[Federal Register Volume 76, Number 132 (Monday, July 11, 2011)]
[Rules and Regulations]
[Pages 40612-40616]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2011-17230]


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DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

24 CFR Part 3500

[Docket No. FR-5180-F-07]
RIN 2502-AH85


Real Estate Settlement Procedures Act (RESPA): Technical 
Corrections and Clarifying Amendments

AGENCY: Office of the Assistant Secretary for Housing--Federal Housing 
Commissioner, HUD.

ACTION: Final rule.

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SUMMARY: This final rule makes technical corrections and certain 
clarifying amendments to HUD's RESPA regulations promulgated by a final 
rule published on November 17, 2008. The majority of the regulations 
promulgated by the November 17, 2008, final rule became applicable on 
January 1, 2010. Now that the regulations have been in

[[Page 40613]]

use for a little over one year, HUD has identified certain needed 
technical corrections, which this rule will make, and certain other 
regulatory provisions in which additional clarification would be 
helpful.

DATES: Effective Date: August 10, 2011.

FOR FURTHER INFORMATION CONTACT: Barton Shapiro, Director, Office of 
RESPA and Interstate Land Sales, Room 9158, U.S. Department of Housing 
and Urban Development, 451 7th Street, SW., Washington, DC 20410; 
telephone (202) 708-0502 (this is not a toll-free number). For legal 
questions, contact Paul S. Ceja, Assistant General Counsel for RESPA, 
or Joan L. Kayagil, Deputy Assistant General Counsel for RESPA Room 
9262; telephone (202) 708-3137. Persons with hearing or speech 
impairments may access this number via TTY by calling the toll-free 
Federal Relay Service at (800) 877-8339. The address for the above 
listed persons is: Department of Housing and Urban Development, 451 7th 
Street, SW., Washington, DC 20410.

SUPPLEMENTARY INFORMATION:

I. Background

    On November 17, 2008 (73 FR 68204), HUD published a final rule that 
amended HUD's RESPA regulations to further the purposes of RESPA by 
requiring more timely and effective disclosures related to mortgage 
settlement costs for federally related mortgage loans to consumers. The 
regulatory changes made by the November 2008 rule were designed to 
achieve several objectives, including but not limited to: protecting 
consumers from unnecessarily high settlement costs by taking steps to 
improve and standardize the Good Faith Estimate (GFE) form to make it, 
among other things, easier to use for shopping among settlement service 
providers and to provide more accurate estimates of costs of settlement 
services; improving disclosure of yield spread premiums (YSP); 
clarifying HUD-1/HUD-1A Settlement statements; and ensuring that, at 
settlement, borrowers are aware of final costs as they relate to their 
particular mortgages.
    HUD's November 2008 final rule followed publication of a March 14, 
2008, proposed rule and made several changes in response to public 
comment. The November 17, 2008, final rule took effect on January 16, 
2009, and certain provisions of the RESPA regulations became applicable 
on the effective date of the final rule. However, for the majority of 
the revised RESPA regulations, the November 2008 final rule provided 
for compliance to commence with the revised RESPA regulations on 
January 1, 2010.
    In the period since the revised RESPA regulations became 
applicable, HUD has identified certain technical corrections needed to 
the regulations and in Appendix A to the regulations, and a few 
provisions where clarification would further enhance understanding of a 
regulatory provision or an Appendix A provision. HUD has already 
provided guidance and clarification on certain regulatory provisions 
through information provided on HUD's RESPA website.\1\ Through this 
rule, HUD is amending the RESPA regulations and Appendix A to make 
certain technical corrections and to clarify certain regulatory and 
appendix provisions.
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    \1\ See http://www.hud.gov/respa/.
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II. Amendments Made by This Rule

    This rule makes the following technical and clarifying amendments.

