RESPA/Regulation X New Requirements

Regulation X as announced by the U.S. Department of Housing and Urban Development will be effective with all new mortgage files with applications dated on or after January 1, 2010. These important regulatory changes will place new requirements on lenders and brokers to ensure that borrowers are better positioned to understand their mortgage transaction.

Key points that you should be aware of:

• All loans with an application taken on or after January 1, 2010, must contain the new GFE form and HUD-1 or HUD-A in the file
• Loan Originators are responsible for providing the initial GFE and Settlement Service Provider (SSP) list to the borrower within three business days of completing their application. The initial GFE must be good for at least 10 business days
• The GFE must be accurate as the Loan Originator will be held to the fees disclosed on the initial GFE. Any under disclosed fees will be taken from Originators commission
• The initial GFE is a binding GFE, subject to any changed circumstances. see below
• After the borrower has received the initial GFE, the Loan Originator is responsible for obtaining and documenting the borrower's expressed intent to proceed with the transaction. Oaktree Funding will require the borrower and Loan Originator to execute a "Certification of Receipt of Good Faith Estimate (GFE) and Intent to Proceed" prior to underwriting any loan application

Changed Circumstances:
The Loan Originator must issue a re-disclosure GFE and SSP list to the borrower within the required time frame of three business days of receiving the changed circumstance information. If a changed of circumstance exists Oaktree Funding Corp will require a completed "Changed Circumstance Cover Letter" and new "Certification of Receipt of Good Faith Estimate (GFE) and Intent to Proceed"

• If a changed circumstance occurs, only those fees affected by the changed circumstance may change. (No other fees may change)
• If the estimates within the GFE are inaccurate and a valid changed circumstance does not occur, the loan originator is bound to the amounts shown on the last disclosed GFE.
• If a changed circumstance occurs, the Loan Originator must re-disclose with three business days after receipt of the information regarding the changed circumstance or the ability to re-disclose (and increase a fee) is lost.
• Loan Originators must retain documentation relating to the changed circumstance and fee change, if re-disclosed, for three years

A "changed circumstance" is defined as follows:

• Acts of God, war or disaster
• Changes or inaccuracies in information relating to the borrower or the transaction that was relied upon in providing the GFE
• Changes to the loan amount or estimated value of the property
• New information regarding the borrower or transaction not relied upon when the initial disclosure was provided

A revised GFE must be issued upon a lock event (locking the rate or expiration of the lock) and may be issued in the event the borrower requests a change in the mortgage loan that was identified in the the GFE and that changes the settlement charges or terms of the loan.

Fee Disclosure and Accuracy
The accuracy of initial GFE is critical.

• All broker origination fees, including broker compensation, disclosed on the GFE should match those fees listed on the Mortgage Broker Fee Agreement (MBFA)  form.
• Under no circumstances can the broker compensation incrase from the amount disclosed on the initial GFE
• Its essential that the MBFA and the GFE align throughout the loan process and at loan closing.
  • Brokers are responsible for ensuring that the MBFA is kept current with the GFE should any changed circumstance occur that impacts the fees on the MBFA
  • Maximum Broker Compensation on the MBFA can only increase if the Loan Program or Product changes; the Rate changes as the result of a lock or re-lock; or if the borrower requests changes to the loan amount or terms. The broker compensation can never increase from the amount disclosed on the initial GFE.
  • With the RESPA amendments, the MBFA is critical as the new GFE does not provide a breakdown of broker fees and compensation. the MBFA supplements the GFE - and it will help ensure the borrower can clearly determine broker fees and compensation.

For all services where the borrower may select the provider the Loan Originator must provide borrowers with a list of settlement Service Providers (SSP) in the borrowers' geographic area along with the costs for the services (remember if the borrower chooses one of these services that fee is subject to the 10% tolerance rule set by HUD

Fee Tolerances
As a reminder, tolerances (allowable increases between disclosed and actual fees at closing) on changes to settlement charges between the final GFE and HUD-1 will be defined in three categories beginning January 1, 2010:

1. Charges that cannot increase at settlement:
   • Origination charges. Origination charges include the loan originator's origination fees and broker compensation (if applicable)
   • Discount or premium points for a specific interest rate selected
   • Adjusted origination charges (after the interest rate is locked)
   • Transfer Taxes
     
2. Charges that cannot increase in the aggregate by more than 10% at settlement:
   • Required settlement services that the lender selects, such as appraisal services
   • Title services and lender's title insurance (if selected by lender or if the borrower uses a company identified on Settlement Services Provider List)
   • Owner's title insurance (if the borrower uses a company identified on the Settlement Services Provider List)
   • Required settlement services (such as Pest Inspections) the the borrower selects from the Settlement Services Provider List
   • Government recording charges
     
3. Charges that can increase at settlement:
   • Required settlement services that the borrower can select, if the borrower selects a service provider not listed on the settlement Services Provider List
   • Title Services and lender's title insurance, if the borrower selects a service provider not listed on the Settlement Services Provider List
   • Owner's title insurance, if the borrower selects a service provider not listed on the Settlement Services Provider List
   • Initial deposit for borrower escrow account
   • Daily interest charges
   • Homeowner's insurance

Please note: For 1 and 2 above, should a changed circumstance occur that directly impacts the fee effected by the changed circumstance and a revised GFE be provided with three business days after receipt of the information regarding the changed circumstance, the tolerance is determined by reference to the fees disclosed on the most recent GFE as compared to the fees at closing. Only fees directly impacted by the changed circumstance can be added and/or increased and re-disclosed. This excludes broker compensation which can never increase