan may
                                        ■ c. By removing paragraph (d)(2);                      cushion or no cushion at all. This                    be assigned, sold or transferred while
                                        ■ d. By redesignating paragraphs (d)                    section does not require the use of a                 the loan is outstanding.
                                        introductory text and (d)(1) as                         cushion.                                                 (c) Servicing Disclosure Statement;
                                        paragraphs (d)(1) and (d)(2);                              (2) Aggregate analysis. (i) In                     Delivery. The lender, table funding
                                        ■ e. By adding a new heading to                         conducting the escrow account analysis                mortgage broker, or dealer that
                                        paragraph (d) and by revising newly                     using aggregate analysis, the target                  anticipates a first lien dealer loan shall
                                        designated (d)(1) and (d)(2) introductory               balances may not exceed the balances                  deliver the Servicing Disclosure
                                        text; and                                               computed according to the following                   Statement within 3 business days from
                                        ■ f. By removing paragraph (e)(3), to                   arithmetic operations:                                receipt of the application by hand
                                        read as follows:                                        *      *    *     *     *                             delivery, by placing it in the mail, or, if
                                                                                                ■ 10. Section 3500.21 is amended by                   the applicant agrees, by fax, e-mail, or
                                        § 3500.17   Escrow accounts.
                                                                                                revising paragraphs (b) and (c) to read               other electronic means. In the event the
                                        *      *     *    *     *                               as follows:                                           borrower is denied credit within the 3
                                          (c) Limits on payments to escrow
                                                                                                                                                      business-day period, no servicing
                                        accounts. * * *                                         § 3500.21    Mortgage Servicing Transfers.
                                                                                                                                                      disclosure statement is required to be
                                          (4) Aggregate accounting required. All                *     *     *    *     *                              delivered. If co-applicants indicate the
                                        servicers must use the aggregate                          (b) Servicing Disclosure Statement;                 same address on their application, one
                                        accounting method in conducting                         Requirements. (1) At the time an                      copy delivered to that address is
                                        escrow account analyses.                                application for a mortgage servicing                  sufficient. If different addresses are
                                           (5) Cushion. The cushion must be no                  loan is submitted, or within 3 business               shown by co-applicants on the
                                        greater than one-sixth (1⁄6) of the                     days after submission of the application,             application, a copy must be delivered to
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                                        estimated total annual disbursements                    the lender, mortgage broker who                       each of the co-applicants.
                                        from the escrow account.                                anticipates using table funding, or
                                           (6) Restrictions on pre-accrual. A                                                                         *      *     *     *     *
                                                                                                dealer who anticipates a first lien dealer
                                        servicer must not practice pre-accrual.                 loan shall provide to each person who                 ■ 11. A new § 3500.22 is added to read
                                        *      *     *    *     *                               applies for such a loan a Servicing                   as follows:


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                                                         Federal Register / Vol. 73, No. 222 / Monday, November 17, 2008 / Rules and Regulations                                            68243

                                        § 3500.22   Severability.                               separately identified settlement service in           columns in section K which relate to the
                                           If any particular provision of this part             connection with the transaction, the name of          Seller’s transaction may be left blank on the
                                        or the application of any particular                    the person ultimately receiving the payment           copy of the HUD–1 which will be furnished
                                                                                                must be shown together with the total                 to the Borrower.
                                        provision to any person or circumstance                 amount paid to such person. Items paid to
                                        is held invalid, the remainder of this                  and retained by a loan originator are                 Line Item Instructions
                                        part and the application of such                        disclosed as required in the instructions for            Instructions for completing the individual
                                        provisions to other persons or                          lines in the 800-series of the HUD–1 (and for         items on the HUD–1 follow.
                                        circumstances shall not be affected by                  per diem interest, in the 900-series of the              Section A. This section requires no entry
                                        such holding.                                           HUD–1).                                               of information.
                                                                                                   As a general rule, charges that are paid for          Section B. Check appropriate loan type and
                                        ■ 12. A new § 3500.23 is added to read
                                                                                                by the seller must be shown in the seller’s           complete the remaining items as applicable.
                                        as follows:                                             column on page 2 of the HUD–1 (unless paid               Section C. This section provides a notice
                                        § 3500.23   ESIGN applicability.                        outside closing), and charges that are paid for       regarding settlement costs and requires no
                                                                                                by the borrower must be shown in the                  additional entry of information.
                                          The Electronic Signatures in Global                   borrower’s column (unless paid outside                   Sections D and E. Fill in the names and
                                        and National Commerce Act (‘‘ESIGN’’),                  closing). However, in order to promote                current mailing addresses and zip codes of
                                        15 U.S.C. 7001–7031, shall apply to this                comparability between the charges on the              the Borrower and the Seller. Where there is
                                        part.                                                   GFE and the charges on the HUD–1, if a seller         more than one Borrower or Seller, the name
                                        ■ 13. Appendix A to part 3500 is revised                pays for a charge that was included on the            and address of each one is required. Use a
                                        in its entirety, including the heading, to              GFE, the charge should be listed in the               supplementary page if needed to list multiple
                                                                                                borrower’s column on page 2 of the HUD–1.             Borrowers or Sellers.
                                        read as follows:                                        That charge should also be offset by listing             Section F. Fill in the name, current mailing
                                        Appendix A to Part 3500—Instructions                    a credit in that amount to the borrower on            address and zip code of the Lender.
                                        for Completing HUD–1 and HUD–1a                         lines 204–209 on page 1 of the HUD–1, and                Section G. The street address of the
                                        Settlement Statements; Sample HUD–1                     by a charge to the seller in lines 506–509 on         property being sold should be listed. If there
                                                                                                page 1 of the HUD–1. If a loan originator             is no street address, a brief legal description
                                        and HUD–1a Statements                                   (other than for no-cost loans), real estate           or other location of the property should be
                                           The following are instructions for                   agent, other settlement service provider, or          inserted. In all cases give the zip code of the
                                        completing the HUD–1 settlement statement,              other person pays for a charge that was               property.
                                        required under section 4 of RESPA and 24                included on the GFE, the charge should be                Section H. Fill in name, address, zip code
                                        CFR part 3500 (Regulation X) of the                     listed in the borrower’s column on page 2 of          and telephone number of settlement agent,
                                        Department of Housing and Urban                         the HUD–1, with an offsetting credit reported         and address and zip code of ‘‘place of
                                        Development regulations. This form is to be             on page 1 of the HUD–1, identifying the party         settlement.’’
                                        used as a statement of actual charges and               paying the charge.                                       Section I. Fill in date of settlement.
                                        adjustments paid by the borrower and the                   Charges paid outside of settlement by the             Section J. Summary of Borrower’s
                                        seller, to be given to the parties in connection        borrower, seller, loan originator, real estate        Transaction. Line 101 is for the contract sales
                                        with the settlement. The instructions for               agent, or any other person, must be included          price of the property being sold, excluding
                                        completion of the HUD–1 are primarily for               on the HUD–1 but marked ‘‘P.O.C.’’ for ‘‘Paid         the price of any items of tangible personal
                                        the benefit of the settlement agents who                Outside of Closing’’ (settlement) and must            property if Borrower and Seller have agreed
                                        prepare the statements and need not be                  not be included in computing totals.                  to a separate price for such items.
                                        transmitted to the parties as an integral part          However, indirect payments from a lender to              Line 102 is for the sales price of any items
                                        of the HUD–1. There is no objection to the              a mortgage broker may not be disclosed as             of tangible personal property excluded from
                                        use of the HUD–1 in transactions in which               P.O.C., and must be included as a credit on           Line 101. Personal property could include
                                        its use is not legally required. Refer to the           Line 802. P.O.C. items must not be placed in          such items as carpets, drapes, stoves,
                                        definitions section of HUD’s regulations (24            the Borrower or Seller columns, but rather on         refrigerators, etc. What constitutes personal
                                        CFR 3500.2) for specific definitions of many            the appropriate line outside the columns.             property varies from state to state.
                                        of the terms that are used in these                     The settlement agent must indicate whether            Manufactured homes are not considered
                                        instructions.                                           P.O.C. items are paid for by the Borrower,            personal property for this purpose.
                                                                                                Seller, or some other party by marking the               Line 103 is used to record the total charges
                                        General Instructions                                    items paid for by whoever made the payment            to Borrower detailed in Section L and totaled
                                           Information and amounts may be filled in             as ‘‘P.O.C.’’ with the party making the               on Line 1400.
                                        by typewriter, hand printing, computer                  payment identified in parentheses, such as               Lines 104 and 105 are for additional
                                        printing, or any other method producing                 ‘‘P.O.C. (borrower)’’ or ‘‘P.O.C. (seller)’’.         amounts owed by the Borrower, such as
                                        clear and legible results. Refer to HUD’s                  In the case of ‘‘no cost’’ loans where ‘‘no        charges that were not listed on the GFE or
                                        regulations (Regulation X) regarding rules              cost’’ encompasses third party fees as well as        items paid by the Seller prior to settlement
                                        applicable to reproduction of the HUD–1 for             the upfront payment to the loan originator,           but reimbursed by the Borrower at
                                        the purpose of including customary recitals             the third party services covered by the ‘‘no          settlement. For example, the balance in the
                                        and information used locally in settlements;            cost’’ provisions must be itemized and listed         Seller’s reserve account held in connection
                                        for example, a breakdown of payoff figures,             in the borrower’s column on the HUD–1/1A              with an existing loan, if assigned to the
                                        a breakdown of the Borrower’s total monthly             with the charge for the third party service.          Borrower in a loan assumption case, will be
                                        mortgage payments, check disbursements, a               These itemized charges must be offset with            entered here. These lines will also be used
                                        statement indicating receipt of funds,                  a negative adjusted origination charge on             when a tenant in the property being sold has
                                        applicable special stipulations between                 Line 803 and recorded in the columns.                 not yet paid the rent, which the Borrower
                                        Borrower and Seller, and the date funds are                Blank lines are provided in section L for          will collect, for a period of time prior to the
                                        transferred.                                            any additional settlement charges. Blank              settlement. The lines will also be used to
                                           The settlement agent shall complete the              lines are also provided for additional                indicate the treatment for any tenant security
                                        HUD–1 to itemize all charges imposed upon               insertions in sections J and K. The names of          deposit. The Seller will be credited on Lines
                                        the Borrower and the Seller by the loan                 the recipients of the settlement charges in           404–405.
                                        originator and all sales commissions,                   section L and the names of the recipients of             Lines 106 through 112 are for items which
                                        whether to be paid at settlement or outside             adjustments described in section J or K               the Seller had paid in advance, and for which
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                                        of settlement, and any other charges which              should be included on the blank lines.                the Borrower must therefore reimburse the
                                        either the Borrower or the Seller will pay at              Lines and columns in section J which               Seller. Examples of items for which
                                        settlement. Charges for loan origination and            relate to the Borrower’s transaction may be           adjustments will be made may include taxes
                                        title services should not be itemized except            left blank on the copy of the HUD–1 which             and assessments paid in advance for an
                                        as provided in these instructions. For each             will be furnished to the Seller. Lines and            entire year or other period, when settlement



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                                        68244            Federal Register / Vol. 73, No. 222 / Monday, November 17, 2008 / Rules and Regulations

