Market Update RESPA Revisions to the GFE and HUD-1

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1 Market Update RESPA Revisions to the GFE and HUD-1 PHH Mortgage is working to make the transition easier for you and your customers Effective for loan applications taken as of January 1, 2010, all lenders are required to use the new standardized Good Faith Estimate (GFE). Closing agents must use the new HUD-1 Settlement Statement when the new GFE is used. These Real Estate Settlement and Procedure Act (RESPA) revisions call for changes to the home loan process as well. PHH Mortgage is committed to full RESPA compliance, and to providing you with professional guidance as the industry transitions to this new process. To make the transition easier, we are providing this fact sheet to prepare you for the changes. Here are key points to remember. New forms are mandated by the government. The new process requires the customer to select a property before a lender can issue a GFE however, upon pre-approval, PHH Mortgage will send your customer our own helpful Estimated Funds Needed for Closing summary even if your customer has not selected a property. Our Estimated Funds Needed for Closing lets customers know up front how much money to bring to closing because it provides more precise details about costs and credits that are not reflected in the new GFE, such as pro-rated taxes and credits from lenders, sellers or employers. Customers may receive multiple GFEs if key loan characteristics (such as loan amount) change after the initial GFE is issued. If the customer selects the services we recommend for title, inspections, etc., the sum total of the actual costs for those services must not increase by more than 10% above the estimate. There is no limit on increases if the customer chooses a provider we did not recommend. See the following pages for detailed illustrations. Our Estimated Funds Needed for Closing will be distributed as soon as it becomes available. See your local Mortgage Advisor for additional information and guidance. We will continue to work hard to ensure that you and your customers enjoy a smooth and easy closing. Mortgage loans are subject to qualification, receipt of satisfactory appraisal and verification of income, asset and debt information provided by the customer. 1 When the customer selects the service providers recommended by the lender, a 10% tolerance limit applies to the sum total of the entire category individual costs may increase more than 10 %, as long as the sum total for the category does not increase by more than 10%. When the customer selects their own service providers, there is no limit to cost increases. 2 Exceptions, known as changed circumstances which are allowed to increase closing costs by more than the tolerance limits include (but are not limited to) borrower-requested changes, borrower eligibility and natural disasters. PHH Mortgage Corporation, 1 Mortgage Way, Mt. Laurel, NJ Alaska Licensed Mortgage Lender #100097, ; Arizona Residential Mortgage Licensee #BK ; Licensed by the Department of Corporations under the California Residential Mortgage Lending Act; To check the Colorado license status of your mortgage loan originator, visit Georgia Residential Mortgage Licensee #6266; Illinois Residential Mortgage Licensee #MB ; 122 S. Michigan Avenue, Suite 1900, Chicago, IL 60603, ; Kansas Licensed Mortgage Company #SL ; Massachusetts Licensed Lender #ML0060; Minnesota - This is not an offer to enter an interest rate lock-in agreement; Licensed by the Mississippi Department of Banking and Consumer Finance; Montana Licensed Mortgage Lender #89; Licensed by the New Hampshire Banking Department; Licensed by the New Jersey Department of Banking and Insurance; Licensed Mortgage Banker - NYS Banking Department; Oregon Mortgage Lender #ML-355; Licensed First Mortgage Banker and Secondary Mortgage Lender by Pennsylvania Department of Banking; Rhode Island Licensed Lender; Licensed by the Virginia State Corporation Commission, Lic. No. MC-469. Equal Housing Lender.

