Friday, March 12, 2010
Mortgage industry pros adjust to new 'final rule'
Denver Business Journal - by Paula Moore
A new federal regulation designed to make the homebuying process easier and more transparent for purchasers has caused delays and other problems for some real estate professionals since it went into effect Jan. 1.
But residential real estate brokers and mortgage professionals who deal with the new rule say they're getting used to its forms, procedures, buyer education and other components.
Mortgage professionals - lenders and brokers - face a financial hit if they don't correctly handle the new regulation.
"The final rule involves a lot of change ... a business framework change, and everybody is working through the change right now," said Joel Horn, president and CEO of Denver-based Mortgage Spirit LLC, a provider of loan research and technology to the mortgage brokerage industry. "It's going to take a bit to get through the change curve, but over the next three to six months, the issue will die down."
The "final rule" is part of the Real Estate Settlement Procedures Act (RESPA), which was enacted in 1974 to help homebuyers find the lowest-cost mortgages and refinancings. The rule relates to good-faith estimates for mortgage loans, and it was adopted in November 2008. The regulation went into effect Jan. 1, after about a year's grace period.
Penalties associated with violations of the new rule kick in May 1.
The U.S. Department of Housing and Urban Development controls and enforces RESPA.
Under the final rule, mortgage providers must give homebuyers a good-faith estimate of a mortgage loan's major terms as well as closing costs. The estimate should include whether a loan has a fixed or variable interest rate, if the borrower will incur a pre-payment penalty for refinancing the loan and if the loan includes a balloon payment.
As part of the new rule, the good-faith estimate document has been shortened to three pages from four, and consumers can compare estimated closing costs with actual costs included in their HUD-1 settlement statement. The settlement statement is a comparison of estimated closing costs with the actual costs, and real estate agents provide it at the closing of a home sale.
The rule has caused delays in closing home sales, but only by one to three weeks, according to agents. Some real estate pros were worried delays would be more than double the standard 30- to 35-day closing period.
"It's not delaying closings as much as we originally thought it would," Gary Bauer, an independent residential real estate broker in Littleton, said of the final rule. "We've had delays of about a week because of the educational process with buyers, but I think that will change as people get used to the change."
Some real estate agents have been careful not to schedule closings too close together, to give themselves time to deal with changes in the closing process. "We're going back to the old days, where the transaction is a little more comfortable," said Jolon Ruch, a broker at Keller Williams Realty Inc. in Westminster and a vice president of the Colorado Association of Realtors.
Charles Roberts, a broker owner at Your Castle Real Estate LLC in Littleton and board member of the Denver Board of Realtors, has noticed no problems among his agents because of the new rule. But because Roberts is both a loan officer and a real estate agent, he has observed that "this thing is more difficult for the loan officer."
"The good-faith estimate is supposed to be a good shopping tool for homebuyers. ... It's costly [to the mortgage lender] if you make a mistake, but it's made lenders not make mistakes, which is better for every consumer," said Pete Lansing, president and CEO of Universal Lending Corp. of Denver, one of the metro area's major mortgage lenders.
With the good-faith estimate, mortgage lenders and brokers have more incentive to do their jobs correctly because of penalties related to "tolerances" in the rule.
The rule has zero tolerance for increases in how much mortgage professionals charge for their services, including origination fees and transfer taxes. Once those charges are set, they can't be increased, and if mortgage professionals underestimate fees, they have to absorb that cost.
The rule gives a little leeway - 10 percent - on changes in estimated closing costs on a home purchase, such as title insurance and government recording charges. If actual closing costs vary more than 10 percent from the estimate, the mortgage lender refunds the difference to the buyer.
"People in our industry are focused on getting it right. ... They want to make sure loans are done correctly," said Bob Montoya, executive director of the Colorado Mortgage Lenders Association.