                                        occurs prior to the expiration of the year or              Line 303 must indicate either the cash             disclosure of the actual amount of these post-
                                        other period for which they were paid.                  required from the Borrower at settlement (the         settlement items to be paid from settlement
                                        Additional examples include flood and                   usual case in a purchase transaction), or cash        funds is optional. Any amounts entered on
                                        hazard insurance premiums, if the Borrower              payable to the Borrower at settlement (if, for        Lines 204–209 including Seller financing
                                        is being substituted as an insured under the            example, the Borrower’s earnest money                 arrangements should also be entered on Lines
                                        same policy; mortgage insurance in loan                 exceeds the Borrower’s cash obligations in            506–509.
                                        assumption cases; planned unit development              the transaction or there is a cash-out                   Instructions for the use of Lines 510
                                        or condominium association assessments                  refinance). Subtract Line 302 from Line 301           through 519 are the same as those for Lines
                                        paid in advance; fuel or other supplies on              and enter the amount of cash due to or from           210 to 219 above.
                                        hand, purchased by the Seller, which the                the Borrower at settlement on Line 303. The              Line 520 is for the total of Lines 501
                                        Borrower will use when Borrower takes                   appropriate box should be checked. If the             through 519.
                                        possession of the property; and ground rent             Borrower’s earnest money is applied toward               Lines 601 and 602 are summary lines for
                                        paid in advance.                                        the charge for a settlement service, the              the Seller. Enter the total in Line 420 on Line
                                           Line 120 is for the total of Lines 101               amount so applied should not be included on           610. Enter the total in Line 520 on Line 602.
                                        through 112.                                            Line 303 but instead should be shown on the              Line 603 must indicate either the cash
                                           Line 201 is for any amount paid against the          appropriate line for the settlement service,          required to be paid to the Seller at settlement
                                        sales price prior to settlement.                        marked ‘‘P.O.C. (Borrower)’’, and must not be         (the usual case in a purchase transaction), or
                                           Line 202 is for the amount of the new loan           included in computing totals.                         the cash payable by the Seller at settlement.
                                        made by the Lender when a loan to finance                  Section K. Summary of Seller’s                     Subtract Line 602 from Line 601 and enter
                                        construction of a new structure constructed             Transaction. Instructions for the use of Lines        the amount of cash due to or from the Seller
                                        for sale is used as or converted to a loan to           101 and 102 and 104–112 above, apply also             at settlement on Line 603. The appropriate
                                        finance purchase. Line 202 should also be               to Lines 401–412. Line 420 is for the total of        box should be checked.
                                        used for the amount of the first user loan,             Lines 401 through 412.                                   Section L. Settlement Charges.
                                        when a loan to purchase a manufactured                     Line 501 is used if the Seller’s real estate          Line 700 is used to enter the sales
                                        home for resale is converted to a loan to               broker or other party who is not the                  commission charged by the sales agent or real
                                        finance purchase by the first user. For other           settlement agent has received and holds a             estate broker.
                                        loans covered by 24 CFR part 3500                       deposit against the sales price (earnest                 Lines 701–702 are to be used to state the
                                        (Regulation X) which finance construction of            money) which exceeds the fee or commission            split of the commission where the settlement
                                        a new structure or purchase of a                        owed to that party. If that party will render         agent disburses portions of the commission
                                        manufactured home, list the sales price of the          the excess deposit directly to the Seller,            to two or more sales agents or real estate
                                        land on Line 104, the construction cost or              rather than through the settlement agent, the         brokers.
                                        purchase price of manufactured home on                  amount of excess deposit should be entered               Line 703 is used to enter the amount of
                                        Line 105 (Line 101 would be left blank in this          on Line 501 and the amount of the total               sales commission disbursed at settlement. If
                                        instance) and amount of the loan on Line                deposit (including commissions) should be             the sales agent or real estate broker is
                                        202. The remainder of the form should be                entered on Line 201.                                  retaining a part of the deposit against the
                                        completed taking into account adjustments                  Line 502 is used to record the total charges       sales price (earnest money) to apply towards
                                        and charges related to the temporary                    to the Seller detailed in section L and totaled       the sales agent’s or real estate broker’s
                                        financing and permanent financing and                   on Line 1400.                                         commission, include in Line 703 only that
                                        which are known at the date of settlement.                 Line 503 is used if the Borrower is                part of the commission being disbursed at
                                           Line 203 is used for cases in which the              assuming or taking title subject to existing          settlement and insert a note on Line 704
                                        Borrower is assuming or taking title subject            liens which are to be deducted from sales             indicating the amount the sales agent or real
                                        to an existing loan or lien on the property.            price.                                                estate broker is retaining as a ‘‘P.O.C.’’ item.
                                           Lines 204–209 are used for other items                  Lines 504 and 505 are used for the amounts            Line 704 may be used for additional
                                        paid by or on behalf of the Borrower. Lines             (including any accrued interest) of any first         charges made by the sales agent or real estate
                                        204–209 should be used to indicate any                  and/or second loans which will be paid as             broker, or for a sales commission charged to
                                        financing arrangements or other new loan not            part of the settlement.                               the Borrower, which will be disbursed by the
                                        listed in Line 202. For example, if the                    Line 506 is used for deposits paid by the          settlement agent.
                                        Borrower is using a second mortgage or note             Borrower to the Seller or other party who is             Line 801 is used to record ‘‘Our origination
                                        to finance part of the purchase price, whether          not the settlement agent. Enter the amount of         charge,’’ which includes all charges received
                                        from the same lender, another lender or the             the deposit in Line 201 on Line 506 unless            by the loan originator, except any charge for
                                        Seller, insert the principal amount of the loan         Line 501 is used or the party who is not the          the specific interest rate chosen (points). This
                                        with a brief explanation on Lines 204–209.              settlement agent transfers all or part of the         number must not be listed in either the
                                        Lines 204–209 should also be used where the             deposit to the settlement agent, in which case        buyer’s or seller’s column. The amount
                                        Borrower receives a credit from the Seller for          the settlement agent will note in parentheses         shown in Line 801 must include any
                                        closing costs, including seller-paid GFE                on Line 507 the amount of the deposit that            amounts received for origination services,
                                        charges. They may also be used in cases in              is being disbursed as proceeds and enter in           including administrative and processing
                                        which a Seller (typically a builder) is making          the column for Line 506 the amount retained           services, performed by or on behalf of the
                                        an ‘‘allowance’’ to the Borrower for items that         by the above-described party for settlement           loan originator.
                                        the Borrower is to purchase separately.                 services. If the settlement agent holds the              Line 802 is used to record ‘‘Your credit or
                                           Lines 210 through 219 are for items which            deposit, insert a note in Line 507 which              charge (points) for the specific interest rate
                                        have not yet been paid, and which the                   indicates that the deposit is being disbursed         chosen,’’ which states the charge or credit
                                        Borrower is expected to pay, but which are              as proceeds.                                          adjustment as applied to ‘‘Our origination
                                        attributable in part to a period of time prior             Lines 506 through 509 may be used to list          charge,’’ if applicable. This number must not
                                        to the settlement. In jurisdictions in which            additional liens which must be paid off               be listed in either column or shown on page
                                        taxes are paid late in the tax year, most cases         through the settlement to clear title to the          one of the HUD–1.
                                        will show the proration of taxes in these               property. Other Seller obligations should be             For a mortgage broker originating a loan in
                                        lines. Other examples include utilities used            shown on Lines 506–509, including charges             its own name, the amount shown on Line 802
                                        but not paid for by the Seller, rent collected          that were disclosed on the GFE but that are           will be the difference between the initial loan
                                        in advance by the Seller from a tenant for a            actually being paid for by the Seller. These          amount and the total payment to the
                                        period extending beyond the settlement date,            Lines may also be used to indicate funds to           mortgage broker from the lender. The total
                                        and interest on loan assumptions.                       be held by the settlement agent for the               payment to the mortgage broker will be the
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                                           Line 220 is for the total of Lines 201               payment of either repairs, or water, fuel, or         sum of the price paid for the loan by the
                                        through 219.                                            other utility bills that cannot be prorated           lender and any other payments to the
                                           Lines 301 and 302 are summary lines for              between the parties at settlement because the         mortgage broker from the lender, including
                                        the Borrower. Enter total in Line 120 on Line           amounts used by the Seller prior to                   any payments based on the loan amount or
                                        301. Enter total in Line 220 on Line 302.               settlement are not yet known. Subsequent              loan terms, and any flat rate payments. For



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                                        a mortgage broker originating a loan in                 regular monthly payment. Enter that amount            Disbursements to third parties must be
                                        another entity’s name, the amount shown on              here and include the per diem charges. If             broken out in the appropriate lines or in
                                        Line 802 will be the sum of all payments to             such interest is not collected until the first        blank lines in the series, and amounts paid
                                        the mortgage broker from the lender,                    regular monthly payment, no entry should be           to these third parties must be shown outside
                                        including any payments based on the loan                made on Line 901.                                     of the columns if included in Line 1101.
                                        amount or loan terms, and any flat rate                    Line 902 is used for mortgage insurance            Charges not included in Line 1101 must be
                                        payments.                                               premiums due and payable at settlement,               listed in the columns.
                                           In either case, when the amount paid to the          including any monthly amounts due at                     Line 1101 is used to record the total for the
                                        mortgage broker exceeds the initial loan                settlement and any upfront mortgage                   category of ‘‘Title services and lender’s title
                                        amount, there is a credit to the borrower and           insurance premium, but not including any              insurance.’’ This amount must be listed in
                                        it is entered as a negative amount. When the            reserves collected by the Lender and                  the columns.
                                        initial loan amount exceeds the amount paid             recorded in the 1000-series. If a lump sum               Line 1102 is used to record the settlement
                                        to the mortgage broker, there is a charge to            mortgage insurance premium paid at                    or closing fee.
                                        the borrower and it is entered as a positive            settlement is included on Line 902, a note               Line 1103 is used to record the charges for
                                        amount. For a lender, the amount shown on               should indicate that the premium is for the           the owner’s title insurance and related
                                        Line 802 may include any credit or charge               life of the loan.                                     endorsements. This amount must be listed in
                                        (points) to the Borrower.                                  Line 903 is used for homeowner’s                   the columns.
                                           Line 803 is used to record ‘‘Your adjusted           insurance premiums that the Lender requires              Line 1104 is used to record the lender’s
                                        origination charges,’’ which states the net             to be paid at the time of settlement, except          title insurance premium and related
                                        amount of the loan origination charges, the             reserves collected by the Lender and                  endorsements.
                                        sum of the amounts shown in Lines 801 and               recorded in the 1000-series.                             Line 1105 is used to record the amount of
                                        802. This amount must be listed in the                     Lines 904 and additional sequentially              the lender’s title policy limit. This amount is
                                        columns as either a positive number (for                numbered lines are used to list additional            recorded outside of the columns.
                                        example, where the origination charge shown             items required by the Lender (except for                 Line 1106 is used to record the amount of
                                        in Line 801 exceeds any credit for the interest         reserves collected by the Lender and                  the owner’s title policy limit. This amount is
                                        rate shown in Line 802 or where there is an             recorded in the 1000-series), including               recorded outside of the columns.
                                        origination charge in Line 801 and a charge             premiums for flood or other insurance. These             Line 1107 is used to record the amount of
                                        for the interest rate (points) is shown on Line         lines are also used to list amounts paid at           the total title insurance premium, including
                                        802) or as a negative number (for example,              settlement for insurance not required by the          endorsements, that is retained by the title
                                        where the credit for the interest rate shown            Lender.                                               agent. This amount is recorded outside of the
                                        in Line 802 exceeds the origination charges                Lines 1000–1007. This series is used for           columns.
                                        shown in Line 801).                                     amounts collected by the Lender from the                 Line 1108 used to record the amount of the
                                           In the case of ‘‘no cost’’ loans, where ‘‘no         Borrower and held in an account for the               total title insurance premium, including
                                        cost’’ refers only to the loan originator’s fees,       future payment of the obligations listed as           endorsements, that is retained by the title
                                        the amounts shown in Lines 801 and 802                  they fall due. Include the time period                underwriter. This amount is recorded outside
                                        should offset, so that the charge shown on              (number of months) and the monthly                    of the columns.
                                        Line 803 is zero. Where ‘‘no cost’’ includes            assessment. In many jurisdictions this is                Additional sequentially numbered lines in
                                        third party settlement services, the credit             referred to as an ‘‘escrow’’, ‘‘impound’’, or         the 1100-series may be used to itemize title
                                        shown in Line 802 will more than offset the             ‘‘trust’’ account. In addition to the property        charges paid to other third parties, as
                                        amount shown in Line 801. The amount                    taxes and insurance listed, some Lenders              identified by name and type of service
                                        shown in Line 803 will be a negative number             may require reserves for flood insurance,             provided.
                                        to offset the settlement charges paid                   condominium owners’ association                          Lines 1200–1206. This series covers
                                        indirectly through the loan originator.                 assessments, etc. The amount in line 1001             government recording and transfer charges.
                                           Lines 804–808 may be used to record each             must be listed in the columns, and the                Charges paid by the borrower must be listed
                                        of the ‘‘Required services that we select.’’            itemizations in lines 1002 through 1007 must          in the columns as described for lines 1201
                                        Each settlement service provider must be                be listed outside the columns.                        and 1203, with itemizations shown outside
                                        identified by name and the amount paid                     After itemizing individual deposits in the         the columns. Any amounts that are charged
                                        recorded either inside the columns or as paid           1000 series, the servicer shall make an               to the seller and that were not included on
                                        to the provider outside closing (‘‘P.O.C.’’), as        adjustment based on aggregate accounting.             the Good Faith Estimate must be listed in the
                                        described in the General Instructions.                  This adjustment equals the difference                 columns.
                                           Line 804 is used to record the appraisal fee.        between the deposit required under aggregate             Line 1201 is used to record the total
                                           Line 805 is used to record the fee for all           accounting and the sum of the itemized                ‘‘Government recording charges,’’ and the
                                        credit reports.                                         deposits. The computation steps for aggregate         amount must be listed in the columns.
                                           Line 806 is used to record the fee for any           accounting are set out in 24 CFR                         Line 1202 is used to record, outside of the
                                        tax service.                                            § 3500.17(d). The adjustment will always be           columns, the itemized recording charges.
                                           Line 807 is used to record any flood                 a negative number or zero (-0-), except for              Line 1203 is used to record the transfer
                                        certification fee.                                      amounts due to rounding. The settlement               taxes, and the amount must be listed in the
                                           Lines 808 and additional sequentially                agent shall enter the aggregate adjustment            columns.
                                        numbered lines, as needed, are used to                  amount outside the columns on a final line               Line 1204 is used to record, outside of the
                                        record other third party services required by           of the 1000 series of the HUD–1 or HUD–1A             columns, the amounts for local transfer taxes
                                        the loan originator. These Lines may also be            statement. Appendix E to this part sets out           and stamps.
                                        used to record other required disclosures               an example of aggregate analysis.                        Line 1205 is used to record, outside of the
                                        from the loan originator. Any such                         Lines 1100–1108. This series covers title          columns, the amounts for State transfer taxes
                                        disclosures must be listed outside the                  charges and charges by attorneys and closing          and stamps.
                                        columns.                                                or settlement agents. The title charges                  Line 1206 and additional sequentially
                                           Lines 901–904. This series is used to                include a variety of services performed by            numbered lines may be used to record
                                        record the items which the Lender requires              title companies or others, and include fees           specific itemized third party charges for
                                        to be paid at the time of settlement, but               directly related to the transfer of title (title      government recording and transfer services,
                                        which are not necessarily paid to the lender            examination, title search, document                   but the amounts must be listed outside the
                                        (e.g., FHA mortgage insurance premium),                 preparation), fees for title insurance, and fees      columns.
                                        other than reserves collected by the Lender             for conducting the closing. The legal charges            Line 1301 and additional sequentially
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                                        and recorded in the 1000-series.                        include fees for attorneys representing the           numbered lines must be used to record
                                           Line 901 is used if interest is collected at         lender, seller, or borrower, and any attorney         required services that the borrower can shop
                                        settlement for a part of a month or other               preparing title work. The series also includes        for, such as fees for survey, pest inspection,
                                        period between settlement and the date from             any settlement, notary, and delivery fees             or other similar inspections. These lines may
                                        which interest will be collected with the first         related to the services covered in this series.       also be used to record additional itemized



