Stearns Lending Presents:Stearns Lending Presents:

Stearns RESPA Stearns RESPA Broker SupportBroker Support

WebinarWebinar

IntroductionIntroductionAs we all know, the past several years have been devastating for the mortgage industry. Countless hardworking lenders have been shaken to the core during this crisis and the consequences are still far-reaching. As a way to strengthen the checks and balances, industry leaders put into place several regulatory measures.

One of these measures is the Real Estate Settlement Procedures Act, or RESPA. Originally passed by Congress in 1974, the current RESPA regulations were published in November, 2008 and went into effect on January 1st of this year. Due to all of these changes, there has been widespread confusion. But at Stearns Lending, we understand these concerns and strive to make a difference.

As the Senior Vice President of Compliance, I work hard to ensure that Stearns Lending is current with all of its regulatory measures. In addition to communicating with my team at Stearns, I also make a point of reaching out to the broker community to make certain compliance regulations are followed. To that end, I have put together a comprehensive presentation on RESPA Compliance. As you read through these pages and participate in the Stearns RESPA Broker Support Webinar, I hope you will find it both productive and informative.

Sincerely,

Pamela Kroger,SVP, ComplianceStearns Lending

       

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AgendaAgenda

Stearns Wholesale Home PageIntroduction of new Auto GFE tool

GFE IllustrationsSettlement Services Providers List IllustrationCertification of Receipt of GFE and Intent to Proceed

IllustrationBroker Fee WorksheetChanged Circumstance FormPre-ApprovalsChanged CircumstancesCommon ErrorsConclusion

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 The 2010 changes to RESPA were not intended to stifle the purchase market, but

initially did have an impact on purchase lending. Because of this, HUD has clarified its position regarding the preapproval process.

 In a nutshell: 1. The Pre-Approval allows a consumer to shop for a property2. The GFE allows a consumer to shop for a loan  • A pre-approval is a document issued by a lender, stating that a consumer qualifies

for a specific loan amount.

• A prospective homebuyer with a lender-issued pre-approval can present a strong offer to purchase a home.

 • The pre-approval demonstrates to the seller that the buyer is approved by a lender

for a given loan amount. 

Pre-ApprovalsPre-Approvals

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Pre-ApprovalsPre-Approvals

RESPA does not want a consumer to feel bound to a lender prior to understanding the cost of their loan and being able to shop. It is okay to process a pre-approval provided the following:   •The applicant(s) chose to provide information regarding their income and assets.

•A fee is not charged to the applicant(s) other than a reasonable credit report fee. •The applicant(s) understands he/she is under no obligation to close the loan with you. •You can process the pre-approval using your own assets to verify information provided by the applicant (VOE, VOD) – as long as there is no cost to the applicant for doing so.

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Pre-ApprovalsPre-ApprovalsStearns Lending will issue a pre-approval under the following conditions:

•Transaction must be a purchase. •1003 must state TBD for the property street address. •The borrower was not charged a fee for the processing of the loan or verification of information, except for a reasonable credit report fee.

When the borrower selects a property:

•Once the borrower selects a property, the pre-approval has turned into an application and is subject to RESPA.•The broker will issue a GFE within 72 hours of the executed sales contract, with the 10 business day shopping period starting on the date the GFE is prepared.•An updated 1003 is prepared, reflecting the property address.• Borrowers must give their intent to proceed prior to the collection of any fee, other than a credit report fee.

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1003 Application Dates1003 Application DatesWhat is the application date?

Most often, the application date is the date the loan officer takes the application, whether by phone or face-to-face. The application date on the 1003 determines if a loan falls under RESPA 2009 or 2010. Typically, when taking an application, the applicant will provide the following six pieces of information:

•Borrower’s name•Borrower’s monthly income•Borrower’s social security number•Property address•Borrower’s estimated value of the property•Loan amount

Please note: If you don’t have these six pieces of information, you do not have a complete application for RESPA purposes. A GFE is not required to be issued until you have all this information. If you choose to issue a GFE without this information, you will not be able to revise a fee due to a changed circumstance relating to the missing piece of information.

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GFE Important DatesGFE Important Dates(Float)

Line 1: Enter the date through which the quoted interest rate will be available.

Line 1: At application, you may enter a date and time; or if the rate is floating, enter N/A.

Line 4: This field represents the number of days prior to settlement that the rate must be locked.

Line 2: RESPA requires all other settlement charges quoted at the time of application to be binding for a minimum of 10 business days from the date of the initial GFE

Line 3: If the loan is floating, enter N/A.

Line 4: On a refinance with a three-day cancellation policy, allow for three days; allow one additional day to sign; and allow for yet another additional day if there is a changed circumstance requiring a revised GFE prior to docs. This process totals five days.

Line 4: Each lender has its own internal procedure which will impact the number of days in this box. For loans closed by us, your loan must fund prior to the lock expiration date.

If floating, enter N/A

10 business days from the date of initial GFE

Number of days before closing, the interest rate needs to be locked.

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GFE Important DatesGFE Important Dates(Lock)

Line 1: Enter the date through which the quoted interest rate will be available.

