Mar 2012

CFPB on Multiple GFE’s and Changes of Circumstance

By admin

Recently the Consumer Financial Protection Bureau submitted comments in regards to the issuance of needless GFE’s. Supposedly pursuant to the 2008 RESPA rule requiring the reissuing of a Good Faith Estimate (GFE) and the mandatory gap closing period many banks have been reissuing GFE’s unnecessarily. In short, banks only need to reissue such when the fees in the tolerance section have increased by more then 10%.

Recently we have mentioned that the CFBP is creating a combined RESPA and Truth in Lending disclosure form, which will result in yet a new GFE and HUD-1. We highlighted the proposals and suggested that banks make their recommendations in a post several months ago. The CFPB issued several iterations of a draft Loan Estimate, which will replace the TIL and GFE disclosures. The CFPB on Feb. 18 released its final draft form of the integrated Settlement Disclosure, which is combining the HUD-1 with TILA disclosures. The Bureau plans to publish the forms and proposed rules July 21, 2012.

The CFPB said proposals under consideration to create new forms “would ensure that the rule does not require lenders to reissue the Loan Estimate unless and until the costs subject to the 10% limitation increase based on valid changes in circumstance by more than 10 percent in total.”

Further protection to consumers is expected ensuring that the 10 percent tolerance provided to lenders applies only when the lender has reissued the Loan Estimate based on a valid “change in circumstance”, according to the CFPB.

The CFPB’s also outlines the tolerances and when the change of circumstance applies. HUD’s 2008 RESPA rule limits the circumstances when a lender can charge the consumer more at closing than the lender estimated in the GFE provided to the consumer three business days after application. Lender charges generally cannot exceed the estimate (zero tolerance). However, Title Insurance and appraisal work can exceed the GFE estimate by up to 10 percent at closing.

Examples of things that could be considered a changed circumstance (after a good faith estimate is issued)  according to HUDs FAQs:

  • Mortgage insurance program changes prior to the GFE being issued IF the mortgage originator did not have notice of those changes.
  • Property address provided by the borrower is incorrect.
  • The ownership of the property or vesting reported by the Title Company is not what was provided by the borrower, hence a deed will be needed.
  • The agreement of sale’s reported closing date is changed from the original purchase and sales agreement provided to the lender.
  • Additional appraisal, pest or other inspections required.

Title companies see the different ownership issue pop up daily.  For instance, a banker in New Jersey orders Pennsylvania title insurance on a property in Philadelphia and does not verify ownership prior to issuing the GFE. The PA Title Company sends the title commitment with the correct vesting, say the borrower’s mother is also on title but she is not going to be signing and no longer needed.  In order to close properly now the borrower needs to have the PA Title Company draw up a deed removing his mother.  This creates an expense possibly to the attorney who prepared it as well as the County Recorder of Deeds for recordation.

The CFPB continues to encourage all industry players to share feedback and concerns with both the old regulations and the newer improved provisions of the CFPB. To do so, the CFPB has created a small business review panel.

The panel is primarily responsible for soliciting small businesses to obtain feedback to ensure the new mortgage disclosure forms, supposedly more transparent and simple, account for the ideas and concerns of small mortgage companies.

The prototype forms, which are part of the “Know Before You Owe Campaign,” combine the Truth in Lending Act and the RESPA forms into one combined mortgage document.

“This is another step in the CFPB’s wide-ranging efforts to gather the input of the people who will be affected by our rules,” Director Richard Cordray said. “The CFPB is dedicated to issuing thoughtful, research-based rules that take into account not only the benefits to consumers but also how businesses of all sizes will be affected. We take all feedback seriously.”

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