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                                        settlement charges that are not included in a           the HUD–1/1A column is greater than the               printing, or any other method producing
                                        specific category, such as fees for structural          total for the Good Faith Estimate column,             clear and legible results. Refer to 24 CFR
                                        and environmental inspections; pre-sale                 then the amount of the increase must be               3500.9 regarding rules for reproduction of the
                                        inspections of heating, plumbing or electrical          entered both as a dollar amount and as a              HUD–1A. Additional pages may be attached
                                        equipment; or insurance or warranty                     percentage increase in the appropriate line.          to the HUD–1A for the inclusion of
                                        coverage. The amounts must be listed in                   ‘‘Charges That Can Change’’. The amounts            customary recitals and information used
                                        either the borrower’s or seller’s column.               shown in Blocks 9, 10 and 11 on the                   locally for settlements or if there are
                                           Line 1400 must state the total settlement            borrower’s GFE must be entered in the                 insufficient lines on the HUD–1A. The
                                        charges as calculated by adding the amounts             appropriate line in the Good Faith Estimate           settlement agent shall complete the HUD–1A
                                        within each column.                                     column. Any third party settlement services           in accordance with the instructions for the
                                                                                                for which the borrower selected a provider            HUD–1 to the extent possible, including the
                                        Page 3                                                  other than one identified by the loan                 instructions for disclosing items paid outside
                                        Comparison of Good Faith Estimate (GFE)                 originator must also be included in this              closing and for no cost loans.
                                        and HUD–1/1A Charges                                    section. The amounts shown on the HUD–1/                 Blank lines are provided in Section L for
                                                                                                1A for each charge in this section must be            any additional settlement charges. Blank
                                           The comparison chart must be prepared                entered in the corresponding line in the              lines are also provided in Section M for
                                        using the exact information and amounts                 HUD–1/1A column, along with the                       recipients of all or portions of the loan
                                        from the GFE and the actual settlement                  appropriate HUD–1/1A line number. The                 proceeds. The names of the recipients of the
                                        charges shown on the HUD–1/1A Settlement                HUD–1/1A column must include any                      settlement charges in Section L and the
                                        Statement. The comparison chart is                      amounts shown on page 2 of the HUD–1 in               names of the recipients of the loan proceeds
                                        comprised of three sections: ‘‘Charges That             the column as paid for by the borrower, plus          in Section M should be set forth on the blank
                                        Cannot Increase’’, ‘‘Charges That Cannot                any amounts that are shown as P.O.C. by or            lines.
                                        Increase More Than 10%’’, and ‘‘Charges                 on behalf of the borrower. Additional lines
                                        That Can Change’’.                                      may be added if necessary.                            Line-Item Instructions
                                           ‘‘Charges That Cannot Increase’’. The
                                        amounts shown in Blocks 1 and 2, in Line                Loan Terms                                            Page 1
                                        A, and in Block 8 on the borrower’s GFE                   This section must be completed in                      The identification information at the top of
                                        must be entered in the appropriate line in the          accordance with the information and                   the HUD–1A should be completed as follows:
                                        Good Faith Estimate column. The amounts                 instructions provided by the lender. The                 The borrower’s name and address is
                                        shown on Lines 801, 802, 803 and 1203 of                lender must provide this information in a             entered in the space provided. If the property
                                        the HUD–1/1A must be entered in the                     format that permits the settlement agent to           securing the loan is different from the
                                        corresponding line in the HUD–1/1A                      simply enter the necessary information in the         borrower’s address, the address or other
                                        column. The HUD–1/1A column must                        appropriate spaces, without the settlement            location information on the property should
                                        include any amounts shown on page 2 of the              agent having to refer to the loan documents           be entered in the space provided. The loan
                                        HUD–1 in the column as paid for by the                  themselves.                                           number is the lender’s identification number
                                        borrower, plus any amounts that are shown                                                                     for the loan. The settlement date is the date
                                        as P.O.C. by or on behalf of the borrower. If           Instructions for Completing HUD–1A                    of settlement in accordance with 24 CFR
                                        there is a credit in Block 2 of the GFE or Line            Note: The HUD–1A is an optional form that          3500.2, not the end of any applicable
                                        802 of the HUD–1/1A, the credit should be               may be used for refinancing and subordinate-          rescission period. The name and address of
                                        entered as a negative number.                           lien federally related mortgage loans, as well        the lender should be entered in the space
                                           ‘‘Charges That Cannot Increase More Than             as for any other one-party transaction that           provided.
                                        10%’’. A description of each charge included            does not involve the transfer of title to                Section L. Settlement Charges. This section
                                        in Blocks 3 and 7 on the borrower’s GFE                 residential real property. The HUD–1 form             of the HUD–1A is similar to Section L of the
                                        must be entered on separate lines in this               may also be used for such transactions, by            HUD–1, with minor changes or omissions,
                                        section, with the amount shown on the                   utilizing the borrower’s side of the HUD–1            including deletion of lines 700 through 704,
                                        borrower’s GFE for each charge entered in the           and following the relevant parts of the               relating to real estate broker commissions.
                                        corresponding line in the Good Faith                    instructions as set forth above. The use of           The instructions for Section L in the HUD–
                                        Estimate column. For each charge included               either the HUD–1 or HUD–1A is not                     1, should be followed insofar as possible.
                                        in Blocks 4, 5 and 6 on the borrower’s GFE              mandatory for open-end lines of credit                Inapplicable charges should be ignored, as
                                        for which the loan originator selected the              (home-equity plans), as long as the                   should any instructions regarding seller
                                        provider or for which the borrower selected             provisions of Regulation Z are followed.              items.
                                        a provider identified by the loan originator,                                                                    Line 1400 in the HUD–1A is for the total
                                        a description must be entered on a separate             Background                                            settlement charges charged to the borrower.
                                        line in this section, with the amount shown                The HUD–1A settlement statement is to be           Enter this total on line 1601. This total
                                        on the borrower’s GFE for each charge                   used as a statement of actual charges and             should include Section L amounts from
                                        entered in the corresponding line in the Good           adjustments to be given to the borrower at            additional pages, if any are attached to this
                                        Faith Estimate column. The loan originator              settlement, as defined in this part. The              HUD–1A.
                                        must identify any third party settlement                instructions for completion of the HUD–1A                Section M. Disbursement to Others. This
                                        services for which the borrower selected a              are for the benefit of the settlement agent           section is used to list payees, other than the
                                        provider other than one identified by the               who prepares the statement; the instructions          borrower, of all or portions of the loan
                                        loan originator so that the settlement agent            are not a part of the statement and need not          proceeds (including the lender, if the loan is
                                        can include those charges in the appropriate            be transmitted to the borrower. There is no           paying off a prior loan made by the same
                                        category. Additional lines may be added if              objection to using the HUD–1A in                      lender), when the payee will be paid directly
                                        necessary. The amounts shown on the HUD–                transactions in which it is not required, and         out of the settlement proceeds. It is not used
                                        1/1A for each line must be entered in the               its use in open-end lines of credit                   to list payees of settlement charges, nor to list
                                        HUD–1/1A column next to the corresponding               transactions (home-equity plans) is                   funds disbursed directly to the borrower,
                                        charge from the GFE, along with the                     encouraged. It may not be used as a                   even if the lender knows the borrower’s
                                        appropriate HUD–1/1A line number. The                   substitute for a HUD–1 in any transaction             intended use of the funds.
                                        HUD–1/1A column must include any                        that has a seller.                                       For example, in a refinancing transaction,
                                        amounts shown on page 2 of the HUD–1 in                    Refer to the ‘‘definitions’’ section (§ 3500.2)    the loan proceeds are used to pay off an
                                        the column as paid for by the borrower, plus            of 24 CFR part 3500 (Regulation X) for                existing loan. The name of the lender for the
                                        any amounts that are shown as P.O.C. by or              specific definitions of terms used in these           loan being paid off and the pay-off balance
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                                        on behalf of the borrower.                              instructions.                                         would be entered in Section M. In a home
                                           The amounts shown in the Good Faith                                                                        improvement transaction when the proceeds
                                        Estimate and HUD–1/1A columns for this                  General Instructions                                  are to be paid to the home improvement
                                        section must be separately totaled and                    Information and amounts may be filled in            contractor, the name of the contractor and the
                                        entered in the designated line. If the total for        by typewriter, hand printing, computer                amount paid to the contractor would be



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                                        entered in Section M. In a consolidation loan,          all settlement charges that both are included            Line 1604 is the amount disbursed to the
                                        or when part of the loan proceeds is used to            in the totals for lines 1400 and 1602, and are        borrower. This is determined by adding
                                        pay off other creditors, the name of each               not financed as part of the principal amount          together the amounts for lines 1600 and 1601,
                                        creditor and the amount paid to that creditor           of the loan. This is the amount normally              and then subtracting any amounts listed on
                                        would be entered in Section M. If the                   received by the lender from the borrower at           lines 1602 and 1603.
                                        proceeds are to be given directly to the                settlement, which would occur when some or
                                        borrower and the borrower will use the                  all of the settlement charges were paid in            Page 2
                                        proceeds to pay off existing obligations, this          cash by the borrower at settlement, instead of          This section of the HUD–1A is similar to
                                        would not be reflected in Section M.                    being financed as part of the principal               page 3 of the HUD–1. The instructions for
                                          Section N. Net Settlement. Line 1600                  amount of the loan. Failure to include any
                                                                                                                                                      page 3 of the HUD–1, should be followed
                                        normally sets forth the principal amount of             such amount in line 1601 will result in an
                                        the loan as it appears on the related note for          error in the amount calculated on line 1604.          insofar as possible. The HUD–1/1A Column
                                        this loan. In the event this form is used for           Items paid outside of closing (P.O.C.) should         should include any amounts shown on page
                                        an open-ended home equity line whose                    not be included in Line 1601.                         1 of the HUD–1A in the column as paid for
                                        approved amount is greater than the initial                Line 1602 is the total amount from line            by the borrower, plus any amounts that are
                                        amount advanced at settlement, the amount               1400.                                                 shown as P.O.C. by the borrower.
                                        shown on Line 1600 will be the loan amount                 Line 1603 is the total amount from line            Inapplicable charges should be ignored.
                                        advanced at settlement. Line 1601 is used for           1520.                                                 BILLING CODE 4210–67–P
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                                        BILLING CODE 4210–67–C
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                                        ■ 14. Appendix C to part 3500 is revised                   ‘‘Summary of your loan.’’—In this section,           ‘‘Summary of your settlement charges.’’—
                                        in its entirety, including the heading, to              for all loans the loan originator must fill in,       On this line, the loan originator must state
                                        read as follows:                                        where indicated:                                      the Adjusted Origination Charges from
                                                                                                   (i) The initial loan amount;                       subtotal A of page 2, the Charges for All
                                        Appendix C to Part 3500—Instructions                       (ii) The loan term; and                            Other Settlement Services from subtotal B of
                                        for Completing Good Faith Estimate                         (iii) The initial interest rate.                   page 2, and the Total Estimated Settlement
                                        (GFE) Form                                                 The loan originator must fill in the initial       Charges from the bottom of page 2.
                                                                                                monthly amount owed for principal, interest,
                                          The following are instructions for                    and any mortgage insurance. The amount                Page 2
                                        completing the GFE required under section 5             shown must be the greater of: (1) The                   ‘‘Understanding your estimated settlement
                                        of RESPA and 24 CFR 3500.7 of the                       required monthly payment for principal and            charges.’’—This section details 11 settlement
                                        Department of Housing and Urban                         interest for the first regularly scheduled            cost categories and amounts associated with
                                        Development regulations. The standardized               payment, plus any monthly mortgage                    the mortgage loan. For purposes of
                                        form set forth in this Appendix is the                  insurance payment; or (2) the accrued                 determining whether a tolerance has been
                                        required GFE form and must be provided                  interest for the first regularly scheduled            met, the amount on the GFE should be
                                        exactly as specified. The instructions for              payment, plus any monthly mortgage                    compared with the total of any amounts
                                        completion of the GFE are primarily for the             insurance payment.                                    shown on the HUD–1 in the borrower’s
                                        benefit of the loan originator who prepares                The loan originator must indicate whether          column and any amounts paid outside
                                        the form and need not be transmitted to the             the interest rate can rise, and, if it can, must      closing by or on behalf of the borrower.
                                        borrower(s) as an integral part of the GFE.             insert the maximum rate to which it can rise
                                        The required standardized GFE form must be              over the life of the loan. The loan originator        Your Adjusted Origination Charges’’
                                        prepared completely and accurately. A                   must also indicate the period of time after              Block 1, ‘‘Our origination charge.’’—The
                                        separate GFE must be provided for each loan             which the interest rate can first change.             loan originator must state here all charges
                                        where a transaction will involve more than                 The loan originator must indicate whether          that all loan originators involved in this
                                        one mortgage loan.                                      the loan balance can rise even if the borrower        transaction will receive, except for any
                                        General Instructions                                    makes payments on time, for example in the            charge for the specific interest rate chosen
                                                                                                case of a loan with negative amortization. If         (points). A loan originator may not separately
                                           The loan originator preparing the GFE may            it can, the loan originator must insert the           charge any additional fees for getting this
                                        fill in information and amounts on the form             maximum amount to which the loan balance              loan, including for application, processing, or
                                        by typewriter, hand printing, computer                  can rise over the life of the loan. For federal,      underwriting. The amount stated in Block 1
                                        printing, or any other method producing                 state, local, or tribal housing programs that         is subject to zero tolerance, i.e., the amount
                                        clear and legible results. Under these                  provide payment assistance, any repayment             may not increase at settlement.
                                        instructions, the ‘‘form’’ refers to the required       of such program assistance should be                     Block 2, ‘‘Your credit or charge (points) for
                                        standardized GFE form. Although the                     excluded from consideration in completing             the specific interest rate chosen.’’—For
                                        standardized GFE is a prescribed form,                  this item. If the loan balance will increase          transactions involving mortgage brokers, the
                                        Blocks 3, 6, and 11 on page 2 may be adapted            only because escrow items are being paid              mortgage broker must indicate through check
                                        for use in particular loan situations, so that          through the loan balance, the loan originator         boxes whether there is a credit to the
                                        additional lines may be inserted there, and
                                                                                                is not required to check the box indicating           borrower for the interest rate chosen on the
                                        unused lines may be deleted.
                                                                                                that the loan balance can rise.                       loan, the interest rate, and the amount of the
                                           All fees for categories of charges shall be
                                                                                                   The loan originator must indicate whether          credit, or whether there is an additional
                                        disclosed in U.S. dollar and cent amounts.
                                                                                                the monthly amount owed for principal,                charge (points) to the borrower for the
                                        Specific Instructions                                   interest, and any mortgage insurance can rise         interest rate chosen on the loan, the interest
                                                                                                even if the borrower makes payments on                rate, and the amount of that charge. Only one
                                        Page 1                                                  time. If the monthly amount owed can rise             of the boxes may be checked; a credit and
                                           Top of the Form—The loan originator must             even if the borrower makes payments on                charge cannot occur together in the same
                                        enter its name, business address, telephone             time, the loan originator must indicate the           transaction.
                                        number, and email address, if any, on the top           period of time after which the monthly                   For transactions without a mortgage broker,
                                        of the form, along with the applicant’s name,           amount owed can first change, the maximum             the lender may choose not to separately
                                        the address or location of the property for             amount to which the monthly amount owed               disclose in this block any credit or charge for
                                        which financing is sought, and the date of the          can rise at the time of the first change, and         the interest rate chosen on the loan; however,
                                        GFE.                                                    the maximum amount to which the monthly               if this block does not include any positive or
                                           ‘‘Purpose.’’—This section describes the              amount owed can rise over the life of the             negative figure, the lender must check the
                                        general purpose of the GFE as well as                   loan. The amount used for the monthly                 first box to indicate that ‘‘The credit or
                                        additional information available to the                 amount owed must be the greater of: (1) The           charge for the interest rate you have chosen’’
                                        applicant.                                              required monthly payment for principal and            is included in ‘‘Our origination charge’’
                                           ‘‘Shopping for your loan.’’—This section             interest for that month, plus any monthly             above (see Block 1 instructions above), must
                                        requires no loan originator action.                     mortgage insurance payment; or (2) the                insert the interest rate, and must also insert
                                           ‘‘Important dates.’’—This section briefly            accrued interest for that month, plus any             ‘‘0’’ in Block 2. Only one of the boxes may
                                        states important deadlines after which the              monthly mortgage insurance payment.                   be checked; a credit and charge cannot occur
                                        loan terms that are the subject of the GFE                 The loan originator must indicate whether          together in the same transaction.
                                        may not be available to the applicant. In Line          the loan includes a prepayment penalty, and,             For a mortgage broker, the credit or charge
                                        1, the loan originator must state the date and,         if so, the maximum amount that it could be.           for the specific interest rate chosen is the net
                                        if necessary, time until which the interest                The loan originator must indicate whether          payment to the mortgage broker from the
                                        rate for the GFE will be available. In Line 2,          the loan requires a balloon payment and, if           lender (i.e., the sum of all payments to the
                                        the loan originator must state the date until           so, the amount of the payment and in how              mortgage broker from the lender, including
                                        which the estimate of all other settlement              many years it will be due.                            payments based on the loan amount, a flat
                                        charges for the GFE will be available. This                ‘‘Escrow account information.’’—The loan           rate, or any other computation, and in a table
                                        date must be at least 10 business days from             originator must indicate whether the loan             funded transaction, the loan amount less the
                                        the date of the GFE. In Line 3, the loan                includes an escrow account for property               price paid for the loan by the lender). When
                                        originator must state how many calendar                 taxes and other financial obligations. The            the net payment to the mortgage broker from
                                        days within which the applicant must go to              amount shown in the ‘‘Summary of your                 the lender is positive, there is a credit to the
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                                        settlement once the interest rate is locked. In         loan’’ section for ‘‘Your initial monthly             borrower and it is entered as a negative
                                        Line 4, the loan originator must state how              amount owed for principal, interest, and any          amount in Block 2 of the GFE. When the net
                                        many calendar days prior to settlement the              mortgage insurance’’ must be entered in the           payment to the mortgage broker from the
                                        interest rate would have to be locked, if               space for the monthly amount owed in this             lender is negative, there is a charge to the
                                        applicable.                                             section.                                              borrower and it is entered as a positive