A. Amendments to the Regulations

Section 3500.2 (Definitions)
    This rule corrects a citation to the Truth in Lending Act that is 
in the definition of ``Federally related mortgage loan'' in Sec.  
3500.2. Although this definition was not amended by the November 2008 
rule, the enactment of the Dodd-Frank Wall Street Reform and Consumer 
Financial Protection Act (Pub. L. 110-203, approved July 21, 2010; see 
sec. 1100A(1)), changed the citation for ``creditor'' which appears in 
paragraph (1)(ii)(D) of the definition of ``Federally related mortgage 
loan'' in Sec.  3500.2. Paragraph (1)(ii)(D) states that ``creditor'' 
is defined in the Consumer Credit Protection Act at 15 U.S.C. 1602(f), 
but the correct citation is now 15 U.S.C. 1602(g).
Section 3500.7 (Good Faith Estimate or GFE)
    Section 3500.7(a)(4) and (b)(4). Section 3500.7(a) addresses when 
the lender must provide a GFE to an applicant borrower, and Sec.  
3500.7(b) addresses the same for a mortgage broker. Both sections state 
that a lender or a mortgage broker is not permitted to charge, as a 
condition for providing a GFE, any fee for an appraisal, inspection, or 
other similar settlement services. The lender or the mortgage broker 
may at its option charge a fee limited to the cost of a credit report. 
Both sections also state that the lender or mortgage broker may not 
charge additional fees until after the applicant has received the GFE.
    The preamble discussion of this provision states that: ``After the 
GFE has been received, the loan originator may collect additional fees 
needed to proceed to final underwriting for borrowers who decide to 
proceed with a loan from that originator.'' (See 73 FR 68212, first 
column.) Although the language in the preamble makes clear that an 
applicant borrower must express an intent to continue with a loan after 
the applicant borrower receives the GFE for the loan before a lender or 
mortgage broker can collect additional fees from the applicant borrower 
beyond the cost of a credit report, this language was inadvertently 
omitted from the regulatory text. The question of whether an applicant 
borrower must express an intent to continue with a loan before the 
lender or mortgage broker can collect additional fees is an issue that 
came up after the regulations were promulgated and HUD addressed that 
question in its New RESPA Rules Frequently Asked Questions (FAQs) 
issued August 13, 2009, by replying in the affirmative that a borrower 
must express an intent to continue with the loan. (See question 
10 at page 7 of www.hud.gov/offices/hsg/rmra/res/resparulefaqs422010.pdf, updated April 2, 2010, without changing this 
FAQ). To eliminate any ambiguity about whether the applicant borrower 
must express an intent to continue with the application process, this 
rule amends Sec.  3500.7(a)(4) and (b)(4) to provide that the applicant 
borrower must indicate an intention to proceed with the loan covered by 
the GFE received by the applicant borrower from the lender or mortgage 
broker before the lender or mortgage broker may charge additional fees.
    Section 3500.7(f). Section 3500.7(f) addresses when the GFE becomes 
binding. The amendments made to this section address both needed 
corrections and clarification.
    1. The introductory paragraph to Sec.  3500.7(f) uses the term 
``new GFE'' in the first, second, and third sentences to refer to a 
``revised GFE.'' This same term is used in paragraph (f)(5). A revised 
GFE is not a new GFE, and it is important to maintain this distinction. 
With the exception of the introductory paragraph and paragraph (f)(5), 
the remainder of Sec.  3500.7(f) uses the term ``revised GFE'' not 
``new GFE.'' This rule therefore substitutes ``revised'' for ``new'' in 
introductory paragraph (f) and paragraph (f)(5).
    2. The introductory paragraph to Sec.  3500.7(f) currently provides 
that a loan originator is bound ``within the tolerances provided in 
paragraph (e) of this section, to the settlement charges and terms 
listed on the GFE provided to the borrower, unless a [revised] GFE is 
provided prior to settlement consistent with this paragraph (f).'' 
However, the

[[Page 40614]]