Line 1: Once the loan is locked the lock expiration date is shown here.

Line 3: A rate lock is a changed circumstance that will require a new GFE.

Line 2: If the GFE is reissued, the date entered on this line does not change.

Line 3: Once locked, reissue a GFE and complete this field with the rate lock term.

Line 4: Once the loan is locked, enter N/A in this box. 

Line 3: This box shows borrowers the term of their rate lock – i.e., 30 days or 45 days.

Rate-lock expiration date

10 business days from the date of initial GFE

When locked, enter N/A

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Changed CircumstancesChanged Circumstances

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“When do I re-issue a new GFE?” “When can a fee be quoted on the initial GFE change?”

These are some of the questions that arise when dealing with changed circumstances. A changed circumstance is something that is discovered during the processing of the loan that is different than the information the broker had at the time of the application. The loan originator has three days to prepare a new GFE, notifying the borrower of the change in fees as a result of the changed circumstance. If this notification does not happen within 72 hours, the loan originator may be required to pay this fee at the closing table.

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Changed Circumstances include:

•Acts of God, Disaster, Emergency o A federal disaster declared by the President (fire, flood, tornado, earthquake or hurricane)

•Inaccurate information used in good faith to provide the GFEoLoan amount, credit quality, property value, income

•New information obtained that was not relied on in providing the GFEoProperty type (SFR – Units), Occupancy Change, FICO, underwriting conditions require additional services

•Locking the Loan oLoan locks after GFE is issued; lock period expires

•Other information particular to the borrower or transactiono Includes boundary disputes, flood insurance, environmental problems, unique property characteristics not known to the originator

Changed CircumstancesChanged Circumstances

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Changed CircumstancesChanged CircumstancesBorrower Requested Changes

•Changes to the loan application originated by the borrower can be cause to create a new revised GFE, changing only those sections of the GFE related to the borrower’s choice.

Examples include:•Changed loan program; i.e., from ARM to fixed•Rate lock•Borrower chooses another property•Borrower requests different loan amount

Rate Lock

When borrowers lock their interest rates, only the charges related to that interest rate may change.•Charge or credit for interest rate chosen (box 2 on page 2 of the GFE)•Per Diem interest•Charges related to the loan terms•All other charges remain the same

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Changed CircumstancesChanged CircumstancesChanged Circumstances may also include the following:

•Borrower does not proceed to closing quickly enough.•GSE, FHA, Mortgage insurance program changes.•Regulatory changes.•Property address deemed to be incorrect.•Parties added or removed from title.•Property use changes.•Signing documents using a POA.•Vendor for a settlement service goes out of business.•AVM problem, Appraisal Review.•Investor Rejection of appraisal requiring new appraisal.

For additional information about changed circumstances and their fee impact, please refer to the Changed Circumstance chart found on our website in the RESPA Tools section.

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Changed CircumstancesChanged CircumstancesChanged Circumstances do not include:

•Broker prepared GFE which does not describe/support current loan programs offered by the Lender. •GFE is issued without property information and the property information is provided later in the process (pre-approval).•GFE is issued by the mortgage broker for one lender, which is later submitted to a different lender.•Market fluctuations on a locked loan.•Changes that should have been known at the time the GFE was provided; for example, the requirement of two appraisals for the loan program/amount requested.

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Timing

 •A new GFE must be prepared disclosing the fees that have changed as a result of the changed circumstance.

•This new GFE must be issued within three days of discovery of the change.

•During processing, and prior to submission for underwriting, the broker is responsible for documenting the changed circumstance and preparing the revised GFE.

•After submission, we are responsible for preparing the updated GFE due to a changed circumstance.

•To meet this timeframe, it is important that the broker complete the Changed Circumstance form and submit it, along with the documentation supporting the changed circumstance to his/her RESPA Specialist within 24 hours of discovery.

•By working together, we will meet the three-day deadline imposed by RESPA.

Changed CircumstancesChanged Circumstances

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Changed CircumstancesChanged CircumstancesDocumentation

In order to prepare a revised and accurate GFE, the originator must complete the RESPA

Changed Circumstance Detail Form. This form can be completed on line via the new AutoGFE program or completed manually, emailed to your Compliance Specialist.

This form includes:• The date of the change• The date of the re-disclosure• Details regarding the change• Fee changes associated with the change

The changed circumstance documentation is reviewed by the Compliance Specialist who will

approve or decline the request. If approved, the Compliance Specialist will prepare the revised

GFE and TIL disclosures, if needed. If the loan is already approved, the underwriter will review

and approve or decline the request before forwarding to the set-up person for re-disclosure.

The form will be kept in the loan file along with the appropriate GFE.

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Request for Request for Revised GFERevised GFE

If the loan has been submitted for underwriting, and a changed circumstance occurs, the broker will complete the Changed Circumstance form, found on our website or through the new Auto GFE.

This form describes the change and the impact on the interest rate/program or fees.

The RESPA Specialist will review the documentation provided and prepare the revised GFE.

