2011-17230. Real Estate Settlement Procedures Act (RESPA): Technical Corrections and Clarifying Amendments

AGENCY:

Office of the Assistant Secretary for Housing—Federal Housing Commissioner, HUD.

ACTION:

Final rule.

SUMMARY:

This final rule makes technical corrections and certain clarifying amendments to HUD's RESPA regulations promulgated by a final rule published on November 17, 2008. The majority of the regulations promulgated by the November 17, 2008, final rule became applicable on January 1, 2010. Now that the regulations have been in use for a little over one year, HUD has identified certain needed technical corrections, which this rule will make, and certain other regulatory provisions in which additional clarification would be helpful.

DATES:

Effective Date: August 10, 2011.

FOR FURTHER INFORMATION CONTACT:

Barton Shapiro, Director, Office of RESPA and Interstate Land Sales, Room 9158, U.S. Department of Housing and Urban Development, 451 7th Street, SW., Washington, DC 20410; telephone [phone] (this is not a toll-free number). For legal questions, contact Paul S. Ceja, Assistant General Counsel for RESPA, or Joan L. Kayagil, Deputy Assistant General Counsel for RESPA Room 9262; telephone [phone]. Persons with hearing or speech impairments may access this number via TTY by calling the toll-free Federal Relay Service at [phone]. The address for the above listed persons is: Department of Housing and Urban Development, 451 7th Street, SW., Washington, DC 20410.

SUPPLEMENTARY INFORMATION:

I. Background

On November 17, 2008 (73 FR 68204), HUD published a final rule that amended HUD's RESPA regulations to further the purposes of RESPA by requiring more timely and effective disclosures related to mortgage settlement costs for federally related mortgage loans to consumers. The regulatory changes made by the November 2008 rule were designed to achieve several objectives, including but not limited to: protecting consumers from unnecessarily high settlement costs by taking steps to improve and standardize the Good Faith Estimate (GFE) form to make it, among other things, easier to use for shopping among settlement service providers and to provide more accurate estimates of costs of settlement services; improving disclosure of yield spread premiums (YSP); clarifying HUD-1/HUD-1A Settlement statements; and ensuring that, at settlement, borrowers are aware of final costs as they relate to their particular mortgages.

HUD's November 2008 final rule followed publication of a March 14, 2008, proposed rule and made several changes in response to public comment. The November 17, 2008, final rule took effect on January 16, 2009, and certain provisions of the RESPA regulations became applicable on the effective date of the final rule. However, for the majority of the revised RESPA regulations, the November 2008 final rule provided for compliance to commence with the revised RESPA regulations on January 1, 2010.

In the period since the revised RESPA regulations became applicable, HUD has identified certain technical corrections needed to the regulations and in Appendix A to the regulations, and a few provisions where clarification would further enhance understanding of a regulatory provision or an Appendix A provision. HUD has already provided guidance and clarification on certain regulatory provisions through information provided on HUD's RESPA website.^[1] Through this rule, HUD is amending the RESPA regulations and Appendix A to make certain technical corrections and to clarify certain regulatory and appendix provisions.

II. Amendments Made by This Rule

This rule makes the following technical and clarifying amendments.

A. Amendments to the Regulations

Section 3500.2 (Definitions)

This rule corrects a citation to the Truth in Lending Act that is in the definition of “Federally related mortgage loan” in § 3500.2. Although this definition was not amended by the November 2008 rule, the enactment of the Dodd-Frank Wall Street Reform and Consumer Financial Protection Act (Pub. L. 110-203, approved July 21, 2010; see sec. 1100A(1)), changed the citation for “creditor” which appears in paragraph (1)(ii)(D) of the definition of “Federally related mortgage loan” in § 3500.2. Paragraph (1)(ii)(D) states that “creditor” is defined in the Consumer Credit Protection Act at 15 U.S.C. 1602(f), but the correct citation is now 15 U.S.C. 1602(g).

Section 3500.7 (Good Faith Estimate or GFE)

Section 3500.7(a)(4) and (b)(4). Section 3500.7(a) addresses when the lender must provide a GFE to an applicant borrower, and § 3500.7(b) addresses the same for a mortgage broker. Both sections state that a lender or a mortgage broker is not permitted to charge, as a condition for providing a GFE, any fee for an appraisal, inspection, or other similar settlement services. The lender or the mortgage broker may at its option charge a fee limited to the cost of a credit report. Both sections also state that the lender or mortgage broker may not charge additional fees until after the applicant has received the GFE.

