HUD Final Rule 2009

Monday,November 17, 2008

Part IV

Department of Housing and Urban Development

24 CFR Parts 203 and 3500Real Estate Settlement Procedures Act (RESPA): Rule To Simplify and Improvethe Process of Obtaining Mortgages and Reduce Consumer Settlement Costs; Final Rule

VerDate Aug<31>2005 18:58 Nov 14, 2008Jkt 217001PO 00000Frm 00001Fmt 4717Sfmt 4717E:\FR\FM\17NOR3.SGM17NOR3

s r o b e r t s o n P R O D 1 P C 7 0 w i t h R U L E S

68204

Federal Register

/Vol. 73, No. 222/Monday, November 17, 2008/Rules and Regulations

DEPARTMENT OF HOUSING ANDURBAN DEVELOPMENT24 CFR Parts 203 and 3500

[Docket No. FR–5180–F–03]RIN 2502–AI61

Real Estate Settlement Procedures Act(RESPA): Rule To Simplify andImprove the Process of ObtainingMortgages and Reduce ConsumerSettlement Costs

AGENCY

:

Office of the AssistantSecretary for Housing—Federal HousingCommissioner, HUD.

ACTION

:

Final rule.

SUMMARY

:

This final rule amends HUD’sregulations to further RESPA’s purposes by requiring more timely and effectivedisclosures related to mortgagesettlement costs for federally relatedmortgage loans to consumers. Thechanges made by this final rule aredesigned to protect consumers fromunnecessarily high settlement costs bytaking steps to: improve and standardizethe Good Faith Estimate (GFE) form tomake it easier to use for shoppingamong settlement service providers;ensure that page 1 of the GFE providesa clear summary of the loan terms andtotal settlement charges so that borrowers will be able to use the GFEto identify a particular loan product andcomparison shop among loanoriginators; provide more accurateestimates of costs of settlement servicesshown on the GFE; improve disclosureof yield spread premiums (YSPs) to help borrowers understand how YSPs canaffect borrowers’ settlement charges;facilitate comparison of the GFE and theHUD–1/HUD–1A SettlementStatements; ensure that at settlement borrowers are aware of final costs asthey relate to their particular mortgageloan and settlement transaction; clarifyHUD–1 instructions; expressly state thatRESPA permits the listing of an averagecharge on the HUD–1; and strengthenthe prohibition against requiring the useof affiliated businesses.This final rule follows a March 14,2008, proposed rule and makes changesin response to public comment andfurther consideration of certain issues by HUD. In addition, this rule providesfor an appropriate transition period.Compliance with the new requirementspertaining to the GFE and settlementstatements is not required until January1, 2010. However, certain provisions areto be implemented upon the effectivedate of the final rule.

DATES

:

Effective Date:

This rule iseffective on January 16, 2009.

FOR FURTHER INFORMATION CONTACT

:

Ivy Jackson, Director, or Barton Shapiro,Deputy Director, Office of RESPA andInterstate Land Sales, Office of Housing,Department of Housing and UrbanDevelopment, 451 7th Street, SW.,Room 9158, Washington, DC 20410–8000; telephone number 202–708–0502.For legal questions, contact Paul S. Ceja,Assistant General Counsel; Joan Kayagil,Deputy Assistant General Counsel; orRhonda L. Daniels, Attorney-Advisor,for GSE/RESPA, Department of Housingand Urban Development, 451 7th Street,SW., Room 9262, Washington, DC20410–0500; telephone number 202–708–3137. These telephone numbers arenot toll-free. Persons with hearing orspeech impairments may access thesenumbers through TTY by calling thetoll-free Federal Information RelayService at 800–877–8339.

SUPPLEMENTARY INFORMATION

:

Background

On March 14, 2008 (73 FR 14030),HUD published a proposed rule (March2008 proposed rule) that submitted forpublic comment changes to HUD’sregulations designed to improve certaindisclosures required to be providedunder RESPA (12 U.S.C. 2601–2617).The RESPA disclosure requirementsapply in almost all transactionsinvolving mortgages that secure loanson one-to four-family residentialproperties. HUD’s regulationsimplementing the RESPA requirementsare codified in 24 CFR part 3500. Therevisions to the regulations adopted byHUD in this final rule are intended tomake the process of obtaining mortgagefinancing clearer and, ultimately, lesscostly for consumers.The preamble of the March 2008proposed rule presents an overview of the statutory requirements underRESPA, as well as a detailed account of HUD’s efforts to initiate regulatorychanges commencing in 2002. HUDrefers the reader to the March 2008proposed rule for a detailed descriptionof the background of this rulemaking.The principles that guided HUD in thedevelopment of this rule are alsoincluded in the March 2008 proposedrule.The preamble to this final rulehighlights some of the more significantchanges made at this final rule stage inresponse to public comment and uponfurther consideration of certain issues by HUD, summarizes the publiccomments received on the March 2008proposed rule, and provides HUD’sresponse to those comments. Thefollowing table of contents is providedto assist the reader in identifying wherecertain topics are discussed in thispreamble. This final rule is alsoaccompanied by a final regulatoryimpact analysis and regulatoryflexibility analysis, which are addressedin sections VIII and IX of this preamble.

