When you’re about to close escrow on a property, buyers and sellers receive a copy of the settlement statement – the HUD-1. On this, all the various charges are laid out and each side knows what they’re receiving and what they’re paying.
It hasn’t been uncommon for buyers to sometimes be surprised at the numbers that appear on the settlement statement – especially when the figures they received from their lender on their Good Faith Estimate don’t match what the final charges may be.
That’s changing, thanks to the federal government, though there are some unintended consequences coming with the change.
Here’s what the newly designed third page of the HUD-1 will look like:
There are three sections, nearly all dealing with lender charges – one of charges that cannot change from the GFE to the HUD-1, another where the figures can change up to 10 percent between the two and a third where the figures can change freely.
Charges that cannot be different than on the GFE include origination fees and points. Charges that can change up to 10 percent include appraisals, credit reports, flood certifications and title insurance. Charges that can change as needed include the home and termite inspections and home warranties.
The first and last sections are self-explanatory; on the middle third, though, if the lender fees on the HUD exceed the fees stated on the GFE, the buyer has to agree to and sign off on the changes.
Now here’s the unintended consequence: when there’s a change of more than 10 percent, the buyer has three days to review and approve the new charges. Theoretically, a buyer can sign off on the changes immediately. However, knowing that the government has mandated this three-day period, how many lenders do you think are going to move the file forward in any less than three days regardless of when the buyer says okay?
This easily can go the same was as the Truth in Lending disclosure changes, where a review period morphed into a mandatory hold a la a space shuttle launch. And with that change came delayed closings, extended escrow periods, etc.
Overall, though, the changes should be effective in holding lenders’ feet to the fire to make sure what they quote at the beginning of the transaction translates into what they’re going to charge at the end.
[tags]Phoenix real estate[/tags]