2 Government-Mandated Changes to Forms, Process and Limits on Closing Cost Increases Key changes All lenders must use the new 3-page GFE (see Figure 1, beginning on page 4). Closing agents must use the new HUD-1 when the new GFE is used (see Figure 2, beginning on page 7). The term origination fee has been replaced with origination charge, which does not include points (charge for the interest rate chosen). The new GFE consolidates costs into standard categories to facilitate comparison to the HUD-1, making it easier to identify increases in closing costs. As shown in Figure 2, page 9, the HUD-1 divides costs into three groups according to limitations on how much the charges are allowed to increase once the GFE is issued: Charges that cannot increase. Origination charges and transfer taxes cannot change once disclosed, unless there is a change in loan terms that impacts those charges. Charges that cannot increase more than 10%. The estimate for the sum of this category must be within 10% of actual costs for lender-recommended services such as appraisal, title and inspections; there is no cap if the customer selects their own service providers. 1 Charges that can increase or change. Costs such as escrows for taxes and insurance are allowed to change. These costs will be estimated but may change based on the most current information. Customers may receive updated GFEs for easy comparison to the HUD-1 Settlement Statement if closing costs increase due to allowed-for exceptions. 2 The closing agent must walk the customer through a comparison table on the HUD-1 that compares actual closing costs to GFE estimates (see Figure 2, page 9). If closing costs exceed estimates by more than the allowed amount, lenders must issue consumers a refund within 30 days of closing. Market Update: RESPA Revisions to the GFE and HUD-1 2

3 How this may impact you and your customers, and what PHH Mortgage is doing to help Impact: The GFE will be provided once a customer has selected a property not before. Lenders are not permitted to issue a GFE if a property address has not been identified. The new GFE does not specify precisely how much cash the customer needs to bring to closing because some charges or credits are excluded, such as down payment, tax bills, and employer-paid or seller-paid fees (see Figure 1). What PHH Mortgage is doing to help: At pre-approval, if your customer has not selected a property, PHH Mortgage will provide our own Estimated Funds Needed for Closing summary so your customers are better informed about costs while they are looking for a house. The Estimated Funds Needed for Closing summary from PHH Mortgage provides more precise details about costs than the new GFE, and it will let your customers know up front how much money they will need to bring to closing. Key points to remember: The new GFE and HUD-1 Settlement Statement are mandated by the government. PHH Mortgage will send your customer a GFE once they select a property. If key loan characteristics change after that, the customer may receive revised GFEs reflecting changes. If the customer selects the services we recommend for title, inspections, etc., the sum total of the actual cost for those services must not increase by more than 10% above the estimate. PHH Mortgage is working to make this new process easier for you and your customers. See your local Mortgage Advisor for more details. PHH Mortgage is Prepared for This Change We are committed to regulatory compliance while providing you and your customers with excellent service. Procedures and additional support are already in place to ensure a smooth transition in January. PHH Mortgage is a lender you can trust. When you recommend us, we ll give your customers a reliable, same-day pre-approval decision and tell them exactly what they need to do to get to closing. Please contact your local Mortgage Advisor today for more information and to obtain copies of the new GFE and HUD-1 forms. Market Update: RESPA Revisions to the GFE and HUD-1 3

4 Figure 1. The new government-mandated Good Faith Estimate (GFE) Figure 1. The Total Estimated Settlement Charges entry on the new GFE does not specify how much cash is needed at closing because some charges and credits are excluded, such as down payment, and employer-paid or seller-paid fees. PHH Mortgage will provide your customers with a separate Estimated Funds Needed for Closing summary to let them know how much money they need for closing. Market Update: RESPA Revisions to the GFE and HUD-1 4

5 Figure 1. (cont d) Market Update: RESPA Revisions to the GFE and HUD-1 5

6 Figure 1. (cont d) Market Update: RESPA Revisions to the GFE and HUD-1 6

7 Figure 2. The New HUD-1 Settlement Statement Market Update: RESPA Revisions to the GFE and HUD-1 7

8 Figure 2. (cont d) Market Update: RESPA Revisions to the GFE and HUD-1 8

9 Figure 2. (cont d) Figure 2. The updated HUD-1 form includes a table comparing estimated closing costs to actual costs. The table separates costs into three categories according to how much the charges can increase. The closing agent will walk your customer through this chart at closing. If the actual costs exceed estimates by more than the tolerance limit, your customer will receive a refund from us. Market Update: RESPA Revisions to the GFE and HUD