Table of Contents

I. Significant Changes from March 2008Proposed RuleII. Overview of CommentersIII. GFE and GFE Requirements—Discussionof Public Comments

A. Overall Comments on the ProposedRequired GFE FormB. Changes to Facilitate Shopping1. New Definitions for ‘‘GFE Application’’and ‘‘Mortgage Application.’’2. Up-Front Fees That Impede Shopping3. Introductory Language on the GFE Form4. Terms on the GFE (Summary of LoanDetails)5. Period During Which the GFE Terms AreAvailable to the Borrower6. Option to Pay Settlement Costs7. Establishing Meaningful Standards forGFEsa. Tolerances b. Unforeseeable Circumstances8. Lender Disclosure9. Enforcement and Cure10. Implementation PeriodC. Lender Payments to Mortgage Brokers—Yield Spread Premiums (YSPs)1. Disclosure of YSP on GFE2. Definition of ‘‘Mortgage Broker.’’3. FHA Limitation on Origination Fees of Mortgagees

IV. Modification of HUD–1/1A Settlement Statement

A. Overall Comments on Proposed Changesto HUD–1/1A Settlement StatementB. Proposed Addendum to the HUD–1, theClosing Script

V. Permissibility of Average Cost Pricing and Negotiated Discounts—Discussion of Public Comments

A. Overview and Definition of ‘‘Thing of Value’’B. Methodology for Average Cost Pricing

VI. Prohibition Against Requiring the Use of Affiliates—Discussion of PublicCommentsVII. Technical AmendmentsVIII. Regulatory Flexibility Act—Commentsof the Office of Advocacy of the Small Business AdministrationIX. Findings and Certifications

I. Significant Changes From March2008 Proposed Rule

RESPA is a consumer protectionstatute, and, as further described in thispreamble, consumer groups were, ingeneral, very supportive of the basicgoals and key components of the March2008 proposed rule. For example, theNational Consumer Law Center, in ajoint comment with Consumer Action,the Consumer Federation of America,and the National Association of Consumer Advocates, stated, ‘‘HUD hasdone an excellent job in moving the balltoward greater protection for consumersin the settlement process.’’ In addition,

VerDate Aug<31>2005 21:13 Nov 14, 2008Jkt 217001PO 00000Frm 00002Fmt 4701Sfmt 4700E:\FR\FM\17NOR3.SGM17NOR3

s r o b e r t s o n P R O D 1 P C 7 0 w i t h R U L E S

68205

Federal Register

/Vol. 73, No. 222/Monday, November 17, 2008/Rules and Regulations

the Center for Responsible Lending, inits comment concluded: ‘‘[W]e applaudHUD for addressing the challenge of reforming RESPA. We believe HUD’sproposed GFE provides importantimprovements over existingrequirements.’’HUD received adverse commentsabout many aspects of the proposedrule, primarily from mortgage industryrepresentatives, including requests thatHUD withdraw its proposal entirely orthat HUD postpone its current efforts inorder to work with the Federal ReserveBoard to arrive at a joint regulatoryapproach. HUD takes these commentsvery seriously and appreciates theconcerns raised by these commenters.HUD’s view continues to be, however,that improvements in disclosures toconsumers about critical informationrelating to the costs of obtaining a homemortgage, often the most significantfinancial transaction a consumer willenter into, are needed, and that suchdisclosures are a central purpose of RESPA. Most commenters—includingconsumers, industry representatives,and federal and state regulatoryagencies—supported the concept of better disclosures in general, andcommended both HUD’s efforts andparticular provisions in the proposedrule.Moreover, given the current mortgagecrisis, the foreclosure situation manyhomeowners are now facing becausethey entered into mortgage transactionsthat they did not fully understand, andthe prospect that future homeownersmay find themselves in this samesituation, HUD believes that it is veryimportant that the improvements inmortgage disclosures made by this finalrule move forward immediately.Nevertheless, as noted in the preambleto the March 2008 proposed rule, HUDwill continue to work with the FederalReserve Board to achieve coordinationand consistency between the Board’scurrent regulatory efforts and HUD’srequirements.HUD has made many changes to theMarch 2008 proposed rule in responseto public comment and furtherconsideration of certain issues by HUD.Some of the provisions in the March2008 proposed rule have been revised inthis final rule and others have beenwithdrawn for further consideration.HUD believes that the result is a finalrule that will give borrowers additionaland more reliable information abouttheir mortgage loans earlier in theapplication process, and will betterassure that the mortgage loans to whichthey commit at settlement will be theloans of their choice. At the same time,in recognition of the concerns raised byindustry commenters about the need forsufficient time for the industry to makesystems and operational changesnecessary to meet the requirements of the new rule, the final rule provides thatthe new GFE and HUD–1 will not berequired until January 1, 2010.However, certain other provisions of therule will take effect 60 days from thepublication date of the final rule. Thefollowing are some of the mostsignificant changes made at this finalrule stage, and are discussed in moredetail in the discussion of publiccomment.

