Our federal government is once again going to make real estate transactions “easier” for consumers to understand.
For almost two years, real estate practitioners have been struggling with the new Good Faith Estimate (GFE) and HUD-1 Settlement Statements on all RESPA transactions. The intent behind these revised forms was to make things “easier” for the consumer. The result was, of course, the exact opposite. The new forms are creating a host of compliance issues for lenders and settlement agents, while doing absolutely nothing to make things easier for the consumer to understand.
Only a government bureaucrat could come up with a form which makes things “easier” by requiring settlement agents to charge a seller’s closing cost (i.e., owner’s policy title insurance premiums) to the buyer, and then give a credit back to the buyer for the same item, regardless of how the contract between the parties allocates those costs. Here’s a news flash for the folks in DC – that does not make things easier! Buyers look at settlement agents like we’re nuts when we explain the charge/credit scenario to them, and it needlessly adds at least five minutes to every closing.
Well, the good news / bad news is that the government is revisiting this issue. The Consumer Financial Protection Bureau is working on consolidating the Truth in Lending (TILA) Notice, GFE, and HUD-1 into a single document. I am glad to see that they’re trying to simplify the current forms, but I fear that the “law of unintended consequences” may make the situation even worse. I encourage you to review the two proposed forms and vote on which one you think is better. Click here for instructions on how to vote on the proposed forms.
Since the introduction of the 2010 GFE and TIL, the industry’s realtors, loan originators and title agents have been more confused and the consumer is more is more likely to sign documents that even the pros have trouble to explain. The amounts charged on GFE are added to and subtracted from before becoming a settlement statement. The whole set-up is poorly designed and difficult to execute.
If we are to create a NEW GFE/TIL/HUD, why not list all individual charges and fees in ONE form, called the “HUD settlement statement” and the GFE/Fee Sheet should be the identical form with identical fees, called a “HUD Estimate”.
Better Disclosure, Less Paperwork, less confusion for the consumer! And the industry!