introductory paragraph inadvertently omits that the GFE does not remain 
binding indefinitely but expires 10 business days after the GFE is 
provided to the borrower if the borrower does not express an intent to 
continue with an application provided by the loan originator that 
provided the GFE, or expires after such longer period as may be 
specified by the loan originator pursuant to Sec.  3500.7(c). Although 
the expiration period of the GFE is clearly stated in paragraph (f)(4) 
of Sec.  3500.7(f), HUD finds that clarity is enhanced by also adding 
this language to the introductory paragraph of Sec.  3500.7(f).
    3. Paragraph (f)(1) of Sec.  3500.7, which addresses changed 
circumstances affecting settlement costs, provides that the revised GFE 
may increase charges for services listed on the GFE but only to the 
extent that the changed circumstances actually resulted in higher 
charges. However, paragraph (f)(2), which addresses changed 
circumstances affecting the loan, and paragraph (f)(3), which addresses 
borrower-requested changes, inadvertently omits that the revised GFE 
may increase charges listed on the GFE only to the extent that changed 
circumstances affecting the loan, or the borrower's requested change, 
actually increased those charges. This rule therefore adds language 
making this limitation clear in paragraphs (f)(2) and (f)(3).
    4. Paragraph (f)(4) of Sec.  3500.7 as noted earlier, addresses the 
expiration of the GFE. The heading of this paragraph uses the word 
``original'' to describe the GFE. The heading on this paragraph should 
not have any qualifier for the GFE. Whether new or revised, the period 
of expiration, as provided in paragraph (f)(4), is applicable.
    5. Paragraph (f)(5) of Sec.  3500.7(f) clarifies that whenever the 
borrower's interest rate is locked, a revised GFE must be provided to 
the borrower showing the revised interest rate-dependent changes and 
terms within 3 business days.
    6. Paragraph (f)(6) addresses new home purchases. HUD is adding the 
word ``construction'' to the phrase ``new home purchases'' so that it 
reads ``new construction home purchases.'' HUD believes that the 
content of this paragraph is clear that new home purchases refers to 
purchases of newly constructed homes, not simply any home that is new 
to a borrower. This interpretation is supported by the preamble to the 
November 17, 2008, final rule in which this regulatory provision was 
discussed. The preamble stated in relevant part as follows: ``Finally, 
the final rule includes the proposed provision on revision of the GFE 
for transactions involving new home purchases. HUD recognizes that in 
cases of new construction, the original GFE may be provided long before 
settlement is anticipated to occur.'' (Emphasis added.) (See 73 FR 
68221, first column.) While HUD believes the meaning of paragraph 
(f)(6) is clear, to remove any possibility of ambiguity the word 
``construction'' is inserted between the words ``new'' and ``home 
purchases.''
Section 3500.8 (Use of HUD-1 or HUD-1A Settlement Statements)
    Section 3500.8(c) (Violations of section 4 of RESPA). The heading 
of Sec.  3500.8(c) shows the citation for section 4 of RESPA as 12 
U.S.C. 2604, but it should be 12 U.S.C. 2603. This rule corrects the 
citation.

B. Amendments to Appendix A

    This rule also makes certain technical amendments to Appendix A to 
the RESPA regulations, which is entitled ``Instructions for Completing 
HUD-1 and HUD-1A Settlement Statements; Sample HUD-1 and HUD-1A 
Statements.''
    Appendix A--HUD-1 Instructions for Lines 601-602. The instructions 
for lines 601-602 (see 73 FR 68244) contain a transposed number. The 
instructions state to ``Enter the total in Line 420 and Line 610.'' 
Reference to line 610 should be line 601. The rule makes that 
correction.
    Appendix--HUD-1 Instructions for Page 3. The instructions for the 
HUD-1, found at 73 FR 68243 of the November 2008 final rule, provide 
that the HUD-1 form is to be used as a statement of the actual charges 
and adjustments. If the borrower, or a person acting on behalf of the 
borrower, does not purchase a settlement service that was listed on the 
GFE (e.g., owner's title insurance), there should be no amount entered 
for that service in the corresponding line on Page 2 of the HUD-1, and 
the estimate of the charge from the GFE should not appear on the 
comparison chart on Page 3 of the HUD-1.
    HUD has determined that the current instructions are not 
sufficiently clear on this point. Allowing loan originators to include 
on Page 3 of the HUD-1 charges from the GFE for settlement services 
that were not purchased could both induce loan originators to 
discourage consumers from purchasing settlement services (e.g., owner's 
title insurance) in order to gain padding in the 10 percent tolerance 
categories, and encourage loan originators to pad the 10 percent 
tolerance categories on the GFE with estimates of services that the 
consumer will not need in the transaction. HUD has previously addressed 
and clarified this issue in informal guidance. For example, in the July 
2010 posting of its RESPA Roundup,\2\ HUD's Office of RESPA and 
Interstate Land Sales noted as follows:

    \2\ See http://portal.hud.gov/hudportal/documents/huddoc?id=DOC_19681.pdf.

    Finally, we get the following question frequently: If a service 
that was listed on the GFE was not purchased, what should go into 
the borrower's column on Page 2 of the HUD-1 and on the comparison 
chart on Page 3 of the HUD-1? If the consumer did not purchase a 
service that was listed on the GFE (usually owner's title) there 
should be nothing entered in that line on Page 2 of the HUD-1 and 
the estimate of the charge should not appear on the comparison chart 
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on Page 3 of the HUD-1.