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                                        amount in Block 2 of the GFE. If there is no            required to add the individual charges                charges. The loan originator must indicate
                                        net payment (i.e., the credit or charge for the         disclosed in this block and place that total in       through check boxes if the reserve or escrow
                                        specific interest rate chosen is zero), the             the column of this block. The charge shown            account will cover future payments for all
                                        mortgage broker must insert ‘‘0’’ in Block 2            in this block is subject to an overall 10             tax, all hazard insurance, and other
                                        and may check either the box indicating                 percent tolerance as described above.                 obligations that the loan originator requires
                                        there is a credit of ‘‘0’’ or the box indicating           Block 4, ‘‘Title services and lender’s title       to be paid as they fall due. If the reserve or
                                        there is a charge of ‘‘0’’.                             insurance.’’—In this block, the loan                  escrow account includes some, but not all,
                                           The amount stated in Block 2 is subject to           originator must state the estimated total             property taxes or hazard insurance, or if it
                                        zero tolerance while the interest rate is               charge for third party settlement service             includes mortgage insurance, the loan
                                        locked, i.e., any credit for the interest rate          providers for all closing services, regardless        originator should check ‘‘other’’ and then list
                                        chosen cannot decrease in absolute value                of whether the providers are selected or paid         the items included.
                                        terms and any charge for the interest rate              for by the borrower, seller, or loan originator.         Block 10, ‘‘Daily interest charges.’’—In this
                                        chosen cannot increase. (Note: An increase in           The loan originator must also include any             block, the loan originator must estimate the
                                        the credit is allowed since this increase is a          lender’s title insurance premiums, when               total amount that will be due at settlement
                                        reduction in cost to the borrower. A decrease           required, regardless of whether the provider          for the daily interest on the loan from the
                                        in the credit is not allowed since it is an             is selected or paid for by the borrower, seller,      date of settlement until the first day of the
                                        increase in cost to the borrower.)                      or loan originator. All fees for title searches,      first period covered by scheduled mortgage
                                           Line A, ‘‘Your Adjusted Origination                  examinations, and endorsements, for                   payments. The loan originator must also
                                        Charges.’’—The loan originator must add the             example, would be included in this total. The         indicate how this total amount is calculated
                                        numbers in Blocks 1 and 2 and enter this                charge shown in this block is subject to an           by providing the amount of the interest
                                        subtotal at highlighted Line A. The subtotal            overall 10 percent tolerance as described             charges per day and the number of days used
                                        at Line A will be a negative number if there            above.                                                in the calculation, based on a stated projected
                                        is a credit in Block 2 that exceeds the charge             Block 5, ‘‘Owner’s title insurance.’’—In this      closing date.
                                        in Block 1. The amount stated in Line A is              block, for all purchase transactions the loan            Block 11, ‘‘Homeowner’s insurance.’’—The
                                        subject to zero tolerance while the interest            originator must provide an estimate of the            loan originator must estimate in this block
                                        rate is locked.                                         charge for the owner’s title insurance and            the total amount of the premiums for any
                                           In the case of ‘‘no cost’’ loans, where ‘‘no         related endorsements, regardless of whether           hazard insurance policy and other similar
                                        cost’’ refers only to the loan originator’s fees,       the providers are selected or paid for by the         insurance, such as fire or flood insurance that
                                        Line A must show a zero charge as the                   borrower, seller, or loan originator. For non-        must be purchased at or before settlement to
                                        adjusted origination charge. In the case of             purchase transactions, the loan originator            meet the loan originator’s requirements. The
                                        ‘‘no cost’’ loans where ‘‘no cost’’                     may enter ‘‘NA’’ or ‘‘Not Applicable’’ in this        loan originator must also separately indicate
                                        encompasses third party fees as well as the             Block. The charge shown in this block is              the nature of each type of insurance required
                                        upfront payment to the loan originator, all of          subject to an overall 10 percent tolerance as         along with the charges. To the extent a loan
                                        the third party fees listed in Block 3 through          described above.                                      originator requires that such insurance be
                                        Block 11 to be paid for by the loan originator             Block 6, ‘‘Required services that you can          part of an escrow account, the amount of the
                                        (or borrower, if any) must be itemized and              shop for.’’—In this block, the loan originator        initial escrow deposit must be included in
                                        listed on the GFE. The credit for the interest          must identify each third party settlement             Block 9.
                                        rate chosen must be large enough that the               service required by the loan originator where            Line B, ‘‘Your Charges for All Other
                                        total for Line A will result in a negative              the borrower is permitted to shop for and             Settlement Services.’’—The loan originator
                                        number to cover the third party fees.                   select the settlement service provider                must add the numbers in Blocks 3 through
                                                                                                (excluding title services), along with the            11 and enter this subtotal in the column at
                                        ‘‘Your Charges for All Other Settlement                 estimated charge to be paid to the provider           highlighted Line B.
                                        Services’’                                              of each service. The loan originator must                Line A+B, ‘‘Total Estimated Settlement
                                           There is a 10 percent tolerance applied to           identify the specific required services (e.g.,        Charges.’’—The loan originator must add the
                                        the sum of the prices of each service listed            survey, pest inspection) and provide an               subtotals in the right-hand column at
                                        in Block 3, Block 4, Block 5, Block 6, and              estimate of the charge of each service. The           highlighted Lines A and B and enter this total
                                        Block 7, where the loan originator requires             loan originator must also add the individual          in the column at highlighted Line A+B.
                                        the use of a particular provider or the                 charges disclosed in this block and place the         Page 3
                                        borrower uses a provider selected or                    total in the column of this block. The charge
                                        identified by the loan originator. Any                  shown in this block is subject to an overall          ‘‘Instructions’’
                                        services in Block 4, Block 5, or Block 6 for            10 percent tolerance as described above.                 ‘‘Understanding which charges can change
                                        which the borrower selects a provider other                Block 7, ‘‘Government recording                    at settlement.’’—This section informs the
                                        than one identified by the loan originator are          charges.’’—In this block, the loan originator         applicant about which categories of
                                        not subject to any tolerance and, at                    must estimate the state and local government          settlement charges can increase at closing,
                                        settlement, would not be included in the sum            fees for recording the loan and title                 and by how much, and which categories of
                                        of the charges on which the 10 percent                  documents that can be expected to be                  settlement charges cannot increase at closing.
                                        tolerance is based. Where a loan originator             charged at settlement. The charge shown in            This section requires no loan originator
                                        permits a borrower to shop for third party              this block is subject to an overall 10 percent        action.
                                        settlement services, the loan originator must           tolerance as described above.                            ‘‘Using the tradeoff table.’’—This section is
                                        provide the borrower with a written list of                Block 8, ‘‘Transfer taxes.’’—In this block,        designed to make borrowers aware of the
                                        settlement services providers at the time of            the loan originator must estimate the sum of          relationship between their total estimated
                                        the GFE, on a separate sheet of paper.                  all state and local government fees on                settlement charges on one hand, and the
                                           Block 3, ‘‘Required services that we                 mortgages and home sales that can be                  interest rate and resulting monthly payment
                                        select.’’—In this block, the loan originator            expected to be charged at settlement, based           on the other hand. The loan originator must
                                        must identify each third party settlement               upon the proposed loan amount or sales                complete the left hand column using the loan
                                        service required and selected by the loan               price and on the property address. A zero             amount, interest rate, monthly payment
                                        originator (excluding title services), along            tolerance applies to the sum of these                 figure, and the total estimated settlement
                                        with the estimated price to be paid to the              estimated fees.                                       charges from page 1 of the GFE. The loan
                                        provider of each service. Examples of such                 Block 9, ‘‘Initial deposit for your escrow         originator, at its option, may provide the
                                        third party settlement services might include           account.’’—In this block, the loan originator         borrower with the same information for two
                                        provision of credit reports, appraisals, flood          must estimate the amount that it will require         alternative loans, one with a higher interest
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                                        checks, tax services, and any upfront                   the borrower to place into a reserve or escrow        rate, if available, and one with a lower
                                        mortgage insurance premium. The loan                    account at settlement to be applied to                interest rate, if available, from the loan
                                        originator must identify the specific required          recurring charges for property taxes,                 originator. The loan originator should list in
                                        services and provide an estimate of the price           homeowner’s and other similar insurance,              the tradeoff table only alternative loans for
                                        of each service. Loan originators are also              mortgage insurance, and other periodic                which it would presently issue a GFE based



