Written by Richard Triplett, CMB*
In a final chapter in this series of articles regarding the RESPA Final Rule, I am going to identify some of the considerations that must be made as you work through the process of implementation. Of course, every individual implementation will be unique but I will try to identify some of the common threads that mortgage lenders and brokers will need to contemplate during the process. Thus far, there has only been a delay in the definition of "required use" regarding the final rule, so pending any additional delays based on the current law suits you must be prepared and have your implementation completed by January 1, 2010. There are a great number of things to consider in this implementation and multiple departments and individuals that will be involved. For purposes of this article, I will not focus on those requirements that are already effective, with the exception of average pricing, which may or may not affect your implementation of the new GFE and HUD-1 forms.
Common Threads
As a general overview there are some common threads in terms of considerations that cover the spectrum of the final rule including both phases effective January 16, 2009 and January 1, 2010. Of course just as you, I have not had the pleasure of working through this implementation yet so this is not an all inclusive list just some initial thoughts. The other item I would like you to consider during this process is the amount of time each of these items are going to require of you, the Compliance department staffing, the Information Technology staff, Training staff, etc. This specific rule in addition to all other regulations effective in the next coming months will require the time and effort of everyone in your organization.
Policies and Procedures - In keeping with the final rule you will have to revise your policies and procedures as it applies to all aspects of the rule. Consider issues such as the time periods regarding the effective date of the GFE interest rate quoted, settlement charges, rate lock time periods, the collection of advance fees including the limited charge at the time of the preparation of the GFE. The list goes on and on; so you will want to keep such issues in mind as you go through the process of implementation and those issues that will require changes to your existing policies and procedures. You will also need to consider distribution of those revisions to applicable individuals and departments.
Auditing - There will clearly be changes that must be applied to your existing auditing procedures and any system programming and/or checklists that may be used. This will affect pre-closing, post-funding, quality control reviews and procedures, etc. You will also want to consider the timing of those reviews as it relates to the cure provision allowance provided in the final rule.
Quality Control - In addition to the obvious changes that will be necessary to the quality control process, you will want to take a look at any existing Quality Control Plan to identify differences that are applicable due to the changes within the final rule.
Training - Given the nature and the complexity of the revisions to RESPA in the final rule, there will be necessary training for every employee of your mortgage operation. If you haven't given that effect of this rule enough consideration, you should. This rule in essence changes the entire nature and process from start to finish of the origination of a mortgage loan.
Print Groups - Depending on your specific system, you may need to schedule time to go through all of your existing disclosure/document printing groups to make any necessary modifications to either the grouping itself, the order in which the disclosure or document prints, or both. Also, dependent upon how your system identifies disclosure/document printing groups this may require a state-by-state analysis or programming.
Average Charges - If you haven't already, you will need to ascertain those service providers that will be using average charges and program your systems and any necessary staff training to accommodate this allowance. You will also need to have procedures and processes to determine the classification of those transactions in which average pricing is used, evaluate those charges every six months, and document and retain the classification and charge criteria. If you have any affiliations with service providers, you should also look over any Affiliated Business Arrangement disclosures for possible necessary modifications. In addition, if your service providers are also changing to average charges, you will want to look over your existing agreements with these providers for possible modifications.
Escrow Account Provisions - You will need to review any existing legal documents for language regarding any current escrow cushion language, as well as, your servicing operations system(s) regarding any defaults applied to escrow cushions.
GFE - First, of course, you will need to add the new form to your origination systems. You will need to work with your specific origination system providers if you have a system off the shelf from any number of providers for the industry. Do not assume that your system provider will make appropriate programming that will work for you. You need to review any specifications, with a fine tooth comb, regarding the updates that will be necessary on your systems to ensure whatever programming is implemented meets your needs. You will painstakingly need to go through any system fee table defaults that already exist on your origination system. You will also need to ascertain whether or not loan level pricing (rates & points) are going to be tied into your origination systems versus manually input by the loan officer, processor or any staff member responsible for issuing the GFE. A decision will need to be made regarding the table on page 3 of the GFE regarding trade-offs and that section will need to be scrutinized for any programming that will be required. If they do not already exist, and if applicable to your programs, you may need to add additional programming calculations regarding maximum prepayment penalties, possible maximum negative amortization amounts, etc. These are not typical calculations on most origination systems.
