News Flash - 1/14/10

The New RESPA and You - Part I - Owner's Title Insurance Premium

A big topic of conversation in the lending world is the new RESPA guidelines.  While the responsibility for understanding and implementing the new documentation lies with the lender, the way in which figures will appear on the HUD Settlement Statement and the Good Faith Estimate will be new and could be confusing to buyers and sellers. In an effort to break down the changes and assist in the understanding of these changes, we will be covering one item per week  over the next few weeks.   While this information is primarily directed at real estate professionals, it may help a current buyer or seller understand some of the documents related to a transaction.  

One of the first changes that caught our eye was the fact that the lender has to disclose to the buyer the cost of the owner's title insurance premium.  The lender has to show it as a charge to the buyer on our good faith estimate, when in reality it is paid by the seller on almost every transaction in Colorado.    

Example/Issue: New home buyer, closing costs total $5,000 under the old way of disclosing. Seller is paying Owner's Title Policy for buyer of $2,000.  Under the new GFE, closing costs will total $7,000. Lender has to show the $2,000 charge as a charge to the buyer as does the title company at closing even though this is a Seller charge.  As lenders and real estate professionals we need to be ready to explain that this fee will be credited back to them at closing as it could impact the buyer's motivation to buy.  

Solution: The title companies are going to show, on the HUD, a debit to the seller and a credit to the buyer.  This will then return the real closing cost charge to the buyer to the actual amount of closing costs.  

We as the lender, are going to show the credit to the buyer at time of disclosure on their application under the "Details of Transaction".  This is on page three of the loan application.  We will then be able to clarify for the buyer that they are going to receive the owner's title policy charge as a credit. The ball is primarily in our court to educate the buyers; however, we do want you to be aware of these changes as you may receive questions on these items as well.  

NEXT WEEK.....Earnest Money and your Seller