The preamble discussion of this provision states that: “After the GFE has been received, the loan originator may collect additional fees needed to proceed to final underwriting for borrowers who decide to proceed with a loan from that originator.” (See 73 FR 68212, first column.) Although the language in the preamble makes clear that an applicant borrower must express an intent to continue with a loan after the applicant borrower receives the GFE for the loan before a lender or mortgage broker can collect additional fees from the applicant borrower beyond the cost of a credit report, this language was inadvertently omitted from the regulatory text. The question of whether an applicant borrower must express an intent to continue with a loan before the lender or mortgage broker can collect additional fees is an issue that came up after the regulations were promulgated and HUD addressed that question in its New RESPA Rules Frequently Asked Questions (FAQs) issued August 13, 2009, by replying in the affirmative that a borrower must express an intent to continue with the loan. (See question #10 at page 7 of www.hud.gov/​offices/​hsg/​rmra/​res/​resparulefaqs422010.pdf,, updated April 2, 2010, without changing this FAQ). To eliminate any ambiguity about whether the applicant borrower must express an intent to continue with the application process, this rule amends § 3500.7(a)(4) and (b)(4) to provide that the applicant borrower must indicate an intention to proceed with the loan covered by the GFE received by the applicant borrower from the lender or mortgage broker before the lender or mortgage broker may charge additional fees.

Section 3500.7(f). Section 3500.7(f) addresses when the GFE becomes binding. The amendments made to this section address both needed corrections and clarification.

1. The introductory paragraph to § 3500.7(f) uses the term “new GFE” in the first, second, and third sentences to refer to a “revised GFE.” This same term is used in paragraph (f)(5). A revised GFE is not a new GFE, and it is important to maintain this distinction. With the exception of the introductory paragraph and paragraph (f)(5), the remainder of § 3500.7(f) uses the term “revised GFE” not “new GFE.” This rule therefore substitutes “revised” for “new” in introductory paragraph (f) and paragraph (f)(5).

2. The introductory paragraph to § 3500.7(f) currently provides that a loan originator is bound “within the tolerances provided in paragraph (e) of this section, to the settlement charges and terms listed on the GFE provided to the borrower, unless a [revised] GFE is provided prior to settlement consistent with this paragraph (f).” However, the introductory paragraph inadvertently omits that the GFE does not remain binding indefinitely but expires 10 business days after the GFE is provided to the borrower if the borrower does not express an intent to continue with an application provided by the loan originator that provided the GFE, or expires after such longer period as may be specified by the loan originator pursuant to § 3500.7(c). Although the expiration period of the GFE is clearly stated in paragraph (f)(4) of § 3500.7(f), HUD finds that clarity is enhanced by also adding this language to the introductory paragraph of § 3500.7(f).

3. Paragraph (f)(1) of § 3500.7, which addresses changed circumstances affecting settlement costs, provides that the revised GFE may increase charges for services listed on the GFE but only to the extent that the changed circumstances actually resulted in higher charges. However, paragraph (f)(2), which addresses changed circumstances affecting the loan, and paragraph (f)(3), which addresses borrower-requested changes, inadvertently omits that the revised GFE may increase charges listed on the GFE only to the extent that changed circumstances affecting the loan, or the borrower's requested change, actually increased those charges. This rule therefore adds language making this limitation clear in paragraphs (f)(2) and (f)(3).

4. Paragraph (f)(4) of § 3500.7 as noted earlier, addresses the expiration of the GFE. The heading of this paragraph uses the word “original” to describe the GFE. The heading on this paragraph should not have any qualifier for the GFE. Whether new or revised, the period of expiration, as provided in paragraph (f)(4), is applicable.

5. Paragraph (f)(5) of § 3500.7(f) clarifies that whenever the borrower's interest rate is locked, a revised GFE must be provided to the borrower showing the revised interest rate-dependent changes and terms within 3 business days.

