Tuesday, May 11, 2010

R.E.S.P.A.


Recently, The Work Number(R) conducted a survey of its mortgage and banking customers on the impact of the new Real Estate Settlement Procedures Act (RESPA) regulations on their loan origination volume and process. The Work Number surveyed 3,000 of its customers to determine how lenders, brokers and borrowers are reacting to the new changes that took effect January 1.

The new RESPA regulations require lenders and brokers to provide customers with a standard Good Faith Estimate (GFE) that clearly discloses all loan terms and closing costs. Closing agents are then required to provide borrowers with the new HUD-1 Settlement Statement that clearly compares consumers' final costs with the originally quoted costs. The final price for several services, including the credit report, must be within 10 percent of the quoted price or lenders may face penalties beginning May 1.

Based on the information collected from 105 completed surveys, 56 percent of respondents have adapted to the new RESPA changes and have completely implemented the technology necessary to comply with the regulations. However, while the technology is in place to comply, the impact of these changes has caused some borrower confusion and increased application time. Approximately 72 percent of respondents stated that they are seeing borrowers confused about the multiple sets of documents they receive for disclosure and 79 percent say it now takes longer to take an application and disclose to the borrower.

RESPA regulations are having a negative impact on some organizations. According to a large financial services provider participating in the survey, "We are experiencing some negative impacts of RESPA. The first is absorbing the cost when we are unable to recoup additional fees from incorrect GFE fee quotes. Any disclosure change mandates a waiting period of three-business days before closing. Re-disclosure not only impacts the lender but more so the borrowers on purchases. Usually disclosure errors are found at or just before closing, thus postponing the borrower from taking possession of their new home."

As to any impact on lenders' volume of applications, 74 percent of respondents are not seeing any backlog of applications to be processed as a result of the new RESPA regulations. Many lenders are taking fewer applications, but that is due to economic factors (interest rate and unemployment) rather than any RESPA impact. A survey participant said, "RESPA is forcing us to implement new compliance policies, while a down turn in volume (outside of RESPA), allows us to manage the changes without impacting application volume. Currently, our main concern is the impact on profitability due to incorrect fee quotes and re-disclosure impact on the borrower."

The Work Number also asked questions about any downstream effects of RESPA on verification of the borrower's application information in underwriting. Lenders stated that the volume of requests for borrower verification of employment and income (4506-T, VOI, VOE) has not changed for 57 percent of respondents, but 37 percent are seeing more requests for verified borrower information. The timing of these requests has not changed for 66 percent of respondents, but 23 percent are performing employment and income verification sooner in the loan process to rapidly mitigate any risk posed by RESPA allowing for only a credit report at application. Approximately 66 percent of respondents are requesting the 4506-T, VOI and VOE just prior to underwriting.

"In the current environment of ever-changing regulatory requirements, it is crucial that lenders have a reliable third party source to provide verified information when implementing technology solutions to meet the government requirements," said Janet Ford, senior vice president of The Work Number. "It is our mission to work with our customers to ensure our solutions meet their internal requirements, enable them to remain in compliance with new guidelines and regulations and help them manage risk."

And thank you for making me Your Orange County Real Estate Connection.


Best regards,

Michael Caruso, Broker ABR ABRM CRB CRS GREEN GRI
2007 President, Orange County Association of Realtors (949) 753-7900

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