Written by Richard Triplett, CMB*

In the previous article (RESPA Reform Final Rule), I discussed the provisions of RESPA reform that become effective on January 16, 2009. This article will focus on the newly revised Good Faith Estimate (GFE), and specifically the first page. Additional articles will follow on each page for your reference in implementing this revised disclosure on January 1, 2010.

Let's first start with some basic comments on the new GFE and associated requirements.

• If you decide to implement the new GFE prior to the effective date, you must comply with all of the rules related to the use of the new GFE (tolerances, etc.). In addition, the new HUD-1 must also be used in conjunction with the implementation of the new GFE.
• No documentation to support the loan request can be requested from the applicant prior to issuance of the GFE.
• Credit report charges are the only fees allowed to be collected from the applicant prior to issuance of the GFE.
• The GFE must be issued upon receipt of the following information from the applicant; 1) Name, 2) Social Security Number, 3) Income, 4) Property Address, 5) Estimated Value, and 6) Loan Amount.

Name of Originator	Borrower
Originator Address	Property Address
Originator Phone Number
Originator Email	Date of GFE

This section (shown above) calls for the identification of the "originator". Complete this section in the name of the entity and not the individual (unless the broker is an individual). The definition of originator includes both mortgage lenders and mortgage brokers. Borrower name, property address and date of the GFE are self-explanatory.

Important Dates

1. The interest rate for this GFE is available until XX/XX/XX. After this time, the interest rate, some of your loan Origination Charges, and the monthly payment shown below can change until you lock your interest rate.

2. The estimate for all other settlement charges is available through XX/XX/XX.

3. After you lock your rate, you must go to settlement within XX days (your rate lock period) to receive the locked interest rate.

4. You must lock the interest rate at least XX days before settlement.

Important Dates - In this section, HUD is requiring the establishment of specific dates and time periods, specifically:

• How long the initial disclosed interest rate and origination charges will be in effect. You will need to establish policies on this time period from issuance of the GFE.
• The time period in which the estimated settlement charges are available. Again, this time period is up to you, so establishment of a policy on this time period is warranted. HUD mandates a minimum of 10 business days.
• The time period (number of days) in which the loan must go to settlement after the locking of the interest rate.
• You must state the time period in which a rate must be locked prior to settlement, if applicable.

There are a few observations to be made within this section of the new GFE. First, does HUD mandate the time period in which the initial disclosed interest rate must be available? No, HUD indicates that this date is set by the loan originator. This could cause some concern in the secondary marketing operations since this will affect the establishment of daily rate sheets (typically) and will need to accommodate anticipated future pricing since you will now have to indicate the expiration date of the initial disclosed interest rate. Secondly, the industry is used to determining the interest rate lock period when the interest rate is locked. Typically you will see 15-day, 30-day, 45-day lock periods, etc. The lock period now must be established at the time of the GFE issuance rather than when the rate is locked. This alone is a major change for the industry.

HUD has indicated that the mortgage broker or lender will be required to keep the offer of settlement costs open for 10 business days in order for the consumer to comparison shop. Therefore, to answer this particular statement under #2 above, this date must be a minimum of 10 business days from the date of the GFE; it can be longer as decided by the mortgage broker or lender.

Summary of Your Loan

Loan Balance - One can only assume that, in the case of government loans, this is the gross loan amount (including up-front mortgage insurance premiums and VA funding fees); however, there is no clarity offered in the instructions.

Loan Term - Based on the fact that balloon loans are addressed within this section separately, can you assume this loan term on a balloon loan is the amortized period versus the balloon payment period? There is no clarity contained within the instructions regarding this term; however, since the balloon scenario is covered below it, one could assume the amortized term rather than the balloon term would be warranted here in this section.

Principal and Interest Payment - Includes any monthly mortgage insurance premiums and does not include any impounds or escrow account monthly payments. Since adjustments to this payment are covered separately in this section, you should reflect only the initial monthly payments including mortgage insurance.

Initial Interest Rate - This section is for the initial interest rate only. Any adjustable-rate changes, teaser rates, etc. are covered within this section separately.

