Get Ready Now for January 2010 RESPA Changes

by Fredric J. Gooch, DocuTech General Counsel

It’s been an extremely busy year for mortgage lenders and those in the mortgage compliance business.  We have seen a flurry of state activity related to SAFE Act implementation and many lenders have had to scramble to get processes and procedures in place to comply with changes to Regulation Z made by the passage of the Mortgage Disclosure Improvement Act.  In October more changes will become effective and new rules will be implemented for “higher priced mortgage loans.”  Then on January 1, 2010 the biggest change will be effective.  New documents and rules will be required for compliance with the Real Estate Settlement Procedures Act (RESPA).  DocuTech customers can rest assured that our software and documents will be ready to handle these changes.  It is important for lenders to understand the rule so they can implement procedures that will ensure compliance with the changes.  To help you get ready for RESPA we will be publishing content in our newsletter and on our website to help you understand the things you need to know to make sure you are ready when the big day arrives.  In this article I will provide an overview of the RESPA rule, in subsequent articles we will examine in more detail the requirements, especially those related to documents.

You may have forgotten, but several RESPA changes became effective on July 16, 2008.  The most significant from a document perspective was the change to the mortgage servicing disclosure.  The rule made Regulation X consistent with changes to RESPA in the Economic Growth and Paperwork Reduction Act of 1996.  To this effect the servicing disclosure was shortened and simplified.  There was a change to the definition of “Required Use” for settlement service providers.  This part of the rule was repeatedly delayed and eventually withdrawn.  The use of Average Charges was permitted so lenders could use an average charge for any settlement service, provided that the total amounts received from the borrowers for that class of transactions do not exceed the total amounts paid to the providers of that service for that class of transactions.   The rule also made ESIGN applicable to RESPA for the electronic delivery of disclosures.  Finally, the rule removed expired provisions of the rules for aggregate accounting for escrow accounts and provided rules governing discrepancies between loan documents and state laws related to escrow cushions.

The major changes under the new RESPA rules take effect on January 1, 2010.  There is a revised Good Faith Estimate that is quite a departure from the old form.  It gives the borrower a summary of the terms of the loan as well as the settlement costs.  Under the new law if the charges from the GFE are outside of a certain tolerance level compared to the charges under the Settlement Statement, then the lender is unable to collect those charges.  There is also a revised Settlement Statement form and there will be a revised settlement cost booklet that will need to be provided with the early disclosures.  Lenders can choose to use the new documents prior to the January 1 deadline, but if they choose so they must also abide by the tolerances.  For this reason very few, if any, lenders have chose to implement the new documents.

Over the course of the next several months we will take a more in depth look at the new documents and requirements, starting with the GFE next month.  In the meantime, pat yourself on the back for making it through MDIA and get ready to dig into RESPA.