6. Paragraph (f)(6) addresses new home purchases. HUD is adding the word “construction” to the phrase “new home purchases” so that it reads “new construction home purchases.” HUD believes that the content of this paragraph is clear that new home purchases refers to purchases of newly constructed homes, not simply any home that is new to a borrower. This interpretation is supported by the preamble to the November 17, 2008, final rule in which this regulatory provision was discussed. The preamble stated in relevant part as follows: “Finally, the final rule includes the proposed provision on revision of the GFE for transactions involving new home purchases. HUD recognizes that in cases of new construction, the original GFE may be provided long before settlement is anticipated to occur.” (Emphasis added.) (See 73 FR 68221, first column.) While HUD believes the meaning of paragraph (f)(6) is clear, to remove any possibility of ambiguity the word “construction” is inserted between the words “new” and “home purchases.”

Section 3500.8 (Use of HUD-1 or HUD-1A Settlement Statements)

Section 3500.8(c) (Violations of section 4 of RESPA). The heading of § 3500.8(c) shows the citation for section 4 of RESPA as 12 U.S.C. 2604, but it should be 12 U.S.C. 2603. This rule corrects the citation.

B. Amendments to Appendix A

This rule also makes certain technical amendments to Appendix A to the RESPA regulations, which is entitled “Instructions for Completing HUD-1 and HUD-1A Settlement Statements; Sample HUD-1 and HUD-1A Statements.”

Appendix A—HUD-1 Instructions for Lines 601-602. The instructions for lines 601-602 (see 73 FR 68244) contain a transposed number. The instructions state to “Enter the total in Line 420 and Line 610.” Reference to line 610 should be line 601. The rule makes that correction.

Appendix—HUD-1 Instructions for Page 3. The instructions for the HUD-1, found at 73 FR 68243 of the November 2008 final rule, provide that the HUD-1 form is to be used as a statement of the actual charges and adjustments. If the borrower, or a person acting on behalf of the borrower, does not purchase a settlement service that was listed on the GFE (e.g., owner's title insurance), there should be no amount entered for that service in the corresponding line on Page 2 of the HUD-1, and the estimate of the charge from the GFE should not appear on the comparison chart on Page 3 of the HUD-1.

HUD has determined that the current instructions are not sufficiently clear on this point. Allowing loan originators to include on Page 3 of the HUD-1 charges from the GFE for settlement services that were not purchased could both induce loan originators to discourage consumers from purchasing settlement services (e.g., owner's title insurance) in order to gain padding in the 10 percent tolerance categories, and encourage loan originators to pad the 10 percent tolerance categories on the GFE with estimates of services that the consumer will not need in the transaction. HUD has previously addressed and clarified this issue in informal guidance. For example, in the July 2010 posting of its RESPA Roundup,^[2] HUD's Office of RESPA and Interstate Land Sales noted as follows:

Finally, we get the following question frequently: If a service that was listed on the GFE was not purchased, what should go into the borrower's column on Page 2 of the HUD-1 and on the comparison chart on Page 3 of the HUD-1? If the consumer did not purchase a service that was listed on the GFE (usually owner's title) there should be nothing entered in that line on Page 2 of the HUD-1 and the estimate of the charge should not appear on the comparison chart on Page 3 of the HUD-1.

Because inquiries about estimates on the HUD-1 has been a question frequently asked, and to address any remaining confusion, HUD revises the first paragraph of the instructions for Page 3 of the HUD-1 to clarify that the amounts to be inserted in the comparison chart are those for the services that were purchased or provided as part of the transaction, and that no amount should be included on Page 2 of the HUD-1 for any service that was listed on the GFE, but was not obtained in connection with the transaction.

III. Findings and Certifications

Justification for Final Rulemaking

In general, HUD publishes a rule for public comment before issuing a rule for effect, in accordance with HUD's regulations on rulemaking at 24 CFR part 10. Part 10, however, provides in § 10.1 for exceptions from that general rule where HUD finds good cause to omit advance notice and public participation. The good cause requirement is satisfied when the prior public procedure is “impracticable, unnecessary, or contrary to the public interest.”

HUD finds that good cause exists to publish this rule for effect without soliciting public comment, on the basis that prior public procedure is unnecessary. As discussed in this preamble, this final rule merely makes technical corrections and clarifying amendments to the RESPA final rule published on November 17, 2008. No substantive changes are made by this final rule.