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                                        on the same information the loan originator             balloon payments. If the loan originator fills        options are available, an applicant may
                                        considered in issuing this GFE. The                     in the tradeoff table, the loan originator must       request a new GFE, and a new GFE must be
                                        alternative loans must use the same loan                show the borrower the loan amount,                    provided by the loan originator.
                                        amount and be otherwise identical to the                alternative interest rate, alternative monthly           ‘‘Using the shopping chart.’’—This chart is
                                        loan in the GFE. The alternative loans must             payment, the change in the monthly payment            a shopping tool to be provided by the loan
                                        have, for example, the identical number of              from the loan in this GFE to the alternative          originator for the borrower to complete, in
                                        payment periods; the same margin, index,                loan, the change in the total settlement              order to compare GFEs.
                                        and adjustment schedule if the loans are                charges from the loan in this GFE to the                 ‘‘If your loan is sold in the future.’’—This
                                        adjustable rate mortgages; and the same                 alternative loan, and the total settlement            section requires no loan originator action.
                                        requirements for prepayment penalty and                 charges for the alternative loan. If these            BILLING CODE 4210–67–P
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                                        BILLING CODE 4210–67–C
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                                        ■  15. Appendix E to part 3500 is                       under Section 604 of the Regulatory                   Overlaps are discussed further in this
                                        amended by removing the parenthetical                   Flexibility Act. The requirements of the              chapter.
                                        ‘‘(Existing Accounts)’’ from the heading,               FRFA are listed below along with references              In addition, this Chapter contains (c) a
                                                                                                to where the requirements are covered in the          description of any significant alternatives to
                                        ‘‘II. Example Illustrating Single-Item
                                                                                                FRFA and where more detailed discussion               the final rule which accomplish the stated
                                        Analysis (Existing Accounts)’’.                         can be found in other chapters of the                 objectives of applicable statutes and which
                                        ■ 16. Appendix MS–1 to part 3500 is                     Regulatory Impact Analysis (RIA).                     minimize any significant impact of the final
                                        revised to read as follows:                                A. A description of the reasons why action         rule on small entities. The FRFA also
                                                                                                by the agency is being considered can be              describes comments dealing with compliance
                                        Appendix MS–1 to Part 3500                              found in Section III of this chapter, in              and regulatory burden in the 2008 proposed
                                          [Sample language; use business stationery             Section II of Chapter 1 of the RIA, and in            rule. Some of the comments were on
                                        or similar heading]                                     greater detail in the first sections of Chapters      provisions of the 2008 proposed rule that
                                          [Date]                                                3 and 4 of the RIA.                                   have been dropped. Other comments were on
                                                                                                   B. A succinct statement of the objectives of,      impacts that the Department believes will be
                                        SERVICING DISCLOSURE STATEMENT
                                                                                                and legal basis for, the final rule is provided       small or non-existent. Some of the
                                        NOTICE TO FIRST LIEN MORTGAGE
                                                                                                in Section III of this chapter. This is also          compliance and regulatory burden comments
                                        LOAN APPLICANTS: THE RIGHT TO
                                                                                                discussed in Section II of Chapter 1 of the           concerned costs that are only felt during the
                                        COLLECT YOUR MORTGAGE LOAN
                                                                                                RIA and in greater detail in the first sections       start-up period and are one-time costs. These
                                        PAYMENTS MAY BE TRANSFERRED
                                                                                                of Chapters 3 and 4 of the RIA.                       are discussed in Section VII.B, while
                                           You are applying for a mortgage loan                    C. A description and an estimate of the            comments on recurring costs of
                                        covered by the Real Estate Settlement                   number of small entities to which the rule            implementing the new GFE form are
                                        Procedures Act (RESPA) (12 U.S.C. 2601 et               will apply or an explanation of why no such           addressed in Section VII.C. Section VII.D
                                        seq.). RESPA gives you certain rights under             estimate is available. Section V provides data        discusses GFE-related changes in the final
                                        Federal law. This statement describes                   on small businesses that may be affected by           rule that reduce regulatory burden. Section
                                        whether the servicing for this loan may be              the rule. As explained in Section V, Chapter          VII.E discusses compliance issues related to
                                        transferred to a different loan servicer.               5 of the RIA also provides extensive                  GFE tolerances on settlement party costs,
                                        ‘‘Servicing’’ refers to collecting your                 documentation of the characteristics of the           while Section VII.F discusses efficiencies
                                        principal, interest, and escrow payments, if            industries directly affected by the rule,             associated with the new GFE.
                                        any, as well as sending any monthly or                  including various estimates of the numbers of            Before proceeding further, Section II
                                        annual statements, tracking account balances,           small entities, reasons why various data              provides a brief summary of the main
                                        and handling other aspects of your loan. You            elements are not reliable or unavailable, and         findings from the Regulatory Impact Analysis
                                        will be given advance notice before a transfer          descriptions of methodologies used to                 that relate to the final rule.
                                        occurs.                                                 estimate (if possible) necessary data elements
                                                                                                that were not readily available. The                  Summary of the Regulatory Impact Analysis
                                        Servicing Transfer Information
                                                                                                industries discussed in Chapter 5 of the RIA             There is strong evidence of information
                                          [We may assign, sell, or transfer the                 included the following (with section                  asymmetry between mortgage originators and
                                        servicing of your loan while the loan is                reference): mortgage brokers (Section II);            settlement service providers and consumers,
                                        outstanding.]                                           lenders including commercial banks, thrifts,          allowing loan originators to capture much of
                                          [or]                                                  mortgage banks, credit unions (Section III);          the consumer surplus in this market through
                                          [We do not service mortgage loans of the              settlement and title services including direct        price discrimination. The RESPA disclosure
                                        type for which you applied. We intend to                title insurance carriers, title agents, escrow        statute is meant to address this information
                                        assign, sell, or transfer the servicing of your         firms, and lawyers (Section IV); and other            asymmetry, but the evidence shows that the
                                        mortgage loan before the first payment is               third-party settlement providers including            current RESPA regulations are not effective.
                                        due.]                                                   appraisers, surveyors, pest inspectors, and           The final rule will create a more level-
                                          [or]                                                  credit bureaus (Section V); and real estate           playing field through a more transparent and
                                          [The loan for which you have applied will             agents (Section VI). As explained in Section          standard disclosure of loan details and
                                        be serviced at this financial institution and           V of this chapter, Appendix A includes                settlement costs; tolerances on settlement
                                        we do not intend to sell, transfer, or assign           estimates of revenue impacts for the new              charges leading to prices that consumers can
                                        the servicing of the loan.]                             Good Faith Estimate (GFE).                            rely on; and a comparison page on the HUD–
                                          [INSTRUCTIONS TO PREPARER: Insert                        D. A description of the projected reporting,       1 that allows the consumer to compare the
                                        the date and select the appropriate language            record keeping, and other compliance                  amounts listed for particular settlement costs
                                        under ‘‘Servicing Transfer Information.’’ The           requirements of the rule, including an                on the GFE with the total costs listed for
                                        model format may be annotated with further              estimate of the classes of small entities that        those charges on the HUD–1, and to double
                                        information that clarifies or enhances the              will be subject to the requirement and the            check the loan details at settlement. These
                                        model language.]                                        types of professional skills necessary for            changes will encourage comparison shopping
                                          Dated: November 7, 2008.                              preparation of the report or record.                  by informed consumers, which will place a
                                                                                                Compliance requirements and costs are                 competitive pressure on market prices, and
                                        Brian D. Montgomery,
                                                                                                discussed in Sections VII through IX of this          enable consumers to retain more consumer
                                        Assistant Secretary for Housing—Federal                 chapter. In no case are any professional skills       surplus.
                                        Housing Commissioner.                                   required for reporting, record keeping, and
                                                                                                other compliance requirements of this rule            Overview of Final Rule
                                          Note: The following appendix will not
                                        appear in the Code of Federal Regulations.              that are not otherwise required in the                   The Department of Housing and Urban
                                                                                                ordinary course of business of firms affected         Development has issued a final rule under
                                                                                                by the rule. As noted above, Chapter 5 of the         the Real Estate Settlement Procedures Act
                                        Appendix to FR–5180 Final Rule on
                                                                                                RIA includes estimates of the small entities          (RESPA) to simplify and improve the process
                                        Regulatory Flexibility Analysis                         that may be affected by the rule.                     of obtaining home mortgages and to reduce
                                          The following Regulatory Flexibility                     E. An identification, to the extent                settlement costs for consumers. This
                                        Analysis is Chapter 6 of the final rule’s               practicable, of all relevant Federal rules            Regulatory Impact Analysis and Regulatory
                                        Economic Analysis, which is available for               which may duplicate, overlap or conflict              Flexibility Analysis examine the economic
                                        public inspection and available online at               with the final rule. The final rule provisions        effects of that rule. As this Regulatory Impact
                                        http://www.hud.gov/respa.                               describing some loan terms in the new GFE             Analysis demonstrates, the final rule is
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                                                                                                and the HUD–1 are similar to the Truth in             expected to improve consumer shopping for
                                        Introduction                                            Lending Act (TILA) regulations; however the           mortgages and to reduce the costs of closing
                                          This chapter of the Regulatory Impact                 differences in approach between the TILA              a mortgage transaction for the consumer.
                                        Analysis is the Final Regulatory Flexibility            regulations and HUD’s RESPA rule make                 Consumer savings were estimated under a
                                        Analysis (FRFA) of the final rule as described          them more complementary than duplicative.             variety of scenarios about originator and



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                                        68260            Federal Register / Vol. 73, No. 222 / Monday, November 17, 2008 / Rules and Regulations

                                        settlement costs. In the base case, the                    • There is convincing statistical evidence           depending on whether the interest rate on the
                                        estimated price reduction to borrowers comes            that yield spread premiums are not always               loan is below or above ‘‘par.’’ Finally, current
                                        to $8.35 billion or $668 per loan. This                 used to offset the origination and settlement           rules do not assure that the ‘‘good faith
                                        represents the substantial savings that can be          costs of the consumer. Studies, including a             estimate’’ is a reliable estimate of final
                                        achieved with the final rule.                           recent HUD-sponsored study of FHA closing               settlement costs. As a result, under today’s
                                           The final RESPA rule includes a new,                 costs by the Urban Institute, find that yield           rules, the estimated costs on GFEs may be
                                        simplified Good Faith Estimate (GFE) that               spread premiums are often used for the                  unreliable or incomplete, and final charges at
                                        includes tolerances on final settlement costs           originator’s benefit, rather than for the               settlement may include significant increases
                                        and a new method for reporting wholesale                consumer’s benefit.3                                    in items that were estimated on the GFE, as
                                        lender payments in broker transactions. The                • Borrowers can be confused about the                well as additional fees, which can add to the
                                        final rule allows service providers to use              trade-off between interest rates and closing            consumer’s ultimate closing costs.
                                        prices based on the average charges for the             costs. It may be difficult for borrowers (even             Thus, today’s GFE is not an effective tool
                                        third-party services they purchase, making              sophisticated ones but surely unsophisticated           for facilitating borrower shopping or for
                                        their business operations simpler and less              ones) to understand the financial trade-offs            controlling origination and third-party
                                        costly. Competition among loan originators              associated with discount points, yield spread           settlement costs. There is enormous potential
                                        will put pressure for these cost savings to be          premiums, and upfront settlement costs.                 for cost reductions in today’s market, which
                                        passed on to borrowers. The new GFE will                While many originators explain this to their            is too often characterized by relatively high
                                        produce substantial shopping and price-                 borrowers, giving them an array of choices to           and highly variable charges for both
                                        reduction benefits for both origination and             meet their needs, some originators may only             origination and third-party services.
                                        third-party settlement services.                        show borrowers a limited number of options.                In addition, today’s RESPA rules hold back
                                           Because the final rule calls for significant            • There is also evidence that prices paid            efficiency and competition by acting as a
                                        changes in the process of originating a                 for third-party services are highly variable,           barrier to innovative cost-reduction
                                        mortgage, this Regulatory Impact Analysis               indicating that there is much potential to              arrangements. While today’s mortgage market
                                        identifies a wide range of benefits, costs,             reduce title, closing, and other settlement             is characterized by increased efficiencies and
                                        efficiencies, transfers, and market impacts.            costs. For example, a recent analysis of FHA            lower prices due to technological advances
                                        The effects on consumers from improved                  closing costs by the Urban Institute shows              and other innovations that is not the case in
                                        borrower shopping will be substantial under             wide variation in title and settlement costs.           the settlement area where aggressive
                                        this rule. Similarly, the use of tolerances will        There is not always an incentive in today’s             competition among settlement service
                                        place needed controls on origination and                market for originators to control these costs.          providers simply does not always take place.
                                        third-party fees. Ensuring that yield spread            Too often, high third-party costs are simply            Existing RESPA regulations inhibit average
                                        premiums are credited to borrowers in                   passed through to the consumer. And                     cost pricing,4 which is an example of a cost
                                        brokered transactions could cause significant           consumers may not be the best shoppers for              reduction technique. Thus, a framework is
                                        transfers to consumers. The increased                   third-party service providers due to their lack         needed that would encourage competitive
                                        competition associated with RESPA reform                of expertise and to the infrequency with                negotiations and other arrangements that
                                        will reduce settlement service costs and                which they shop for these services.                     would lead to lower settlement prices. The
                                        result in transfers to consumers from service           Consumers often rely on recommendations                 new GFE will provide such a framework.
                                        providers. Entities that will suffer revenue            from the real estate agent (in the case of a
                                        losses under the final rule are usually those                                                                   Approach of the Final Rule
                                                                                                home purchase) or from the loan originator
                                        who are charging prices higher than                     (in the case of a refinance as well as a home           Main Components of the New GFE and
                                        necessary or are benefiting from the current            purchase).                                              HUD–1
                                        system’s market failure.                                   Today’s GFE. Today’s GFE does not help                  The GFE format simplifies the process of
                                           Note to Reader: A comprehensive                      the above situations, as it is not an effective         originating mortgages by consolidating costs
                                        summary of the problems with the current                tool for facilitating borrower shopping nor for         into a few major cost categories.5 The GFE
                                        mortgage shopping system and the benefits               controlling third-party settlement costs. The           ensures that in brokered transactions,
                                        and market impacts of the final rule is                 current GFE is typically comprised of a long            borrowers receive the full benefit of the
                                        provided in Section I of Chapter 3.                     list of charges, as today’s rules do not                higher price paid by wholesale lenders for a
                                                                                                prescribe a standard form or consolidated               loan with a high interest rate; that is, so-
                                        Problems With the Mortgage Shopping                     categories. Such a long list of individual              called yield spread premiums. On both the
                                        Process and the Current GFE                             charges can be overwhelming, often confuses             GFE and HUD–1, the portion of any
                                          The current system for originating and                consumers, and seems to provide little useful           wholesale lender payments that arise because
                                        closing mortgages is highly complex and                 information for consumer shopping. The                  a loan has an above-par interest rate is passed
                                        suffers from several problems that have                 current GFE certainly does not inform                   through to borrowers as a credit against other
                                        resulted in high prices for borrowers. Studies          consumers what the major costs are so that              costs. Thus, there is assurance that borrowers
                                        indicate that consumers are often charged               they can effectively shop and compare                   who take on an above-par loan receive funds
                                        high fees and can face wide variations in               mortgage offers among different loan                    to offset their settlement costs. The new GFE
                                        prices, both for origination and third-party            originators. The current GFE does not explain           also includes a trade-off table that will assist
                                        settlement services. The main points are as             how the borrower can use the document to                consumers in understanding the relationship
                                        follows:                                                shop and compare loans. Also, the GFE fails             between higher interest rates and lower
                                          • There are many barriers to effective                to make clear the relationship between the              settlement costs.
                                        shopping for mortgages in today’s market.               closing costs and the interest rate on a loan,             HUD conducted consumer tests to further
                                        The process can be complex and can involve              notwithstanding that many mortgage loans                improve the GFE form in the 2002 proposed
                                        rather complicated financial trade-offs,                originated today adjust up-front closing costs          rule. Numerous changes were made to make
                                        which are often not fully and clearly                   due at settlement, either up or down,                   the GFE more user-friendly. The GFE form in
                                        explained to borrowers.
                                          • Consumers often pay non-competitive                 costs associated with originating loans for different      4 The charges reported on the HUD–1 are required
                                        fees for originating mortgages. Most observers          applicants. For example, those who required more        to be the specific charge paid in connection with
                                        believe that the market breakdown occurs in             work by the originator to obtain loan approval          the specific loan for which the HUD–1 is filled out.
                                        the relationship between the consumer and               might be charged more than those whose                  Pricing based on average charges is the practice of
                                        the loan originator—the ability of the loan             applications required little work in order to obtain    charging all borrowers the same average charge for
                                        originator to price discriminate among                  an approval. The price discrimination we refer to       a group of similar loans. Average cost pricing
                                                                                                in this paragraph and elsewhere in this analysis is     requires less record keeping and tracking for any
                                        different types of consumers leads to some
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                                                                                                not cost-based. It is the result of market              individual loan since the numbers reported to the
                                        consumers paying more than other                        imperfections, such as poor borrower information        settlement agent need not be transaction specific.
                                        consumers.2                                             on alternatives that leads borrowers to accept loans    Average cost pricing is not permissible under
                                                                                                at higher cost than the competitive level.              RESPA because loan-specific prices are required.
                                          2 One could see price discrimination in a                3 See Section IV.D of Chapter 2 for a discussion        5 See the proposed GFE in Exhibit 3–B of Chapter