•

A GFE form that is shorter than had been proposed.

•

Allowing originators the option notto fill out the tradeoff table on the GFEform.

•

A revised definition of ‘‘application’’ to eliminate the separateGFE application process.

•

Adoption of requirements for theGFE that are similar to recently revisedFederal Reserve Board Truth-in-Lendingregulations which limit fees charged inconnection with early disclosures anddefining timely provision of thedisclosures.

•

Clarification of terminology thatdescribes the process applicable to, andthe terms of, an applicant’s particularloan.

•

Inclusion of a provision to allowlenders a short period of time in whichto correct certain violations of the newdisclosure requirements.

•

A revised HUD–1/1A settlementstatement form that includes a summarypage of information that provides acomparison of the GFE and HUD–1/1Alist of charges and a listing of final loanterms as a substitute for the proposedclosing script addition.

•

Elimination of the requirement for aclosing script to be completed and read by the closing agent.

•

A simplified process for utilizing anaverage charge mechanism.

•

No regulatory change in thisrulemaking regarding negotiateddiscounts, including volume baseddiscounts.

II. Overview of Commenters

The public comment period on theMarch 2008 proposed rule wasoriginally scheduled to close on May 13,2008. In response to numerous requests,including congressional requests, toextend the comment period, and HUD’sdesire to develop a better rule, HUDannounced an extension of the commentperiod. This announcement was madeon both HUD’s Web site and bypublication of a notice in the

FederalRegister

on May 12, 2008 (73 FR 26953).At the close of the extended publiccomment period on June 12, 2008, HUDhad received approximately 12,000comments. Approximately two-thirds of the comments received were duplicativeor repeat comments; i.e., individuals ororganizations who submitted identicalor virtually identical comments. Forexample, members of certain tradeorganizations, or employees of certaincompanies, frequently submittedidentical comments.HUD received comments fromhomeowners, prospective homeowners,organizations representative of consumers, and numerous industryorganizations involved in the settlementprocess, including lending institutions,mortgage brokers, real estate agents,lawyers, title agents, escrow agents,closing agents and notaries, communitydevelopment corporations, and majororganizations representative of keyindustry areas such as bankers,mortgage bankers, mortgage brokers,realtors, and title and escrow agents, aswell as from state and federal regulators.HUD appreciates all those who tookthe time to review the March 2008proposed rule and submit comments.In addition to submission of comments, HUD representativesaccepted invitations to participate inpublic forums and panel discussionsabout RESPA and HUD’s March 2008proposed rule. HUD also met, at HUDHeadquarters or at the offices of theOffice of Management and Budget(OMB), with interested parties,requesting meetings as provided byExecutive Order 12866 (RegulatoryPlanning and Review), who highlightedfor HUD and OMB areas of concern andsupport for various aspects of the rule.All of this input contributed to HUD’sdecisions that resulted in this final rule.HUD also received approximately 100public comments that were submittedafter the deadline. To the extentfeasible, HUD reviewed late commentsto determine if issues were raised thatwere not addressed in commentssubmitted by the deadline.

III. GFE and GFE Requirements—Discussion of Public Comments

A. Overall Comments on the Proposed Required GFE Form

Proposed Rule. HUD proposed a four-page GFE form. The first page of theGFE included a summary chart with keyterms and information about the loan forwhich the GFE was provided, includinginitial loan balance; loan term; initialinterest rate; initial amount owed forprincipal, interest, and any mortgageinsurance; rate lock period; whether theinterest rate can rise; whether the loan balance can rise; whether the monthly