Environmental Impact

Under 24 CFR 50.19(c)(2) of HUD's regulations, this rule is categorically excluded from environmental review under the National Environmental Policy Act of 1969 (42 U.S.C. 4321).

Federalism Impact

Executive Order 13132 (entitled “Federalism”) prohibits an agency from publishing any rule that has federalism implications if the rule either: (i) Imposes substantial direct compliance costs on state and local governments and is not required by statute, or (ii) preempts state law, unless the agency meets the consultation and funding requirements of section 6 of the Executive Order. This rule would not have federalism implications and would not impose substantial direct compliance costs on state and local governments or preempt state law within the meaning of the Executive Order.

Regulatory Flexibility Act

HUD is not required to publish a notice of proposed rulemaking for this technical corrections/clarifying amendments final rule. Accordingly, the Regulatory Flexibility Act is not applicable to this final rule.

Unfunded Mandates Reform Act

Title II of the Unfunded Mandates Reform Act of 1995 (2 U.S.C. 1531-1538) (UMRA) requires Federal agencies to assess the effects of their regulatory actions on State, local, and tribal governments and on the private sector. This rule does not, within the meaning of the UMRA, impose any Federal mandates on any State, local, or tribal governments nor on the private sector.

List of Subjects in 24 CFR Part 3500

• Consumer protection
• Condominiums
• Housing
• Mortgagees
• Mortgage servicing
• Reporting, and Recordkeeping requirements

For the reasons set out in the preamble, this final rule amends part 3500 of title 24 of the Code of Federal Regulations as follows:

PART 3500—REAL ESTATE SETTLEMENT PROCEDURES ACT

1. The authority citation shall continue to read as follows:

Authority: 12 U.S.C. 2601 et seq.; 42 U.S.C. 3535(d).

2. In § 3500.2, paragraph (b)(1)(ii)(D) of the definition of “Federally related mortgage loan” is revised to read as follows:

§ 3500.2

Definitions.

* * * * *

(b) * * *

Federally related mortgage loan or mortgage loan means as follows:

* * * * *

(D) Is made in whole or in part by a “creditor”, as defined in section 103(g) of the Consumer Credit Protection Act (15 U.S.C. 1602(g)), that makes or invests in residential real estate loans aggregating more than $1,000,000 per year. For purposes of this definition, the term “creditor” does not include any agency or instrumentality of any State, and the term “residential real estate loan” means any loan secured by residential real property, including single-family and multifamily residential property;

* * * * *

3. In § 3500.7, paragraphs (a)(4), (b)(4) and (f) are revised to read as follows:

§ 3500.7

Good faith estimate or GFE.

(a) * * *

(4) The lender is not permitted to charge, as a condition for providing a GFE, any fee for an appraisal, inspection, or other similar settlement service. The lender may, at its option, charge a fee limited to the cost of a credit report. The lender may not charge additional fees until after the applicant has received the GFE and indicated an intention to proceed with the loan covered by that GFE. If the GFE is mailed to the applicant, the applicant is considered to have received the GFE 3 calendar days after it is mailed, not including Sundays and the legal public holidays specified in 5 U.S.C. 6103(a).

* * * * *

(b) * * *

(4) The mortgage broker is not permitted to charge, as a condition for providing a GFE, any fee for an appraisal, inspection, or other similar settlement service. The mortgage broker may, at its option, charge a fee limited to the cost of a credit report. The mortgage broker may not charge additional fees until after the applicant has received the GFE and indicated an intention to proceed with the loan covered by that GFE. If the GFE is mailed to the applicant, the applicant is considered to have received the GFE 3 calendar days after it is mailed, not including Sundays and the legal public holidays specified in 5 U.S.C. 6103(a).

* * * * *

(f) Binding GFE. The loan originator is bound, within the tolerances provided in paragraph (e) of this section, to the settlement charges and terms listed on the GFE provided to the borrower, unless a revised GFE is provided prior to settlement consistent with this paragraph (f) or the GFE expires in accordance with paragraph (f)(4) of this section. If a loan originator provides a revised GFE consistent with this paragraph, the loan originator must document the reason that a revised GFE was provided. Loan originators must retain documentation of any reason for providing a revised GFE for no less than 3 years after settlement.

