Understanding The Good Faith Estimate, HUD-1 and Short Sales

Presented by:

First Place Bank and NorthStar Title Services

Definitions of Terms

HUDStandard form used to itemize services and

fees charged to the borrower by the lender or broker

TIL A document provided by the Lender that is

required by The Truth-in-Lending Act and is aimed at promoting the informed use of consumer credit by requiring disclosures about terms and costs

Terms (cont.)

Short Sale A sale of real estate in which the proceeds from the

sale fall short of the balance owed on a loan secured by the property sold

FHA FHA provides mortgage insurance on single-family,

multifamily, manufactured homes and hospital loans made by FHA-approved lenders throughout the United States and its territories. While borrowers must meet certain requirements established by FHA to qualify for the insurance, lenders bear less risk because FHA will pay the lender if a homeowner defaults on his or her loan.

Terms (cont.)

Promissory Note Written legal instrument signed by the borrower for

the benefit of the mortgage lender Mortgage

Conveyance of an interest in real property using a written instrument usually known as a mortgage deed that acts as security for the payment of a debt

The Note created the debt and the Mortgage secures payment of the debt

Terms (cont.)

DefaultNonpayment of the loan or failure to comply

with circumstances thereby invoking the default clause in a mortgage

REOReal Estate Owned – Foreclosed or pre-foreclosed properties taken back by a

lender

Terms (cont.)

Loss Mitigation DepartmentA third party that works to negotiate mortgage

terms for the homeowner that will prevent foreclosure

HardshipBanks have guidelines as to what they

consider a hardship and it varies from Bank to Bank – such as death, divorce, illness etc.

Terms (cont.)

MortgageeLender that lends the money to an individual

in order to purchase a piece of property Mortgagor

Person pledging the real property because of the money he or she has borrowed to purchase the real property

Process of a Short Sale

Two scenarios as a realtor…Reaction to finding out your seller is unable to

make payments and if they are not in foreclosure yet they will be shortly

Full awareness of the fact that you represent a seller who is trying to get rid of the property and the debt associated with it

Short Sale

Seller is upside down and needs to get out from under and is looking to sellForeclosureForeclosure and Bankruptcy

Third party has approached seller and has a buyer interested

Broker may be involved and helping the new buyer

What does the Lender need?

Loss Mitigation Department

Third party (attorney) involved

What the title company CAN and CANNOT do Request a payoff from the creditors; Not allowed to negotiate but is allowed to

inquire as long as they have the seller’s consent in writing and it must be sent to the creditors;

Sometimes it is a fine line between request and negotiate – must not cross

January 1, 2010New GFENew HUD-1New HUD-1A(for all transactions in which the new GFE is used)

The Good Faith Estimate

The GFE gives you an estimate of your settlement charges and loan terms if you are approved for this loan.

New GFE

Loan originator must provide the new (3 page) GFE to a potential borrower

Occurs within three (3) business days of application

No additional cost to buyer outside of credit report cost

New GFE Page 1

Includes Important dates pertaining to the loanSummary of loan termsDisclosure of escrow account informationSummary level view of estimated settlement

charges

New GFE Page 1 Dates: Rate quote Rate lock

Fees quote Loan Amount

Term Rate

Payment Features Escrows

Costs

New GFE Page 2

Looks at estimated settlement charges in detailLoan origination feePoints chargedCredits applied to chargesOverview of other settlement charges

New GFE Page 2 Origination Fees

Lender Fee Points/YSP

3rd Party Loan Fees Credit/Flood Title

Closing/Loan Policy Title-Owner’s

Other Services Recording Fee Transfer Tax

Escrows Interest/Advance

Homeowner’s Insurance

New GFE Page 3

Introduces 3 groups of tolerances for fee variances between GFE and HUD-1 formsZero tolerance10% toleranceUnlimited variance

HUD Settlement Statement

Department of Housing and Urban Development Document

Process of detailing the receipts and disbursements of transaction

Escrow Officer has instructions of the transaction.

HUD-1 Page 1

First page unchangedShow debit from the seller and

credit to the buyer for amount paid on behalf of the buyer by the seller

Settlement agent’s phone number added

HUD-1 Page 2 Added information to align more closely to the

GFERE Broker CommissionLender Charges

Origination Fees Third Party Fees

PrepaidsEscrowsTitle Fees

All title costs Owner’s policy Recording Fees Other

HUD-1 Page 2

Lines 701 & 702 – Full Commission; dollar amount paid to each agent not percentageEarnest monies on deposit retained by realtor

Line 703 – Commission Disbursed at closing

Line 704 – Other charges

New HUD-1 Page 3

Compares charges on the GFE to charges on the HUD-1

Breakdown into categories of tolerance Charges that cannot change Charges that cannot increase more than 10% Charges that can change/increase

Note: “If you have any questions about the settlement charges and loan terms listed on this form, please contact your lender.”

HUD ISSUES

Are the amounts correct – especially in construction transactions

Do we have all of the amendments to the contract that may change the numbers

Prorated taxes for new construction Escrow reserves in construction Refinance – Right of Rescission