Can your interest rate rise? - I believe that HUD's intention was not to consider increased interest rates upon default, if applicable. One can assume the intended purpose here is to identify a rise or change based on normal amortization of fixed and ARM loans. This would be the actual initial fixed-rate in the case of a fixed-rate loan or the ARM loan rate maximized to include the lifetime cap for the particular program and rate structure. The only clarification given by HUD in the instructions is that the originator must indicate whether the interest rate can rise, and the originator must insert the maximum rate over the life of the loan (lifetime cap) and the time period in which the interest rate can first adjust (not the lifetime adjustment).

Can your loan balance rise? - HUD does give us a minimal amount of instruction regarding this section, in that if the loan balance will increase due to the fact that escrow is run out of the loan balance, this check box does not apply. Also, in the case of state, federal, local or tribal housing programs, any program repayment would not be considered. Assuming here that HUD's intention is to identify negative amortization, they should provide more instruction on data mapping this figure. Again, should any monetary default additions (such as legal fees, etc.) be included as well? We will have to wait until HUD publishes a Q&A web page for identifying any clarifications (they do plan on doing this).

Monthly payment increases - The amount for principal, interest and mortgage insurance and if this figure can rise. If the figure rises, you must indicate the first adjustment period and the increase at that time, as well as, the maximum monthly payment that it can ever increase. The monthly amount owed must be the greater of: 1) the required monthly payment for principal, interest and mortgage insurance; or, 2) the accrued interest for that month plus any mortgage insurance payments.

Does your loan have a prepayment penalty? - I was hopeful that HUD might make this clearer for the applicants, but alas they did not. It would be beneficial if HUD could have been clearer here in indicating that this is referencing this loan and not an existing loan. Perhaps, something more in line with "Will this loan have a prepayment penalty? I believe this is one section that could have offered this clarity; instead, be prepared for applicants to not understand this if their existing loan to be paid off contains a prepayment penalty.

Does your loan have a balloon payment? - This section is slotted for identification that this loan contains a balloon provision and the amount of the balloon payment and when it will be due.

Escrow Account Information

Some lenders require an escrow account to hold funds for paying property taxes or other property related charges in addition to your monthly amount owed of $ XXXX.XX

Do we require you to have an escrow account for your loan?

[ ] No, you do not have an escrow account. You must pay these charges when due.

[ ] Yes, you have an escrow account. It may or may not cover all of these charges. Ask us.

Escrow Accounts - This section identifies whether or not there will be an escrow account held by the lender. Under the first heading, be cautious in that the quoted monthly mortgage payment in this section does not include the actual monthly amounts for that escrow account; it is strictly meant for the principal, interest and mortgage insurance only. The escrow account payments are only reflected separately in the estimation on page 2.

Finally, to complete page one, there is the section regarding estimated settlement charges and the total of those charges (even though they are actually identified on page 2).

In future articles, I will be covering the second and third page of the GFE, as well as, the HUD-1. The final article in this series will cover considerations that must be made, including policies and procedures, systems, other disclosure considerations, etc. in actually implementing the new rules.

One parting note: As you will see in the next article covering page 2 of the revised GFE, there are very limited tolerances in terms of estimated charges, so I find it interesting that it remains to be called a "Good Faith Estimate". There are also several industry groups who have threatened law suits to prevent these final rules from implementation so we will have to monitor such suits in a prompt manner to keep from expending the time and cost of implementation if it does not become effective. Personally, I feel that you must go through that process anyway considering the limited time frame for implementation. You will not want to be caught off guard given all of the other regulations changing over the course of 2009, and how those changes also effect the implementation of RESPA Reform (HERA, HOEPA, HMDA, etc.).

Other Articles in this Six-Part Series:

• Part I - RESPA Reform Final Rule - Part 1
• Part III - RESPA Reform: Revised GFE Page 2
• Part IV - RESPA Reform: Revised GFE Page 3
• Part V - RESPA Reform: Revised HUD-1 Settlement Statement
• Part VI - RESPA Reform: Implementation Considerations

* Richard Triplett, CMB, is an AllRegs Academy instructor and Chief Compliance Officer for Gregg & Valby, LLP in Houston, Texas. This article first appeared in the AllRegs Weekly Digest and may be viewed in its original format at http://www.allregs.com/ealerts/updates090105_RevisedGFE01.htm. Copyright © 2009 AllRegs. Reprinted with permission from AllRegs, http://www.allregs.com/.