Alert March 25, 2008

HUD Issues Proposed RESPA Reform Rule

HUD issued a proposed rule aimed at improving the disclosure requirements for mortgage settlement costs under the Real Estate Settlement Procedures Act. Among other things, the proposal would:

  • standardize the GFE;
  • require page one of the GFE to provide a summary of the loan terms and total settlement charges;
  • include disclosure of yield spread premiums in the GFE;
  • facilitate comparison of the GFE and the HUD–1/HUD–1A Settlement Statements;
  • help ensure that borrowers are made aware of final loan terms and settlement costs at settlement, by reading and providing a copy of a “closing script” to borrowers;
  • clarify HUD–1 instructions;
  • clarify and update escrow account requirements and mortgage servicing transfer provisions;
  • clarify current regulations on discounts and explain when RESPA permits certain pricing mechanisms, such as average cost pricing and volume discounts, that benefit consumers;
  • amend the definition of “required use” to include incentives for the use of a particular service provider, for example builder discounts for using an affiliated lender; and
  • make clear that all RESPA disclosures may be provided to consumers in electronic form, so long as the E-Sign Act requirements are met.
Comments on the proposal are due on May 13, 2008. The proposal provides a 12-month transition period for compliance once finalized. Click here for a copy of the proposal.