RESPA Reform Announced Yesterdayby Tim Manni
Last night around 5:30 the Department of Housing and Urban Development (HUD) announced an industry-wide reform to the Real Estate Settlement Procedures Act (RESPA) that is designed to help borrowers better understand the conditions of their loan agreement. Starting in January of 2010, every mortgage lender and broker must provide borrowers with a Good Faith Estimate — a standardized form that is constructed to easily display closing costs and key loan terms:
“In some cases, people didn’t understand or know that their mortgages could result in large payment increases after just two or three years,” he [HUD Secretary Steve Preston] said in announcing the RESPA reforms. “Others did not recognize the total costs that come with homeownership. And others paid higher loan origination and closing costs simply because they did not know about other affordable options.”
The reform to the RESPA law marks the first time a standardized form has been required for all mortgage lenders and brokers designed to answer such questions as:
- What’s the term of the loan?
- Is the interest rate fixed or can it change?
- Is there a pre-payment penalty should the borrower choose to refinance at a later date?
- Is there a balloon payment?
- What are total closing costs?
This comes on the heels of the Federal Housing Finance Agency’s (FHFA) announcement yesterday of another industry standard – “the benchmark ratio for calculating the affordable monthly [mortgage] payment is 38% of monthly household income.”
HUD received approximately 12,000 comment letters from consumers which influenced many of the changes recently made to the form. The new law will not be enacted until 2010 to allow lenders and brokers to update their inventory, computer software, and train employees.