                                        competitive market that was the result of different     of these studies.                                       3.



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                                                         Federal Register / Vol. 73, No. 222 / Monday, November 17, 2008 / Rules and Regulations                                                        68261

                                        the final rule includes a summary page                  layout of the revised HUD–1 has new                      $668 per loan. Sensitivity analysis was
                                        containing the key information for shopping;            labeling of some lines so that each entry from           conducted with respect to the savings
                                        during the tests, consumers reported that the           the GFE can be found on the revised HUD–                 projection in order to provide a range of
                                        summary page was a useful addition to the               1 with the exact wording as on the GFE. This             estimates. Because title fees account for over
                                        GFE. The trade-off table, another component             will make it much easier to determine if the             70 percent of third-party fees and because
                                        of the GFE that consumers found useful, is              fees actually paid at settlement are consistent          there is widespread evidence of lack of
                                        also included in the final GFE. The final GFE           with the GFE, whether the borrower does it               competition and overcharging in the title and
                                        is a form that consumers find to be clear and           alone or with the assistance of the settlement           settlement closing industry, one approach
                                        well written and, according the tests                   agent. The reduced number of HUD–1 entries               projected third-party savings only in that
                                        conducted, one that they can use to                     that should result, as well as use of the same           industry. This approach (called the ‘‘title
                                        determine the least expensive loan. In other            terminology on both forms should reduce the              approach’’) projected savings of $200 per
                                        words, it is a shopping tool that is a vast             time spent by the borrower and settlement                loan in title and settlement fees. In this case,
                                        improvement over today’s GFE with its long              agents comparing and checking the numbers.               the estimated price reduction to borrowers
                                        list of fees that can change (i.e., increase) at           The significant changes made to the final             comes to $8.38 billion ($670 per loan), or
                                        settlement.                                             rule from the March 2008 proposed rule are:              12.6 percent of the $66.7 billion in total
                                           The final GFE includes a set of tolerances              • A GFE form that is a shorter form than              charges—savings figures that are practically
                                        on originator and third-party costs:                    had been proposed.                                       identical to the base case mentioned above.8
                                        originators must adhere to their own                       • Allowing originators the option not to              Other projections also showed substantial
                                        origination fees, and give estimates subject to         fill out the tradeoff table on the GFE form.             savings for consumers. As explained in
                                        a 10 percent upper limit on the sum of                     • A revised definition of application to              Chapter 3, estimated consumer savings under
                                        certain third-party fees. The tolerances on             eliminate the separate GFE application                   a more conservative projection totaled $6.48
                                        originator and third-party costs will                   process.                                                 billion ($518 per loan), or 9.7 percent of total
                                        encourage originators not only to lower their              • Adoption of requirements for the GFE                settlement charges. Thus, while consumer
                                        own costs but also to seek lower costs for              that are similar to recently revised Federal             savings are expected to be $8.35 billion (or
                                        third-party services.                                   Reserve Board Truth-in-Lending regulations               12.5 percent of total charges) in the base case
                                           The final rule would allow service                   which limit fees charged in connection with              or $8.38 billion (12.6 percent of total charges)
                                        providers to use pricing based on average               early disclosures and defining timely                    in the title approach, they were $6.48 billion
                                        charges for third-party services they purchase          provision of the disclosures.                            (or 9.7 percent of total charges) in a more
                                        so long as the average is calculated using a               • Clarification of terminology that                   conservative sensitivity analysis. This $6.48–
                                        documented method and the charge on the                 describes the process applicable to, and the             $8.38 billion ($518–$670 per loan) represents
                                        HUD–1 is no greater than the average paid for           terms of, an applicant’s particular loan.                the substantial savings that can be achieved
                                        that service. This will make internal                      • Inclusion of a provision to allow lenders           with the new GFE.
                                        operations for the loan originator simpler and          a short period of time in which to correct                 Industry Breakdown of Savings. Chapter 3
                                        less costly and competition among lenders               certain violations of the new disclosure                 also disaggregates the sources of consumer
                                        will put pressure for these cost savings to be          requirements.                                            savings into the following major categories:
                                        passed on to borrowers as well. The end                    • A revised HUD–1/1A settlement                       originators with a breakdown for brokers and
                                        result of all these changes should be lower             statement form that includes a summary page              lenders, and third-party providers with a
                                        third-party fees for consumers.                         of information that provides a comparison of             breakdown for the title and settlement
                                           To increase the value of the new GFE as              the GFE and HUD–1/1A list of charges and                 industry and other third-party providers.9 In
                                        a shopping document, HUD is proposing                   a listing of final loan terms as a substitute for        the base case, originators (brokers and
                                        revisions to the HUD–1 Settlement Statement             the proposed closing script addition.                    lenders) contribute $5.88 billion, or 70
                                        form that will make the GFE and HUD–1                      • Elimination of the requirement for a                percent of the $8.35 billion in consumer
                                        easier to compare. The revised HUD–1 uses               closing script to be completed and read by               savings. This $5.88 billion in savings
                                        the same language to describe categories of             the closing agent.                                       represents 14.0 percent of the total revenue
                                        charges as the GFE, and orders the categories              • A simplified process for utilizing an               of originators, which is projected to be $42.0
                                        of charges in the same way. This makes it               average charge mechanism.                                billion.10 The $5.88 billion is divided
                                        much simpler to compare the two documents                  • No regulatory change in this rulemaking             between brokers, which contribute $3.53
                                        and confirm whether the tolerances required             regarding negotiated discounts, including                billion, and lenders (banks, thrifts, and
                                        in the new GFE have been met or exceeded.               volume based discounts.                                  mortgage banks), which contribute the
                                        In addition, the final rule introduces a                Estimates and Sources of Consumer Savings                remaining $2.35 billion. The shares for
                                        comparison in the revised HUD–1 that                    From the Final Rule                                      brokers (60 percent) and lenders (40 percent)
                                        would: (1) Compare the GFE estimates to the                                                                      represent their respective shares of mortgage
                                                                                                   Overall Savings. Chapter 3 discusses the              originations. In the base case, third-party
                                        HUD–1 charges and advise borrowers                      consumer benefits associated with the new
                                        whether tolerances have been met or                                                                              settlement service providers contribute $2.47
                                                                                                GFE form and provides dollar estimates of                billion, or 30 percent of the $8.35 billion in
                                        exceeded; (2) verify that the loan terms                consumer savings due to improved shopping
                                        summarized on the GFE match those in the                                                                         consumer savings. This $2.47 billion in
                                                                                                for both originator and third-party services.            savings represents 10.0 percent of the total
                                        loan documents, including the mortgage                  Consumer savings were estimated under a
                                        note; and (3) provide additional information            variety of scenarios about originator and                  8 If the savings in title and settlement closing fees
                                        on the terms and conditions of the mortgage.            settlement costs.6 In the base case, the
                                        These components of the rule are required                                                                        due to RESPA reform were only $150, then the
                                                                                                estimated price reduction to borrowers comes             estimated price reduction to borrowers comes to
                                        together to fully realize the consumer saving           to $8.35 billion annually, or 12.5 percent of            $7.76 billion, or 11.6 percent of the $66.7 billion
                                        on mortgage closing cost estimated here.                the $66.7 billion in total charges (i.e.,                in total charges.
                                           Given that there has been no significant             origination fees, appraisal, credit report, tax            9 Readers are referred to Chapter 5 for a more
                                        change in the basic HUD–1 structure and                 service and flood certificate and title                  detailed examination of the various component
                                        layout, besides the addition of a comparison            insurance and settlement agent charges).7                industries (e.g., title services, appraisal, etc.) as well
                                        page, generating this new HUD–1 should not              Thus, there is an estimated $8.35 billion in             as for the derivations of many of the estimates
                                        pose any problem for firms closing loans—in             transfers from firms to borrowers from the               presented in this chapter.
                                        fact, the closing process will be much                  improved disclosures and tolerances of the
                                                                                                                                                           10 This assumes a 1.75 percent origination fee for

                                        simpler given that borrowers and closing                                                                         brokers and lenders, which, when applied to
                                                                                                new GFE. This would represent savings of
                                        agents can precisely link the information on                                                                     projected originations of $2.4 trillion, yields $42.0
                                        the initial GFE to the information on the final                                                                  billion in total revenues from origination fees (both
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                                                                                                   6 Throughout this Economic Analysis, the terms
                                                                                                                                                         direct and indirect). See Steps (3)–(5) of Section
                                        HUD–1.The HUD–1 has also been adjusted to               ‘‘borrowers’’ and ‘‘consumers’’ are often used           VII.E.1 of Chapter 3 for the explanation of
                                        ensure that the new GFE (a shopping                     interchangeably.                                         origination costs. Sensitivity analyses are
                                        document issued early in the process) and                  7 Government fees and taxes and escrow items are      conducted for smaller origination fees of 1.5 percent
                                        the HUD–1 (a final settlement document                  not included in this analysis, as they are not subject   and larger fees of 2.0 percent; see Step (21) in
                                        issued at closing) work well together. The              to competitive market pressures.                         Section VII.E.4 of Chapter 3.



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                                        68262                 Federal Register / Vol. 73, No. 222 / Monday, November 17, 2008 / Rules and Regulations

                                        revenue of third-party providers, which is                                  (appraisers, surveyors, pest inspectors, etc.),                          In the title approach, title and settlement
                                        projected to be $24.738 billion.11 The $2.47                                which contribute $0.68 billion. Title and                                agents account for all third-party savings,
                                        billion is divided between title and                                        settlement agents contribute a large share                               which total $2.5 billion if per loan savings
                                        settlement agents, which contribute $1.79                                   because they account for 72.5 percent of the                             are $200 and $1.88 billion if per loan savings
                                        billion, and other third-party providers                                    third-party services included in this analysis.                          are $150.

                                                                                                TABLE 6–1—INDUSTRY BREAKDOWN OF CONSUMER SAVINGS
                                                                                                                                                                                                                Savings        Percentage of
                                                                                                                                                                                             Transfers          per loan
                                                                                                  Source of savings                                                                                                            total savings
                                                                                                                                                                                             (billions)       (12.5 million      (percent)
                                                                                                                                                                                                                 loans)

                                        Loan Origination ..........................................................................................................................                 $5.88             $470                  70
                                             Lenders .................................................................................................................................               2.35            470 or                 28
                                             Brokers .................................................................................................................................               3.53              470                  42
                                        Third-Party Services ....................................................................................................................                    2.47              198                  30
                                             Title/Settlement .....................................................................................................................                  1.79              143                  22
                                             Other .....................................................................................................................................             0.68               54                   8

                                                     Total * .............................................................................................................................           8.35               668                100
                                           * Savings are 12.5% of $66.7 billion revenue in charges.


