RESPA Changes: Hidden Opportunity?
How a credit union addresses change can say a lot about its success. Are you like the kid who says, "That new rule makes the game better," or the one who throws the ball away and sulks home? Can you turn a challenge into an opportunity?
Since the early 1990s, various attempts to reform the Real Estate Settlement Procedures Act (RESPA) have been unsuccessful. On Nov. 17, 2008, reform overcame resistance as the U.S. Department of Housing and Urban Development (HUD) published its final rule mandating major changes to RESPA by Jan. 1, 2010.
Credit unions that are still pinning their hopes on a deadline extension to comply with the upcoming RESPA changes would be better served expending their energies on preparing to meet the new requirements. If a credit union has not already done so, it is time to begin diligently preparing for the Jan. 1, 2010 implementation of the new RESPA rule and use of the new GFE (Good Faith Estimate) and HUD-1 (Settlement Statement) forms.
HUD enacted these changes as a way to increase transparency in the lending process, including more accurate estimates of settlement costs and facilitating comparison of the GFE and the HUD-1. These steps are aimed at enabling consumers to better comparison shop among loan originators and creating a better lending experience overall.
While the changes represent a great deal of work to reach compliance by the deadline, increasing member confidence and trust in the credit union's lending process should be viewed as the desired outcome. With loan levels at staggering lows, increasing member understanding of the mortgage lending process will potentially lead to more loan traffic for the credit union, and providing a more consumer friendly disclosure process can further enhance member loyalty.
Although credit unions do not generally offer unusual or complicated loan programs, the many changes in the disclosure format of the new GFE and HUD-1 forms can pose issues even for lenders offering very traditional loan programs. For example:
- Some lender/originator costs are now aggregated instead of being itemized.
- A summary of loan terms is now required.
- The lender has the responsibility for supplying the information to the settlement agent to complete page three of the new HUD-1 form.
- Various line items on the HUD-1 specifically refer back to the GFE
In addition, there are lender's procedural adjustments necessitated by the new rule's timing requirements and restrictions on changes to fees and charges disclosed to the borrower.
In an attempt to respond to the many questions posed by the mortgage lending industry, HUD has been publishing Frequently Asked Questions, the first being dated August 13, 2009, followed by nine updates. More are anticipated, but time is growing very short to adjust systems and incorporate new guidance.
Every indication is that the Jan. 1 effective date is firm in spite of many attempts to obtain an extension. It is argued that an extension would give HUD more time to respond to the mortgage lending industry's remaining questions and concerns and then give the industry time to implement the procedures necessary to comply with the new rule, following the additional guidance from HUD. That extra time will apparently not be made available.
Because Jan. 1 is just around the corner, one option for those credit unions that are not prepared to issue the revised GFE and provide the required information to the closing agent for proper production of the HUD-1 is to outsource the document preparation to a third party provider. In selecting a third party document provider lenders can better utilize their limited resources in other areas needed to implement the procedural changes required by the new RESPA rule.
A document preparation provider specializes in producing the correct documents and implementing the required data fields for lenders to properly complete these new GFE and HUD-1 forms so there is a smooth transition for the lender.
CUs need to be addressing these new RESPA issues now, whether through in-house implementation or outsourcing to a document preparation provider offering this service. Credit unions that are unprepared may lose mortgage business to those that are prepared. Use this opportunity to highlight the benefits of your loan product, foster member confidence, satisfaction and loyalty among loan applicants, and thereby create a longer and more rewarding member relationship.
Kay King is an attorney at Dallas-based MRG Document Technologies, the mortgage content, compliance and document practice group within Middleberg Riddle & Gianna, a mortgage regulatory law firm. For info: www.mrgdocs.com.