(1) Changed circumstances affecting settlement costs. If changed circumstances result in increased costs for any settlement services such that the charges at settlement would exceed the tolerances for those charges, the loan originator may provide a revised GFE to the borrower. If a revised GFE is to be provided, the loan originator must do so within 3 business days of receiving information sufficient to establish changed circumstances. The revised GFE may increase charges for services listed on the GFE only to the extent that the changed circumstances actually resulted in higher charges.

(2) Changed circumstances affecting loan. If changed circumstances result in a change in the borrower's eligibility for the specific loan terms identified in the GFE, the loan originator may provide a revised GFE to the borrower. If a revised GFE is to be provided, the loan originator must do so within 3 business days of receiving information sufficient to establish changed circumstances. The revised GFE may increase charges for services listed on the GFE only to the extent that the changed circumstances affecting the loan actually resulted in higher charges.

(3) Borrower-requested changes. If a borrower requests changes to the mortgage loan identified in the GFE that change the settlement charges or the terms of the loan, the loan originator may provide a revised GFE to the borrower. If a revised GFE is to be provided, the loan originator must do so within 3 business days of the borrower's request. The revised GFE may increase charges for services listed on the GFE only to the extent that the borrower-requested changes to the mortgage loan identified on the GFE actually resulted in higher charges.

(4) Expiration of GFE. If a borrower does not express an intent to continue with an application within 10 business days after the GFE is provided, or such longer time specified by the loan originator pursuant to paragraph (c) of this section, the loan originator is no longer bound by the GFE.

(5) Interest rate dependent charges and terms. If the interest rate has not been locked, or a locked interest rate has expired, the charge or credit for the interest rate chosen, the adjusted origination charges, per diem interest, and loan terms related to the interest rate may change. When the interest rate is later locked, a revised GFE must be provided showing the revised interest rate-dependent charges and terms. The loan originator must provide the revised GFE within 3 business days of the interest rate being locked or, for an expired interest rate, re-locked. All other charges and terms must remain the same as on the original GFE, except as otherwise provided in paragraph (f) of this section.

(6) New construction home purchases. In transactions involving new construction home purchases, where settlement is anticipated to occur more than 60 calendar days from the time a GFE is provided, the loan originator may provide the GFE to the borrower with a clear and conspicuous disclosure stating that at any time up until 60 calendar days prior to closing, the loan originator may issue a revised GFE. If no such separate disclosure is provided, the loan originator cannot issue a revised GFE, except as otherwise provided in paragraph (f) of this section.

* * * * *

4. In § 3500.8, the paragraph heading of paragraph (c) is corrected to read as follows:

§ 3500.8

Use of HUD-1 or HUD-1A settlement statements.

* * * * *

(c) Violations of section 4 of RESPA (12 U.S.C. 2603). * * *

* * * * *

5. Appendix A to Part 3500 is amended as follows:

a. Revise the Instructions for Lines 601 and 602.

b. Revise the first paragraph of the Instructions for Page 3.

The revisions read as follows:

Appendix A to Part 3500—Instructions for Completing HUD-1 and HUD-1a Settlement Statements; Sample HUD-1 and HUD-1a Statements

* * * * *

Lines 601 and 602 are summary lines for the Seller. Enter the total in Line 420 on Line 601. Enter the total in Line 520 on Line 602.

* * * * *

Page 3

Comparison of Good Faith Estimate (GFE) and HUD-1/1A Charges

The HUD-1/1-A is a statement of actual charges and adjustments. The comparison chart on page 3 of the HUD-1 must be prepared using the exact information and amounts for the services that were purchased or provided as part of the transaction, as that information and those amounts are shown on the GFE and in the HUD-1. If a service that was listed on the GFE was not obtained in connection with the transaction, pages 1 and 2 of the HUD-1 should not include any amount for that service, and the estimate on the GFE of the charge for the service should not be included in any amounts shown on the comparison chart on Page 3 of the HUD-1. The comparison chart is comprised of three sections: “Charges That Cannot Increase”, “Charges That Cannot Increase More Than 10%”, and “Charges That Can Change”.

* * * * *

Dated: July 1, 2011.

Robert C. Ryan,

Acting Assistant Secretary for Housing-Federal Housing Commissioner.

Footnotes

1.  See http://www.hud.gov/​respa/​.

2.  See http://portal.hud.gov/​hudportal/​documents/​huddoc?​id=​DOC_​19681.pdf.