                                           Section III.D of this executive summary                                  between the wholesale price of the loan and                                 Mortgage applicants and borrowers realize
                                        presents the revenue impacts on small                                       its par value. Their placement in the                                    $1,169 million savings in time spent
                                        originators and small third-party providers.                                calculations that lead to net settlement costs                           shopping for loans and third-party services.
                                           Sources of Savings: Lower Origination and                                will make them very difficult to miss. That                              Loan originators save $975 million in time
                                        Third-Party Fees. The Regulatory Impact                                     placement should also enhance borrower                                   spent with shoppers and from average cost
                                        Analysis presents evidence that some                                        comprehension of how yield spread                                        pricing. Third-party settlement service
                                        consumers are paying higher prices for                                      premiums can be used to reduce up-front                                  providers save $191 million in time spent
                                        origination and third-party services. The new                               settlement costs. Tests of the form indicate                             with shoppers. Some or all of industry’s total
                                        GFE format in the final rule will improve                                   that consumers can determine the cheaper                                 of $1,166 million in efficiency gains have the
                                        consumer shopping for mortgages, which                                      loan when comparing a broker loan with a                                 potential to be passed through to borrowers
                                        will result in better mortgage products, lower                              lender loan.                                                             through competition. There are additional
                                        interest rates, and lower origination and                                      • The new GFE will better inform                                      social efficiencies such as the reduction of
                                        third-party costs for borrowers.                                            consumers about their financing choices by                               non-productive behavior and positive
                                           • The final rule simplifies the process of                               including a tradeoff table on page 3 where                               externalities of preventing foreclosures (see
                                        originating mortgages by consolidating costs                                originators can present the different interest                           Section X.D.).
                                        into a few major cost categories. This is a                                 rate and closing cost options available to                                  The total one-time compliance costs to the
                                        substantial improvement over today’s GFE                                    borrowers. For example, consumers will                                   lending and settlement industry of the GFE
                                        that is not standardized and can contain a                                  better understand the trade-offs between                                 and HUD–1 are estimated to be $571 million,
                                        long list of individual charges that                                        reducing their closing costs and increasing                              $407 million of which is borne by small
                                        encourages fee proliferation. This makes it                                 the interest rate on the mortgage.                                       business. These costs are summarized below.
                                        easier for the consumer to become                                              • The final rule allows settlement service                            Total recurring costs are estimated to be $918
                                        overwhelmed and confused. The consistent                                    providers to use prices based on average                                 million annually or $73.40 per loan. The
                                        and simpler presentation of the GFE will                                    charges for the third-party services they                                share of the recurring costs on small business
                                        improve the ability of the consumer to shop.                                purchase.
                                           • A GFE with a summary page, which                                                                                                                is $471 million. This Chapter 6 examines in
                                                                                                                       • The above changes and the imposition of                             greater detail the compliance and other costs
                                        includes the terms of the loan, will make it                                tolerances on fees will encourage originators
                                        clear to the consumer whether they are                                                                                                               associated with the GFE and HUD–1 forms
                                                                                                                    to seek lower settlement service prices. The                             and its tolerances.
                                        comparing similar loans.                                                    tolerances will lead to well-informed market
                                           • A GFE with a summary page will make                                                                                                                The new GFE in the final rule has some
                                                                                                                    professionals either arranging for the
                                        it simpler for borrowers to shop. The higher                                                                                                         features that would increase the cost of
                                                                                                                    purchase of the settlement services or at least
                                        reward for shopping, along with the                                                                                                                  providing it and some that would decrease
                                                                                                                    establishing a benchmark that borrowers can
                                        increased ease with which borrowers can                                                                                                              the cost. Practically all of the information
                                                                                                                    use to start their own search. Under either set
                                        compare loans, should lead to more effective                                                                                                         required on the GFE is readily available to
                                                                                                                    of circumstances, this should lead to lower
                                        shopping, more competition, and lower                                                                                                                originators, suggesting no additional costs.
                                                                                                                    prices for borrowers than if the borrowers
                                        prices for borrowers.                                                                                                                                The fact that there are fewer numbers and
                                                                                                                    shopped on their own, since the typical
                                           • The GFE makes cost estimates more                                      borrower’s knowledge of the settlement
                                                                                                                                                                                             less itemization of individual fees suggests
                                        reliable by applying tolerances to the figures                                                                                                       reduced costs. On the other hand, there could
                                                                                                                    service market is limited, at best.
                                        reported. This will reduce the all too frequent                                                                                                      be a small amount of additional costs
                                        problem of borrowers being surprised by                                     Savings and Transfers, Efficiencies, and Costs                           associated with the optional trade-off table
                                        additional costs at settlement. With fees                                      As explained above, it is estimated that                              but that is not clear. Thus, while it is difficult
                                        firmer under the GFE, shopping is more                                      borrowers would save $8.35 billion in                                    to estimate, it appears that there could be a
                                        likely to result in borrowers saving money                                  origination and settlement charges. This                                 net of zero additional costs. However, if the
                                        when they shop.                                                             $8.35 billion represents transfers to                                    GFE added 10 minutes per application to the
                                           • The new GFE will disclose yield spread                                 borrowers from high priced producers, with                               time it takes to handle the forms today;
                                        premiums and discount points in brokered                                    $5.88 billion coming from originators and                                annual costs would rise by $255 million at
                                        loans prominently, accurately, and in a way                                 $2.47 billion from third-party settlement                                1.7 applications per loan or ($12 per
                                        that should inform borrowers how they may                                   service providers. In addition to the transfers,                         application or $20 per loan) or $405 million
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                                        be used to their advantage. Both values will                                there are efficiencies associated with the rule                          at 2.7 applications per loan ($32 per loan).
                                        have to be calculated as the difference                                     as well as costs.                                                        We assume the high-cost scenario for


                                          11 See Step (7) of Section VII.E.1 of Chapter 3 for

                                        the derivation of the $24.738 billion.


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                                                              Federal Register / Vol. 73, No. 222 / Monday, November 17, 2008 / Rules and Regulations                                                                      68263

                                        summary table 6–5. (See Section VII.C.1 of                                 new employees in its use and the costs                       and may have to fill out the entire form if the
                                        this chapter for further details.)                                         associated with periodic upgrades simply                     lender does not transmit the information on
                                           The presence of tolerances will lead to                                 replace those costs that would have been                     an already completed HUD–1 page 3. The
                                        some additional costs to originators of                                    incurred doing the same thing with software                  settlement agent may also want to check the
                                        making additional arrangements for third                                   for the old rule. They represent no additional               information concerning settlement costs,
                                        parties to provide settlement services. If the                             costs of the new rule.                                       tolerances, and loan terms to make sure they
                                        average loan originator incurs an average of                                  Similarly, there will be a one-time                       agree with the GFE. In some cases, the
                                        10 minutes per loan of effort making third-                                adjustment cost for legal advice on how to                   settlement agent will have to calculate the
                                        party arrangements to meet the tolerances,                                 deal with the changes related to the new                     tolerances. We assume that it will add five
                                        then the total cost to originators of making                               GFE. The one-time adjustment cost for legal                  minutes on average to the time it takes to
                                        third-party arrangements to meet the                                       fees is estimated to be $116 million (see                    prepare a settlement. The actual distribution
                                        tolerance requirements comes to $150                                       Section VII.B.2 of this chapter). Once the                   of the total additional time burden will differ
                                        million ($12 per loan). (See Section VII.E.2 of                            adjustment has been made, the ongoing legal                  by transaction depending on how much of
                                        this chapter.)                                                             costs are a substitute for the ongoing legal                 the work is done by the lender. Taking loan
                                           There is the potential of additional                                    costs that would have been incurred under
                                                                                                                                                                                originators into account, the total time
                                        underwriting costs if the number of                                        the old rule and do not represent any
                                                                                                                                                                                burden is 15 minutes per loan, for a cost of
                                        applications requiring a credit check rise                                 additional burden.
                                                                                                                                                                                $18 per loan. The recurring compliance cost
                                        beyond the current ratio of 1.7 applications                                  Finally with respect to the GFE, employees
                                        per loan. Thus, if this ratio remains constant,                            will have to be trained in the new GFE                       to the industry would be $225 million
                                        there will be no recurring compliance costs                                beyond the software and legal training                       annually, of which small business would
                                        from additional underwriting. If, however,                                 already mentioned. This one time adjustment                  bear $107 million annually. During a high-
                                        the demand for preliminary GFEs increases                                  cost is estimated to be $194 million (see                    volume year (15.5 million loans annually),
                                        to 2.7 applications per loan, then the total                               section VII.B.3). Again, once the transition                 the annual recurring compliance cost of the
                                        costs for originators will be $138 million or                              expenses have been incurred, any ongoing                     HUD–1 would be $279 million annually. (See
                                        $11 per loan (See Section VII.C.).                                         training costs are a substitute for the training             Section VIII.C. of Chapter 6.)
                                           In addition to the recurring costs of the                               costs that would have been incurred anyway                      There will be one-time adjustment costs of
                                        GFE, there will be one-time adjustment costs                               and do not represent an additional burden.                   $188 million in switching to the new HUD–
                                        of $383 million in switching to the new form.                                 There are few recurring costs associated                  1 form. Settlement firms will have to upgrade
                                        Loan originators will have to upgrade their                                with the revised HUD–1. For originators the                  their software and train staff in its use in
                                        software and train staff in its use in order to                            burden could be very small: Loan originators                 order to accommodate the requirements of
                                        accommodate the requirements of the new                                    will not have to collect additional data                     the new rule. It is estimated that the software
                                        rule. It is estimated that the software cost will                          beyond what is required for the GFE. In                      and training cost will be $80 million (see
                                        be $33 million and the training cost will be                               certain cases, the burden may be noticeable                  Section VIII.B. of Chapter 6). Once the new
                                        $58 million, for a total of $91 million (see                               so we assume that the average burden is ten                  software is functioning, the recurring costs of
                                        Section VII.B.1 of this chapter). We assume                                minutes per loan for loan originators.                       training new employees in its use and the
                                        that, of the loan originators’ software and                                Settlement agents may face a recurring cost,                 costs associated with periodic upgrades
                                        training costs, $73 million is attributable to                             although this is not likely either since loan                simply replace those costs that would have
                                        the new GFE and $18 million to the new                                     originators are responsible for providing the                been incurred doing the same thing with
                                        HUD–1. Once the new software is                                            data. The settlement agent will have to add                  software for the old rule. They represent no
                                        functioning, the recurring costs of training                               final charges not known by the originator,                   additional costs of the new rule.

                                                                                                 TABLE 6–2—SUMMARY OF ONE-TIME ADJUSTMENT COSTS
                                                                                                                                          [In millions]

                                                                                                                                GFE                                     HUD–1                                  Total
                                                            Source of cost
                                                                                                                All firms             Small firms           All firms       Small firms           All firms            Small firms

                                        Software and training ...............................                               $73                   $52               $80                 $59              $153                  $111
                                        Legal consultation ....................................                             116                    70                37                  18               153                    88
                                        Training on rule ........................................                           194                   146                71                  62               265                   208

                                              Total ..................................................                      383                   268               188                 139               571                   407



                                          Similarly, there will be a one-time                                      the old rule and do not represent any                        a substitute for the training costs that would
                                        adjustment cost for legal advice on how to                                 additional burden.                                           have been incurred anyway and do not
                                        deal with the changes related to the new                                     Finally, employees will have to be trained                 represent an additional burden.
                                        HUD–1. The one-time adjustment cost for                                    in the new HUD–1 beyond the software and                        The consumer savings, efficiencies and
                                        legal fees is estimated to be $37 million (see                             legal training already mentioned. This one-                  costs associated with the GFE are discussed
                                        Section VIII.B. of Chapter 6). Once the                                    time adjustment cost is estimated to be $71                  further in Chapter 6 and in Chapter 3. A
                                        adjustment has been made, the ongoing legal                                million (see Section VIII.B. of Chapter 6).                  summary of the compliance costs for the base
                                        costs are a substitute for the ongoing legal                               Again, once the transition expenses have                     case of 12.5 million loans annually is
                                        costs that would have been incurred under                                  been incurred, any ongoing training costs are                presented below in Table 6.1.

                                                                                                      TABLE 6–3—COMPLIANCE COSTS OF THE FINAL RULE
                                                                                                                                [If 12.5 million loans annually]

                                                                                                                                       One-time compliance costs                       Recurring compliance costs
                                                                                                                                      incurred during the first year                      (in millions annually)
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                                                                                                                                              (in millions)
                                                                                                                                                                                All firms        Small firms       Cost per loan
                                                                                                                                       All firms          Small firms

                                        GFE ......................................................................................            $383                 $268                $693              $364                $55.40



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                                        68264                Federal Register / Vol. 73, No. 222 / Monday, November 17, 2008 / Rules and Regulations

                                                                                         TABLE 6–3—COMPLIANCE COSTS OF THE FINAL RULE—Continued
                                                                                                                                [If 12.5 million loans annually]

                                                                                                                                       One-time compliance costs                                        Recurring compliance costs
                                                                                                                                      incurred during the first year                                       (in millions annually)
                                                                                                                                              (in millions)
                                                                                                                                                                                             All firms            Small firms    Cost per loan
                                                                                                                                         All firms              Small firms

                                        HUD–1 .................................................................................                     188                        139                       225               107           18.00

                                              Total ..............................................................................                  571                        407                       918               471           73.40



                                          A natural question to raise is whether the                               raising prices. It is likely that the adjustment                         were passed onto consumers then the net
                                        costs of the rule will overwhelm the benefits                              costs will be spread out over many years, just                           consumer savings is $548 the first year and
                                        of the rule. The assumption that consumers                                 as the cost of an investment would be.                                   $594 in subsequent years (see table 6–4 for
                                        will benefit by a reduction of settlement costs                            Suppose, for the sake of illustration, that all                          a summary). Note that this assumes that all
                                        of at least $668 per loan has not been                                     adjustment costs are all imposed on first-year                           costs are borne by borrowers and not at all
                                        forcefully challenged. Indeed, results from a                              borrowers only. In a normal year of 12.5
                                                                                                                                                                                            by the applicants who do not get a loan. It
                                        recent statistical analysis of FHA data imply                              million loans, this cost would $46 per loan.
                                        that the savings to consumers may be as                                    The recurring compliance costs of the rule is                            would be reasonable to assume that in the
                                        much as $1,200 per loan. To accomplish this,                               $73.40 per loan regardless of the year. In                               high-application scenario, where there is an
                                        however, industry will incur both adjustment                               such a scenario, the total compliance cost is                            increase in preliminary underwriting costs,
                                        and recurring costs. Suppose firms impose                                  $120 per loan in the first year as compared                              that the cost of an initial credit report would
                                        these additional costs on consumers by                                     to $74 for later years. If all compliance costs                          be passed on to all applicants.

