A funny thing happened quietly at the stroke of midnight on January 1, 2010—the new RESPA (Real Estate Settlement Procedures Act) regulatory changes came into effect, turning all the mortgage lenders upside down and inside out as they try to figure out how to implement the regulations in a correct manner without making consumers and themselves insane.

The solution so far seems illusory, since no matter how many times mortgage lenders review the procedures and try to figure out how the HUD regulators expect them to be put into play, actual implementation of these procedures is geared to cause more havoc than protection for the consumer looking for a mortgage.

HUD is essentially requiring that mortgage originators provide borrowers with a completely reformulated GFE (good-faith estimate) that they feel will clearly disclose key loan terms and closing costs for a potential borrower, and is also requiring that all closing agents associated with providing the borrower with representation at closing provide exact costs in advance. The new GFE will now be a three-page document as opposed to a simple one-page itemized disclosure.

In addition to detailed items, they have created categories and subcategories including all expenses to be expected at closing. These itemized costs will be matched item by item at closing to a new HUD-1 disclosure. Any deviation of costs between the new GFE and the HUD-1 is not allowed under any circumstances. Excuse me—actually, they did allow for a deviation of certain costs up to a 10 percent differential under certain circumstances. If you did not understand these forms originally, maybe HUD will also provide consumers with a course on how to figure out exactly what this will actually achieve other than total chaos.

Confused? Well, join the club! Although this might sound like a wonderful solution to some of those fly-by-night estimates that can be found online as well as in some other circles, the real problem with all of this is that a typical borrower does not just go to a mortgage lender once, fill out an application, choose a rate, and then wait to close.

A more usual situation might be that someone who wants to purchase a home comes to a mortgage lender and asks to be pre-qualified or pre-approved to see how much he or she might qualify for in financing prior to choosing a home to purchase. It is not unusual for a buyer to start a mortgage application in hopes of finding a home, getting their employment and asset information as well as their credit status processed for pre-approval, and then utilizing that pre-approval to first find a house and then come back to the mortgage lender and follow through with the rest of the mortgage application process. At that time, they might revamp the application based on new parameters created either by the home they have decided to purchase or possibly a change in circumstances that necessitates updating the application before finalizing any mortgage approval.

In a scenario such as this in the past, estimated costs for closing would be given to the prospective borrower, with estimated closing costs revised when the borrower enters a contract, and final costs associated with non-lender sources (such as title services) left for the closing. Title costs are typically ordered by the borrower’s attorney and on average can change several times even while sitting at the closing table, depending on whatever particular items are necessary for the title closer to act on in order to safeguard the transfer of title to the borrower. In the case of a refinance, a title closer might also have to collect funds to record additional items such as satisfaction of any paid-off mortgages or notes, which would mean additional costs to the borrower.

With the advent of the new good-faith estimate, HUD has now made the mortgage lenders responsible for documenting the correct title costs as well as other non-lender costs that really have nothing to do with the lender at all. Because of the difficulties that the new regulations have created, many lenders will allow good-faith estimates to be released to potential borrowers only after being thoroughly reviewed by experts. How this is going to be consumer-friendly and protective of the borrower—as opposed to a new policy of mortgage lenders protecting their backs and leaving cushions in the closing costs to cover any possible errors—is yet to be determined. We are only a few days into the beginning of this new regulatory dictate, and everyone involved so far is just shaking their heads and trying to figure out how this is going to work.

Found here.