RESPA Reform – Good Faith Estimate (GFE) Changes
About the New GFE – Effective January 1st, 2010
The centerpiece of the new RESPA rule is the introduction of a standardized, binding Good Faith Estimate (GFE) form that is designed to help borrowers compare settlement costs and loan terms from various loan originators.
About the Binding GFE
· The new GFE bundles categories of fees to help the borrower identify a total cost for each fee category.
· Clients must provide a GFE within three days of receiving an “application.”
· With limited exceptions, Clients are bound to the settlement charges and loan terms listed on the GFE for at least 10 business days from the day the GFE is provided.
· Clients will indicate on the GFE the period during which the offered interest rate is available.
· The charges and terms in the GFE will be binding unless a new GFE is provided to the borrower prior to settlement based on “changed circumstances” as defined in the rule.
About GFE Fee Tolerances
RESPA rules establish “tolerances” or limits on three categories of settlement charges which may vary at closing from the amounts listed on the GFE.
· Zero Tolerance — Amounts estimated on the GFE cannot be exceeded at closing. In other words, the origination charges on the HUD-1/1A cannot exceed those in sections 1, 2, and 8 of the GFE — including Credit (YSP), Charge (discount points) and transfer taxes.
· 10% Tolerance — The total of the charges found in sections 3-7 on the GFE may not exceed a ten percent increase at settlement from the total of those charges on the GFE.
· No Restriction — This category of fees is subject to no restriction and includes reserves, escrows, daily interest charges, homeowner’s insurance and required settlement services where the borrower shops and selects their own provider.