                                                                                             TABLE 6–4—PREDICTED REDUCTIONS IN THE COST OF A LOAN
                                                                                                 [If firms impose all first-year adjustment costs on first-year borrowers]

                                                                                                           Source of gain or loss                                                                                 First year      Afterwards

                                        Average Consumer Savings ....................................................................................................................................                     $668           $668
                                            One-time Adjustment Costs .............................................................................................................................                       ¥46             ¥0
                                            Recurring Compliance Costs ............................................................................................................................                       ¥74            ¥74

                                        Net Consumer Savings ............................................................................................................................................                  548             594

                                              Firms’ Efficiencies .............................................................................................................................................            +93             +93
                                              Borrowers’ Efficiencies .....................................................................................................................................                +55             +55

                                        Net Benefits to Consumer .......................................................................................................................................                   696             742


                                           There are other potential benefits to the                               cost consumer savings gives us an estimate                               premiums, and that provides identical
                                        consumer besides savings on settlement                                     of the potential consumer benefits per loan:                             treatment for brokers and lenders. The final
                                        costs. There are aspects of this rule that will                            $696 in the first year and $742 afterwards.                              GFE includes language that clarifies how
                                        save time for industry. The value of these                                 Alternatives Considered To Make the GFE                                  yield spread premiums reduce the upfront
                                        efficiencies could be $1,166 million for loan                              More Workable for Small and Other                                        charge that borrowers pay. Section III.E of
                                        originators and settlement agents, for a per                               Businesses                                                               this Executive Summary discusses this in
                                        loan efficiency of $93. In a competitive                                                                                                            more detail.
                                        industry, firms would pass these gains along                                  Chapter 3 discusses the many comments                                    HUD designed the GFE to make it workable
                                        to borrowers in the form of lower costs, a                                 that HUD received on the GFE in the 2002                                 for small lenders and brokers. Some
                                        consumer benefit. Borrowers themselves will                                and 2008 proposed rules and the 2005                                     examples of the changes are the following:
                                        save time through the new GFE. These time                                  RESPA Reform Roundtables. Chapter 4                                         • In response to concerns expressed by
                                        savings are estimated at $1,169 million but                                discusses alternatives. The most basic                                   lenders and brokers about their ability to
                                        are derived from a time savings worth $55                                  alternative was to make no change in the                                 control third-party costs and meet the
                                        per applicant (seventy-five minutes at $44                                 current GFE. The final rule allows both the                              specified tolerances in the 2008 proposed
                                        per hour). In the summary of net benefits, we                              current GFE and the new GFE to be used for                               rule, HUD raised the tolerance on
                                        only include the per applicant time savings                                one year after the GFE is introduced, but                                government recording charges from zero to
                                        for borrowers. We make the cautious                                        requires the new GFE and HUD–1 to be used                                ten percent.
                                        assumption that successful borrowers have                                  beginning January 1, 2010. This                                             • Consistent with the above, the rule
                                        submitted only one application. A fraction of                              approximately one-year adjustment period                                 creates a new definition of ‘‘forseeable
                                        the additional 8.25 million applications (in                               responds to lenders’ comments that there                                 circumstances’’ that clarifies and expands on
                                        excess of 12.5 million loans) consist of:                                  would be significant implementation issues                               the definition of ‘‘circumstances’’ in the
                                        Applications approved but not accepted;                                    with switching to a new GFE.                                             proposed rule. For example, material
                                        applications denied by the financial                                          The main alternative concerning small                                 information that was either not known at the
                                        institution; and applications withdrawn by                                 businesses considered the brokers’ argument                              time the original GFE was provided or not
                                        the applicant. Although these individuals                                  that they were disadvantaged by the                                      relied on in providing the original GFE, or
                                        also realize time savings, it would be                                     reporting of yield spread premiums. The new                              information that has changed in a material
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                                        misleading to include them in a ‘‘per loan’’                               GFE was designed to ensure that there will                               way since application, may be the basis for
                                        figure in that the time savings of rejected                                not be any anti-competitive impacts on the                               providing a modified GFE. For example, if
                                        applicants would not benefit the borrower.                                 broker industry. A summary page is included                              the actual loan amount turns out to be higher
                                        Adding the firms’ and borrowers’ value of                                  that presents the key cost figures for borrower                          than the loan amount indicated by the
                                        time efficiencies to the net of compliance                                 shopping that does not report yield spread                               borrower at the time the GFE was provided,



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                                                         Federal Register / Vol. 73, No. 222 / Monday, November 17, 2008 / Rules and Regulations                                                 68265

                                        and certain settlement charges that are based             increased competition associated with                competition is maintained between brokers
                                        on the loan amount increase as a result, the              discounting—all will lead to reductions in           and lenders. The forms adopted in the final
                                        loan originator may provide a revised GFE                 both originator and third-party fees. As noted       rule were tested on hundreds of subjects. The
                                        reflecting those higher amounts. Compliance               earlier, there is substantial evidence of non-       tests indicate that borrowers who comparison
                                        with the tolerance provisions would be                    competitive prices charged to some in the            shop will have little difficulty identifying the
                                        evaluated by comparing the revised GFE with               origination and settlement of mortgages due          cheapest loan offered in the market whether
                                        the actual amounts charged at settlement.                 to information asymmetry between                     from a broker or a lender.
                                           • HUD has adopted a streamlined single                 originators and borrowers. Originators (both            We do not believe that the customer
                                        application process for the final rule. The               small and large) and settlement service              outreach function that brokers perform for
                                        new definition will allow loan originators                providers (both small and large) that have           wholesale lenders is going to change with
                                        more flexibility in determining the                       been charging high prices will experience            RESPA reform. Wholesale lending, which has
                                        information they need to underwrite a GFE.                reductions in their revenues as a result of the      fueled the rise in mortgage originations over
                                           • The reading at settlement of a closing               new GFE. There is no evidence that small             the past ten years, will continue to depend
                                        script is no longer required. Much of the                 businesses have been disproportionately              on brokers reaching out to consumer
                                        same information will be transmitted to the               charging high prices; for this reason, there is      customers and supplying them with loans.
                                        borrower via a new page 3 of the HUD–1.                   no expectation of any disproportionate               Brokers play the key role in the upfront part
                                           Alternatives. This chapter and Chapter 4               impact on small businesses from the new              of the mortgage process and this will
                                        and Chapter 6 discuss other major                         GFE. The revenue reductions will be                  continue with the final GFE.
                                        alternatives that HUD considered in                       distributed across firms based on their non-            RESPA reform is also not going to change
                                        developing the final rule from the 2008                   competitive price behavior.                          the basic cost and efficiency advantages of
                                        proposed rule. These chapters discuss the                    Small Brokers.14 The main issue raised by         brokers. Brokers have grown in market share
                                        pros and cons of these alternatives and why               the brokers concerned the treatment in the           and numbers because they can originate
                                        HUD decided not to include them in this                   2008 proposed rule of yield spread premiums          mortgages at lower costs than others. There
                                        final rule.                                               on the proposed Good Faith Estimate.                 is no indication that their cost
                                        Market and Competitive Impacts on Small                   Mortgage Broker representatives asserted that        competitiveness is going to change in the
                                        Businesses From the Final Rule                            the proposed mortgage broker disclosure              near future. Thus, brokers, as a group, will
                                                                                                  would achieve the opposite result and would          remain highly competitive actors in the
                                           Transfers from Small Businesses. It is
                                        estimated that $4.13 billion, or 49.5 percent             detract from the consumer’s ability to               mortgage market, as they have been in the
                                        of the $8.35 billion in consumer savings                  understand and comparison shop. They                 past.
                                        comes from small businesses, with small                   recommended that lenders should be treated              While there is no evidence to suggest any
                                        originators contributing $3.01 billion and                similarly to facilitate shopping and promote         anti-competitive impact, there will be an
                                        small third-party firms, $1.13 billion.12                 consumer understanding. The current final            impact on those brokers who are charging
                                        Within the small originator group, most of                rule addresses the concern expressed by              non-competitive prices. And there is
                                        the transfers to consumers come from small                brokers that the reporting of yield spread           convincing evidence that some brokers (as
                                        brokers ($2.47 billion, or 82 percent of the              premiums in the 2008 proposed rule would             well as some lenders) overcharge consumers
                                        $3.01 billion); this is because small firms               disadvantage them relative to lenders.               (see studies reviewed in Chapter 2). As
                                        account for most of broker revenues but a                    The Department hired forms development            emphasized throughout the Regulatory
                                        small percentage of lender revenues. Within               specialists, the Kleimann Communication              Impact Analysis, the new GFE will lead to
                                        the small third-party group, most of the                  Group, to analyze, test, and improve the             improved and more effective consumer
                                        transfers come from the title and closing                 forms. Starting with the GFE form proposed           shopping, for many reasons—the new GFE is
                                        industry ($0.68 billion, or 60 percent of the             in 2002, they reworked the language and              simple and easy to understand, it includes
                                        $1.13 billion), mainly because this industry              presentation of the yield spread premium to          reliable cost estimates, it effectively discloses
                                        accounts for most third-party fees. In the title          emphasize that it offsets other charges to           yield spread premiums and discounts in
                                        approach, small title and settlement closing              reduce settlement charges, the cash needed to        brokered loans without disadvantaging
                                        companies account for $0.95 billion of the                close the loan. The subjects tested seemed to        brokers, it provides a vehicle to show
                                        $2.5 billion in savings. Section VII.E.2 of               like the trade-off table that shows the trade-       consumers options, and it explains the trade-
                                        Chapter 3 explains the steps in deriving these            off between the interest rate and up-front           off between closing costs and interests rates
                                        revenue impacts on small businesses, and                  charges. It illustrates how yield spread             to aid in understanding of yield spread
                                        Section VII.E.4 of Chapter 3 reports several              premiums can reduce upfront charges. There           premiums. This increased shopping by
                                        sensitivity analyses around the estimates. In             is the summary page designed to simplify the         consumers will reduce the revenues of those
                                        addition, Chapter 5 provides more detailed                digestion of the information on the form by          brokers who are charging non-competitive
                                        revenue impacts for the various component                 including only the total estimated settlement        prices. Thus, the main impact on brokers
                                        industries.13                                             charges from page two. This is the first page        (both small and large) of the final rule will
                                           The summary bullets in Section I.C                     any potential borrower would see. It contains        be on those brokers (as well as other
                                        highlight the mechanisms through which                    only the essentials for comparison-shopping          originators) who have been overcharging
                                        these transfers are expected to happen.                   and is simple: a standard set of yes-no              uninformed consumers, through the
                                        Improved understanding of yield spread                    questions describing the loan and a very             combination of high origination fees and
                                        premiums, discount points, and the trade-off              simple summary of costs and the bottom line.         yield spread premiums.15 As noted above,
                                        between interest rates and settlement costs;              Yield spread premiums are never mentioned            small brokers are expected to experience
                                        improved consumer shopping among                          here. Lender and broker loans get identical          $2.47 billion in reduced fees.
                                        originators; more aggressive competition by               treatment on page 1. A mortgage shopping                Small Lenders. Lenders include mortgage
                                        originators for settlement services; and                  chart is included on page 3 of the GFE, to           banks, commercial banks, credit unions, and
                                                                                                  help borrowers comparison shop. Arrows               thrift institutions.16 There are over 10,000
                                           12 In the more conservative scenario of $6.48          were added to focus the borrower on overall
                                        billion in consumer savings, small businesses             charges, rather than one component. All of              15 As explained throughout this chapter, it is

                                        would account for $3.21 billion of the transfers to       these features work against the borrower             anticipated that market competition, under this
                                        consumers, with small originators accounting for          misinterpreting the different presentation of        proposed GFE approach, will have a similar impact
                                        $2.36 billion, and small third-party providers, $0.84                                        `
                                                                                                  loan fees required of brokers vis-a-vis              on those lenders (non-brokers) who have been
                                        billion.                                                                                                       overcharging consumers through a combination of
                                           13 In Chapter 5, see Section II for brokers, Section
                                                                                                  lenders.                                             high origination costs and yield spread premiums.
                                        III for the four lender groups (commercial banks,
                                                                                                     HUD has designed the GFE form to focus               16 While it is recognized that the business
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                                        thrifts, mortgage banks, and credit unions), Section      borrowers on the right numbers so that               operations and objectives of these lender groups can
                                        IV for the various title and settlement groups (large                                                          differ—not only between the groups (a mortgage
                                        insurers, title and settlement agents, lawyers, and         14 Practically all (98.9%) of the 30,000–44,000    banker versus a portfolio lender) but even within
                                        escrow firms), Section V.A for appraisers, Section        brokers qualify as a small business. The Bureau of   a single group (a small community bank versus a
                                        V.B for surveyors, Section V.C for pest inspectors,       Census reports that small brokers account for 70%    large national bank)—they raised so many of the
                                        and Section V.D for credit bureaus.                       of industry revenue.                                                                            Continued




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                                        68266            Federal Register / Vol. 73, No. 222 / Monday, November 17, 2008 / Rules and Regulations

                                        lenders that would be affected by the RESPA             and large) of the new GFE will be on those            the industry provides will require proximity
                                        rule, as well as almost 4,000 credit unions             lenders who have been overcharging                    to land title records (or the establishment of
                                        that originate mortgages. While two-thirds of           uninformed consumers.                                 ‘‘title plants,’’ i.e., duplicates of local records,
                                        the lenders qualify as a small business (as do             Small Title and Settlement Firms. The title        the maintenance of which requires proximity
                                        four-fifths of the credit unions), these small          and settlement industry—