RESPA REFORM RULE’S NEW HUD-1 SETTLEMENT STATEMENT INITIAL ANALYSIS

The United States Housing and Urban Development’s RESPA Department unleashed their new HUD-1 Settlement Statement today. The new HUD-1 doesn’t change too much in format on the 1st page but its the 2nd and 3rd page that does.

Sections 100, 200, 400, & 500 don’t have any changes from the previous HUD-1.

Sections 300 & 600 do break down “Gross amount due” and “Less amounts paid”. I don’t foresee these two sections as controversial.

Section 700 of the HUD was not modified or changed.

Sections 800, 900, and 1000 will be discussed later in conjunction with the GFE and the 3rd page of the new HUD-1. Its clear from page 3 of the new settlement statement that HUD has enacted price controls of no more than a 10% deviation. This will be extremely controversial and will likely cause most of the trade associations to file suit against HUD for overstepping its congressional authority by enacting price controls.

An uproar may come from the American Bar Association and from the American Land Title Association. Section 1100 will probably more protests towards the new RESPA rule as it has been completely reworked starting with 1101 “Title Services and Lender’s Title Insurance.” This section will hopefully be clarified when the rule is released because its unknown what constitutes “Title Services and Lender’s Title Insurance” at this time.

Section 1107 and 1108 are the sections that will cause the national title insurance underwriters to go ballistic. Title agents and agencies will now find out what title insurance premium splits their competitors have negotiated with the national title insurance underwriters. This has the potential to really open up a can of worms because questions are going to be asked why this company has a better title insurance premium split than another company. I already see the future here and its not good because Section 8 class action lawsuits are going to be coming out of the woodwork over why this company recieved a lower split than this company. This change has the potential to wreak havoc in the entire real estate industry.

Section 1200 “Government Recording and Transfer Charges” is going to create a lot of controversy as well. Section 1201 “Government recording charges” and how it relates to page 3 of the HUD-1 and GFE will cause heartburn for many title companies. The government recording charges can’t be more than 10% of what the actual recording fees are. This sounds good in theory but in practice this will create a nightmare for title companies. It doesn’t take into account the various riders that mortgage lenders and banks often attach to their mortgages that need to be recorded. I see significant opposition to this change.

Section 1300 “Additional Settlement Charges” is a section that may cause heartburn for the American Bar Association (ABA). Section 1301 “Required services that you can shop for” I assume would include notary fees and attorneys fees because those are not listed under Section 1100 “Title Charges.” The way I am reading this if legal work needs to be done under the new rule that the borrowers can shop around for cheaper legal work. Another question is does legal work fall into the 10% GFE threshold? The same questions can be asked about notarial work or overnight fees?

I’m hearing from numerous credible sources that a lawsuit will be filed against HUD for overstepping its congressional authority with respect to this rule.