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Broker Fee Broker Fee WorksheetWorksheet

While not required, we encourage you to use the Broker Fee Worksheet. This document is dynamic and will subtotal reflecting the various boxes of the GFE. It’s a great tool to make sure you have captured all your fees on the GFE.

A better tool is to use the Auto GFE we talked about earlier!

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Common ErrorsCommon ErrorsThe following are the most common errors we see with our loan files: 1. GFE – Page 1:2. Date of the GFE vs. the Application Date We are seeing files that have a GFE dated prior to the application date. Per RESPA the GFE must be dated within three days after the application date.  We will be comparing the earlier of the date of the loan officer signature or the applicant’s signature on the 1003 to the date on the GFE for compliance.  If the application is a ‘TBD’ or preapproval where no property has been selected, we will compare the date on the purchase/sales contract to the date on the GFE for compliance.   

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Common ErrorsCommon ErrorsImportant Dates Section Line 2 – Business Days, we define business days as any day you are open for business, not calendar days but business days. If you are open on Saturdays, we will count Saturday in the 10 day calculation.  Terms of the Loan Section Payment:Please remember to include the MI portion of the payment when quoting the payment in this section.  Impounds:We are seeing loans where the box Yes Ask Us is checked for impounds, but impounds are not quoted on page 2 of the GFE, box 9.

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Common ErrorsCommon ErrorsGFE page 2  Block 1:Block 1 should include all the money you want to make on the loan plus all fees for origination and processing the loan as well as lender fees. This includes the following charges: processing fee including contract processing, application, administration fees, underwriting, document preparation, mortgage broker fee, commitment fee, DU/LP fees and other miscellaneous origination services provided by or on behalf of the loan originator.  Any portion of the YSP that makes up your compensation is included in Box 1.  If any part of your compensation is based on a percentage of the loan amount, that portion will change as the loan amount changes.  Block 3:We are seeing files where the initial PMI premium is missing or miscalculated. Please check our website for links to calculate the PMI premium.  

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Common ErrorsCommon ErrorsBlock 4:Mobile Notary fees are a part of block 4 as they are a part of the settlement of the loan. If you plan on using a mobile notary, remember to allow for their fee here. The Mobile Notary fee is not included in box 6 nor is it a part of the 1300 series of the HUD.  Block 5:Not quoting Owner’s Title Insurance is the error we see most often. Even if it is not being paid by the buyer, you need to put the Owner’s Title Insurance premium on the GFE.  Block 8 - Transfer Taxes:(note: this is also known as Recordation Tax, Intangible Tax, Excise Tax, Doc Stamps, Deed Stamps, Mortgage Stamps)

This is a zero tolerance field with brand new clarification! The amount the borrower is likely to pay for transfer taxes is disclosed on the GFE. In some areas, this amount, as a matter of practice, is governed by state or local laws. If state or local law is unclear or does not specifically attribute transfer tax to a seller or borrower, the amount to be disclosed on the GFE is governed by common practice or experience in the locality of the property.

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If the seller is paying a portion of the transfer tax that was not disclosed on the GFE, then that portion should be listed in the seller’s column in the 1200 series on the HUD-1.  1.Statute – if state or local law defines how much the buyer and seller pay, then disclose the amount by law the buyer is paying.

2.If the law does not tell you how much each is required to pay and you have the sales contract – enter the amount per the contract that the borrower has agreed to pay.

3.If these are unclear, then show the amount the borrower is paying that is a matter of common practice in the area.

Common ErrorsCommon Errors

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Common ErrorsCommon Errors

Block 9 – Impounds:Please make sure that when you check the impound box on the first page of the

GFE, Yes Ask Us, that you check the boxes in block 9 and include the initial deposit amount.

Settlement Service Provider List:Please complete the Settlement Service Provider List! We are seeing many

submissions with blank Settlement Service Provider Lists. If a borrower shops for service providers and chooses someone other than

whom you listed on the Settlement Service Provider List then that fee is not included in the 10% tolerance bucket.

 If you provide a blank Settlement Service Provider List, then all provider fees

are subject to a 10% tolerance over what you quoted with out knowing who the borrower will choose.

 

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Common ErrorsCommon ErrorsClosing:Settlement Agents are using 2009 HUD-1 forms on 2010 applications.  Line 801:Line 801 cannot increase at closing from what was disclosed on the initial GFE unless there is an increase in the loan amount and a portion of your compensation is calculated as a percentage of the loan amount.

Settlement Fees:Settlement agents are often placing some of their fees in the 1300 section of the HUD-1 instead of including them in 1101.  Mobile Notary Fees not being included in 1101.

Transfer Taxes:At close, when transfer taxes are finalized, we are seeing loans where transfer taxes quoted on the GFE are less than at closing.  Based on the revised HUD interpretation described previously, we should see some relief in this area and will review these prior to closing on an individual basis.  47

 

Questions?

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Thank you for participating in the Stearns RESPA Broker Support Webinar. We hope that you found this session useful and will continue to make compliance a priority. If you have any further questions as a result of this webinar or if you have RESPA questions in general, please contact your Account Executive.

At Stearns Lending, “We Can Help You!”

ConclusionConclusion

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