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Shopping for a loan? A good faith estimate will protect you
Beginning Jan. 1, the Dept. of Housing and Urban Development (HUD) required lenders to issue Good Faith Estimates to protect consumers applying for mortgage loans. Some loan officers, however, sidestep the new requirement by giving their initial quotes on informal worksheets that carry no federal consumer protections. It is important that consumers understand the differences between the federally mandated good faith estimate form and a lender’s informal worksheet.

MAKING SENSE OF THE STORY FOR CONSUMERS

• Last month, HUD told lenders and loan officers that under no circumstances can worksheet quotes be issued to a mortgage applicant in lieu of a good-faith-estimate form.
  
  
• Under the new law, once a mortgage applicant supplies the essential application information, including Social Security number, property address, and estimated value, among other data, lenders must issue a binding-cost good-faith estimate. Once this information is provided, lenders are required to issue the good faith estimate within three days of the application.
  
  
• Loan officers cannot refuse to provide a good faith estimate to an applicant who requests one, nor can they tell applicants that they must commit to moving forward with their mortgage company to obtain a mortgage prior to receiving a good faith estimate.
  
  
• Once an applicant has received a good faith estimate, they can take the form with them to comparison shop. The new form includes itemized boxes allowing mortgage applicants to compare quotes from up to four lenders, such as interest rates, loan fees, prepayment penalties, and total settlement expenses.
  
  
• The good faith estimate also ties upfront estimates to later charges at closing, and encourages borrowers to check line by line for any discrepancies. The form explains which fees come with zero tolerance for changes between upfront estimates and closing—generally the lender’s own fees and local transfer taxes—and which fees allow a 10 percent fluctuation for changes higher than the estimate, such as certain title and closing-related services.
  
  
• Some worksheets resemble good-faith estimates, but have titles such as “estimated settlement costs” at the top of the page. Others indicate on the bottom of the form that the worksheet is not a good faith estimate, so consumers should carefully review documents before making any decisions.

Sellers in 2009 cited difficulty meeting the monthly mortgage obligations (30 percent); job loss (18 percent); and “mortgage payment increased” (15 percent) as primary motivations to sell.  By comparison, in 2008, one in five sellers cited the ability to meet their mortgage payment obligations; while 11 percent sold due to financial difficulties.

Members may download a free copy of C.A.R.’s “2009-2010 Survey of California Home Sellers” by visiting the Market Response Center at http://car.org/tools/smart. 

The Loan Modification Scam Prevention Network developed the Web site to provide homeowners with a single destination to report alleged scammers. Complaints filed online are added to a national complaint database and forwarded to the appropriate law enforcement agencies for review. The Network estimates that the Web site will assist approximately 50,000 homeowners affected by scams. Additionally, HUD has directed its local fair housing and housing counseling grantees to begin reporting alleged loan modification scams via the Web site.

The IRS will randomly select 2,000 taxpayers each year for the next three years. The examinations will be comprehensive in scope, with records pertaining to employment tax returns and issues subject to review.

Many workplace experts report a growing number of companies have maneuvered to cut costs by incorrectly classifying regular employees as independent contractors, though they often are given desks, phone lines, and assignments just like regular employees.  The audit will serve as a useful reminder to broker/owners to assure they have current documents setting out the required information.  In some cases, broker/owners who have been lax in record keeping with regard to these written agreements have incurred significant penalties.

In 2009, Fannie Mae and Freddie Mac purchased or guaranteed more than 4 million refinanced mortgages.  Homeowners can visit www.MakingHomeAffordable.gov for additional information on the program.

Ben Bartolotto, research director for CIRB, noted that the monthly decreases from December to January were typical as January is usually one of the weakest months for housing starts. He also noted any enthusiasm for the year-over-year increases seen in January should be tempered with the fact that the numbers for January 2009 posted the lowest annual rate on record.

CIRB is forecasting a modest recovery for 2010, with permits being pulled for 52,000 total units, up slightly from the record-low 36,289 permits pulled in 2009.

A real estate broker's commission may be determined using a percentage of the sales price, a flat fee, or a combination of both, according to a recent letter from HUD's General Counsel Helen Kanovsky.  The January 22 letter clarifies the distinction between using a formula to calculate a legitimate commission, as opposed to an unearned fee that violates RESPA.  Under RESPA, a real estate broker cannot charge a fee if no, nominal, or duplicative work is done.

According to the letter from Ms. Kanovsky, the new HUD-1 simplifies the reporting of the broker's commission because it is now reported in the 700-series as dollar amounts, rather than percentages.  If, however, the amount in the 700-series is more than the commission in the listing agreement or buyer's broker agreement, then HUD may review whether additional services were provided for the excess amount charged.  As an example, a listing broker charging the buyer an administrative fee absent any contractual relationship between the listing broker and buyer may be evidence of a RESPA violation.

This HUD letter provides REALTORS® with some guidance after a federal district court in Alabama invalidated a $149 administrative brokerage commission last year in the case of Busby v. JRHBW Realty, Inc. (2009) 642 F.Supp.2d 1283.  For more information on that case, see C.A.R.'s Realegal dated April 27, 2009.

Feb. 25, 2010 Page 1 of 4

Housing help for unemployed, underwater borrowers Under pressure to do more for troubled homeowners, President Obama is expected to announce a $1.5 billion program to help borrowers in five states hit hardest by the housing crisis. To read the full story, please click here:

High-scoring borrowers pay cards ahead of mortgages Consumers with high credit scores are more likely to default on mortgages than credit-card loans, said FICO, maker of the scoring formula most widely used by U.S. lenders.

Feb. 25, 2010 Page 2 of 4

Jumbo mortgage market is beginning to thaw The mortgage meltdown sent interest rates soaring and availability shrinking, but rates are declining and lenders are more wiling to make loans that top the limits for Freddie Mac, Fannie Mae, and the FHA.

Struggling homeowners warned against phony foreclosure ‘audits’ State officials warned struggling homeowners Monday about a new variation on loan-modification scams: "forensic loan audits."

Feb. 25, 2010 Page 3 of 4

Feb. 25, 2010 Page 4 of 4