New RESPA Rules Take Effect January 1 2010

Just a quick note to everyone that long awaited RESPA reforms are set to take effect on January first 2010. Interestingly there appears to be no clear guidance from the government on how these "reforms" are going to take effect. So what does this mean to the average consumer? In the short term expect confusion. For those of you that have completed mortgage transaction in the past, it's going to be quite a shock to the system when you sit down with an originator, be it a broker or a banker.

The first thing that is going to be troubling to most people is the appearance of the "new" Good Faith Estimate. In the past the Good Faith Estimate broke down every fee associated with completing your transaction. The new Good Faith Estimate on the other hand DOES not. Interestingly the purpose of the reforms was to make the fees MORE transparent. The new form also does not show a client what the total monthly payment will be, only what the principle and interest portion will be. Also I find it strange that nowhere on the new form does it show what the total funds required to close will be, or on a refinance transaction how the net return to the borrower will be. Not that transparent in my humble opinion.

The form seems to place most of its emphasis on what the fees will be. Not only on what the fees charged by the lender or originator are, but what the third party fees will be (appraisal, pest inspections, title insurance, escrow fees). As an originator I am now being put in the position of guaranteeing the third party fees involved in transaction as well as my own. While the theory behind this seems to be that in the end, it will be better for the borrower. I some how doubt it. I for one can say that I would be reticent at best to "sharpen my pencil" and tighten up fees on my estimate. Instead, having spoke with many other loan officers, I think padding the GFE will become more common. Treat every transaction like the world is coming to an end. So in essence, what the client is shopping is a WORST CASE SCENARIO in the extreme, rather than a typical scenario.

I also found it very interesting that many of the rulke changes are geared at focusing attention on COST rather than benefit. Especially when you look at how brokered loans are treated differently than banked loans. Brokered loans are required to disclose the profit margin (yield Spread Premium). Not wanting to stop there, brokers will now be chraging thier clients additional origination fees, and then showing a credit from the wholesale lender to offset those costs. A loan originated at a retail bank or with a mortgage bank, they are not required to disclose their yield on the loan nor play the charge and credit game that the brokers are. This seems to have been put in place to make the broker's loan appear less competetive than the loan offered from the bank, by focusing attention to the "profit" earned by a broker instead of a straight side by side comparison of INTEREST RATE and CLOSING COSTS! It looks like the money spent by the banking industry is starting pay off. It seems distracting the consumer is better than educating them.

My advice to people in the short term is to make sure that they allow extra time in the process of the loan. I have recomended to the Realtors that I work with that they allow 45 days instead of the more cusomary 30 day closing. I am sure that things will shake out and become more efficient over time, but for now I see nightmares at every turn.