An updated version of the Real Estate Settlement Procedures Act (RESPA) Good Faith Estimate (GFE) and Settlement Statement (HUD-1) was released by the Department of Housing and Urban Development (HUD) for use in 2010. RESPA requires any lender making an FHA-insured loan (or any other consumer purpose loan secured by a one to four unit residential property) to deliver a GFE of settlement charges paid by the borrower to providers of settlement services on the sale of a one-to-four unit residential property within three days of the borrower’s submission of a loan application. At closing, the borrower is given a Settlement Statement (HUD-1) which sets out the actual settlement costs. This form allows the borrower to make a line by line comparison between the costs disclosed in the GFE and the costs outlined in the Settlement Statement (HUD-1). The GFE also allows the borrower to compare the costs charged by different lenders to keep the loan market more transparent and competitive.

The laws are different in California. Prior to the HUD updates, California Mortgage Loan Brokers (MLBs) who arranged traditional consumer loans secured by one-to-four unit residential property used DRE 883, the Mortgage Loan Disclosure Statement/Good Faith Estimate as mandated by the Department of Real Estate (DRE), and MLBs who arranged nontraditional mortgages used DRE 885. Both DRE 883 and DRE 885 contain two components, a California mortgage loan disclosure statement and a modified version of the HUD-GFE containing California’s more restrictive mortgage loan wording. Because of its California-specific nature, DRE 883 and DRE 885 controlled over the GFE published by HUD for MLBs in California.

However, after HUD’s update of the form at the beginning of the year, the internal numbering scheme of the GFE contained in DRE 833 and DRE 885 no longer aligns with the internal numbering scheme of the revised Settlement Statement (HUD-1), curtailing the practical use of both forms.

Thus, the DRE is discontinuing the use of DRE 833 until they can integrate it with the revised HUD-GFE and get it approved by HUD, which could take years.

In the meantime, the DRE is requiring MLBs who arrange traditional consumer loans secured by one-to-four unit residential property to submit two disclosures to borrowers: DRE 882 (the mortgage loan disclosure statement portion of DRE 883) and the new HUD-GFE.

MLBs who arrange nontraditional mortgages will still use DRE 885 but must also submit the new HUD-GFE, as the GFE within DRE 885 is obsolete. This is a strange and confusing situation to be sure, submitting an obsolete GFE to borrowers, which is likely to be viewed as redundant and unprofessional – sign here please.

first tuesday take: In order to help simplify life for our students, first tuesday has created and is releasing all the forms needed by MLBs.

  • first tuesday Form 204, Mortgage Loan Disclosure Statement (DRE 882) – This form is given to borrowers who take out traditional loans. The borrower must also receive the HUD-GFE (first tuesday Form 204-5).
  • first tuesday Form 204-2, Mortgage Loan Disclosure Statement/Good Faith Estimate (DRE 885) – This form is given to borrowers who take out nontraditional loans. The borrower must also receive the HUD-GFE (first tuesday Form 204-5).
  • first tuesday Form 204-5, Good Faith Estimate (HUD-GFE) – This form is given to borrowers in conjunction with either 204 and 204-2.

See the upcoming February form of the month for additional commentary along with the digital copies of the above forms.

For more information regarding HUD’s new GFE, see the January 2010 first tuesday article, Lenders take steps to avoid HUD’s updated GFE.

Re: “New Good Faith Estimate Form Required by HUD,” from The Department of Real Estate