You will want to take a look at your existing definition of "application" for potential revisions to your existing policies and procedures, as well as, the time periods for interest rate quotes (lender determination) & settlement charges (minimum 10 days). You are going to have to establish the interest rate locking period on a loan-by-loan basis due to the fact that page 1, section "Important Dates" now makes the reference (number 3) to the rate lock period once the rate is locked at the time of issuance of the GFE. You will need to review your existing advance fee disclosures for any potential changes necessary for the final rule and the requirements for fee collection from consumers. Consider the establishment of appropriate transfer tax system defaults for each possible state. When implementing defaults for recording fees you will need to consider programming based on defaults for all possible riders as well since these are in most if not all cases based on a per page filing (i.e., multi-unit, separate legal descriptions, PUD, condominium, ARM riders, etc). Remember these charges have a tolerance of only ten percent. In all of this analysis and implementation you will also want to make sure you consider the re-programming of any existing system defaults that may currently exist for any of these scenarios. Keeping in mind throughout this enormous process, the departments, service providers, etc. that each and every one of these changes may affect.
HUD-1 - Just the same as the GFE, if you provide the HUD-1 to your settlement agents you will need to ensure your systems have the revised form (you may need the form regardless of whether your settlement agent generates it or not for future corrections, etc.). Regardless, you will need to work with your settlement/closing agents, title companies, doc providers, etc. to ensure they have the appropriate form and programming as well. The data mapping on this form will need to be analyzed similarly to the GFE regarding the placement and tolerance levels for each settlement charge. The closing instructions to your service provider will need modification. You will need to work closely with your accounting departments to ascertain their needs for reporting purposes. Don't forget the timing on your post-closing analysis to determine any errors that allow the applicable cure provisions. New programming is necessary to separate the charges between the title insurance premium and the title underwriter's portion. In order to meet the new tolerance requirements you will need processes or programming for identification of lender suggested service providers and those separately chosen by the borrower. Just as with the GFE the consideration and potential removal of any existing system defaults.
Reporting - With all of the statements above, you are also going to need to go through all of your current reporting capabilities, existing reports, etc. to determine the effect all of these changes will have on your internal department reports and external reporting to regulatory agencies. Consider this as well; this will eventually roll right down to your required tax reporting to all of the taxing authorities (state, federal, local), including borrowers, brokers, loan originators, etc.
Wholesale - Certainly as indicated in my previous writings on this rule, I continue to anticipate an enormous amount of effort on the part of the mortgage broker and lender combined in any wholesale transactions. There is still no clear indication from the regulation regarding the liability applied to the wholesale lender regarding the accuracy of the GFE issued by the mortgage broker, so determination must be made regarding the issuance of a separate GFE by the wholesale lender versus reliance upon the previous issued by the mortgage broker. The GFE no longer contains the separation of charges between the broker and lender, so consideration must be applied to how and where these segregated fees will be identified and retained, as an example for accounting purposes alone, and a plethora of other necessary reporting. You must also consider at the state level the requirements of the lender for disclosure based solely on responsibilities under your licensing obligations as well. Let's not forget the most controversial issue and that being the Yield Spread Premium applied as a credit or charge accordingly.
With all of that rolling around in your mind consider also the implementation of the RESPA Final Rule in conjunction with upcoming effective dates for revisions to Regulation Z and HMDA. In addition, you must be on the lookout for state law changes as well. Since we are on the subject of change, while you are working through this process, don't forget other regulatory implementation such as the SAFE Act, Home Valuation Code of Conduct, etc.
Other Articles in this Six-Part Series:
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/updates090302_RESPAReform-IC.htm. Copyright © 2009 AllRegs. Reprinted with permission from AllRegs, http://www.allregs.com/.
* Any opinions expressed in the above article are to be construed as the author's opinion only and do not necessarily reflect those of DocMagic, Inc., including members of its Compliance Department.
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