The New Good Faith Estimate HUD Form
The Federal Real Estate Settlement Procedures Act (RESPA) was enacted in 1974 and was designed to provide disclosure to the consumer of funds required for closing as well as disclosure of relationships between different entities in the closing process. Effective January 1, 2010 a new form, the GFE HUD-1, is to be used in an attempt to match up the figures disclosed on the Good Faith Estimate to the figures that appear on the HUD-1. The purpose of the amendment to the RESPA guidelines is to provide additional disclosure to the borrower and to enable consumers to shop for loans with standardized forms that allow for apple-to-apple comparisons.
The figures disclosed on the Good Faith Estimate are designed to match up with the figures that appear on the new GFE HUD. However, due to differences in local practice, lenders have not uniformly disclosed GFE charges to the borrower. Thus the cost comparison benefit for borrowers is somewhat diluted. After this GFE has been in use for a longer period of time, the different disclosure practices among lenders may be resolved with the resulting benefit to both the borrower and those in the real estate industry.
The new GFE HUD-1 sets forth an itemized list of the funds that are charged at closing when the loan transaction falls under RESPA (Real Estate Settlement and Procedures Act) guidelines. Items that appear on the HUD-1 include loan fees, real estate commissions, initial escrow amounts (for Homeowners Insurance or Real Estate Taxes), title fees, home inspection and termite fees, and governmental fees such as transfer taxes and recording fees.
The new GFE has three basic categories of fees. First, fees charged by the lender which cannot change such as origination charges or points. Second, fees charged by providers chosen by the lender which can increase by no more than 10% such as appraisal or credit report. Third, fees charged by providers chosen by the borrower which can increase or decrease without limitation such as homeowners insurance or inspections. If the amounts listed on the HUD differ by more than what the guidelines allow, then the lender has to cure the difference by closing or within 30 days thereafter.
The GFE (Good Faith Estimate) is a standardized three-page form delivered to the borrower by the lender. Parties to a sales transaction will sign a HUD-1 at closing. The HUD-1 statement is also known as the closing statement or settlement sheet, and is required by the Department of Housing and Urban Development (HUD).
Each type of expense is shown on a specific numbered line on the statement. The totals at the bottom of the HUD-1 disclose the seller’s net proceeds or the amount needed from the seller to close and the amount due from the buyer to close or their refund at closing.