The story first tuesday reports on below is another example of newspaper reporting on national events which either have no relevance to California, or are, as in this case, irrelevant in California since California provides its residents with greater protection than is provided by the federal government.
Beginning in January 1, 2010, the Department of Housing and Urban Development (HUD) has required brokers and lenders to break down fees disclosed to borrowers on the good faith estimate (GFE) form into three categories:
- fees that may not increase before closing;
- fees that may increase by as much as 10% beyond the upfront estimate prior to closing; and
- fees which may increase without limit.
The new GFE disclosure requirements are a result of 2008 modifications to the Real Estate Settlement and Procedures Act (RESPA), and are applicable nationally.
first tuesday take: While the updated GFE requirements are news to the rest of the United States, California’s mortgage loan brokers have been using the Department of Real Estate (DRE) form 883—Mortgage Loan Disclosure and Good Faith Estimate since June 2009. DRE form 883 complies with both California real estate law and the federal Good Faith Estimate required under RESPA. Thus, DRE 883 is the controlling document for mortgage loan brokers in California. [For an enhanced version of DRE form 883 which you may use professionally to fill, print, email and save, see first tuesday Form 204 (DRE 883)].
California has long recognized that borrowers surprised by changes in costs at time of closing are left with two choices: pay the difference in cash and close or start the loan application process all over again from scratch, either way a costly and disheartening approach. first tuesday has long held that the borrower should always be advised by his agent to submit two loan applications to be processed concurrently with competing lenders, which of course the lenders will advise against. The dual applications put an end to lenders and loan brokers gaming the system for further profit, and the double application fees are simply the premium paid for this coverage.
While unsuspected increases in fees or charges may still arise at time of closing, the DRE’s form 883 (first tuesday Form 204) helps curtail the common “low-ball” technique used by lenders to spring thousands of dollars in fee and rate increases on borrowers three days before closing, as permitted by federal law. [For more information regarding RESPA, see the June 2008 first tuesday article, The Real Estate Settlement Procedures Act (RESPA)].
Brokers with questions about RESPA requirements may view the recently updated RESPA Rules FAQ, published by the Department of Housing and Urban Development (HUD).
Re: “New HUD rules aim to get rid of closing cost surprises” from Los Angeles Times.