Like all other financial institutions, credit unions are required by the Real Estate Settlement Procedure's Act (RESPA) to make complex organizational changes in 2010 related to the way revenue is disclosed to borrowers. At first glance, this may seem like a fairly simple adjustment, however, if not handled properly it could cause a painful transition that impacts the quality of member service.
Jan. 1, 2010 marks the deadline for the industry-wide transformation in which loan originators are required to list their revenue on the HUD Reformed Good Faith Estimate (GFE). Currently, industry practice allows originators to list their revenue in terms of percentages, but HUD's upcoming change requires originators to list it as a specific dollar amount.
Under the new guidelines, loan officers are required to adhere to certain "tolerances" when revenue, closing costs and transfer tax figures are listed on the GFE and the HUD-1 at closing. If the lender's estimates are off, a lender has 30 days to "cure" or return differences to the member.
Certain information presented on the new Good Faith Estimate must match exactly (i.e., revenue from origination, fees, YSP, discount points and transfer taxes). There is also information that HUD allows the estimate to be within 10% of the actual amount (i.e., title fees, recording fees and other third-party fees). Information such as prepaid property taxes and insurance are exempt from the tolerance sliding scale.
Less Confusion for Members
Traditional lending organizations such as banks or mortgage lenders dislike the regulations due to the complexity of the new GFE and the potential for loss to profitability. Although more challenging for lending organizations, these regulations actually yield more transparency and hopefully less confusion for members, which is always especially important for credit unions.
The good news for credit unions is they are less defensive on changes to the GFE guidelines since they place a higher value on member service. As a result, credit unions tend to be more open to increasing transparency if it is in their members' best interests.
If you position your credit union now for these upcoming changes, you can bring great rewards in 2010. First, alter your credit union's language to be centered on revenue discussions that include terminology about "dollar amounts" rather than "percentage points." Next, align yourself with market partners who can provide you with accurate figures for the "10% tolerance" items, such as title fees, recording fees, etc. Finally, license and/or build internal systems that provide ease of adoption for the new Good Faith Estimate. Identify crucial technologies that produce the GFE format efficiently and that can protect your credit union against tolerance loss.
Credit unions must also change the methodology in which they produce their current Good Faith Estimates and HUD-1 forms. Technology that pre-populates forms with percentages must be modified to incorporate dollar figures.
The new GFE requirements does not set credit unions back significantly because they already strive to maintain the highest level of member service. Take advantage of this upper hand in order to position your credit union for success in 2010 and beyond.
Joel Horn is the president of Mortgage Spirit, a Denver-based provider of loan search and pricing management technology.