    Because inquiries about estimates on the HUD-1 has been a question 
frequently asked, and to address any remaining confusion, HUD revises 
the first paragraph of the instructions for Page 3 of the HUD-1 to 
clarify that the amounts to be inserted in the comparison chart are 
those for the services that were purchased or provided as part of the 
transaction, and that no amount should be included on Page 2 of the 
HUD-1 for any service that was listed on the GFE, but was not obtained 
in connection with the transaction.

III. Findings and Certifications

Justification for Final Rulemaking

    In general, HUD publishes a rule for public comment before issuing 
a rule for effect, in accordance with HUD's regulations on rulemaking 
at 24 CFR part 10. Part 10, however, provides in Sec.  10.1 for 
exceptions from that general rule where HUD finds good cause to omit 
advance notice and public participation. The good cause requirement is 
satisfied when the prior public procedure is ``impracticable, 
unnecessary, or contrary to the public interest.''
    HUD finds that good cause exists to publish this rule for effect 
without soliciting public comment, on the basis that prior public 
procedure is unnecessary. As discussed in this preamble, this final 
rule merely makes technical corrections and clarifying amendments to 
the RESPA final rule published on November 17, 2008. No substantive 
changes are made by this final rule.

Environmental Impact

    Under 24 CFR 50.19(c)(2) of HUD's regulations, this rule is 
categorically

[[Page 40615]]

excluded from environmental review under the National Environmental 
Policy Act of 1969 (42 U.S.C. 4321).

Federalism Impact

    Executive Order 13132 (entitled ``Federalism'') prohibits an agency 
from publishing any rule that has federalism implications if the rule 
either: (i) Imposes substantial direct compliance costs on state and 
local governments and is not required by statute, or (ii) preempts 
state law, unless the agency meets the consultation and funding 
requirements of section 6 of the Executive Order. This rule would not 
have federalism implications and would not impose substantial direct 
compliance costs on state and local governments or preempt state law 
within the meaning of the Executive Order.

Regulatory Flexibility Act

    HUD is not required to publish a notice of proposed rulemaking for 
this technical corrections/clarifying amendments final rule. 
Accordingly, the Regulatory Flexibility Act is not applicable to this 
final rule.

Unfunded Mandates Reform Act

    Title II of the Unfunded Mandates Reform Act of 1995 (2 U.S.C. 
1531-1538) (UMRA) requires Federal agencies to assess the effects of 
their regulatory actions on State, local, and tribal governments and on 
the private sector. This rule does not, within the meaning of the UMRA, 
impose any Federal mandates on any State, local, or tribal governments 
nor on the private sector.

List of Subjects in 24 CFR Part 3500

    Consumer protection, Condominiums, Housing, Mortgagees, Mortgage 
servicing, Reporting, and Recordkeeping requirements.
    For the reasons set out in the preamble, this final rule amends 
part 3500 of title 24 of the Code of Federal Regulations as follows:

PART 3500--REAL ESTATE SETTLEMENT PROCEDURES ACT

0
1. The authority citation shall continue to read as follows:

    Authority:  12 U.S.C. 2601 et seq.; 42 U.S.C. 3535(d).


0
2. In Sec.  3500.2, paragraph (b)(1)(ii)(D) of the definition of 
``Federally related mortgage loan'' is revised to read as follows:


Sec.  3500.2  Definitions.

* * * * *
    (b) * * *
    Federally related mortgage loan or mortgage loan means as follows:
* * * * *
    (D) Is made in whole or in part by a ``creditor'', as defined in 
section 103(g) of the Consumer Credit Protection Act (15 U.S.C. 
1602(g)), that makes or invests in residential real estate loans 
aggregating more than $1,000,000 per year. For purposes of this 
definition, the term ``creditor'' does not include any agency or 
instrumentality of any State, and the term ``residential real estate 
loan'' means any loan secured by residential real property, including 
single-family and multifamily residential property;
* * * * *

0
3. In Sec.  3500.7, paragraphs (a)(4), (b)(4) and (f) are revised to 
read as follows:


Sec.  3500.7  Good faith estimate or GFE.

    (a) * * *
    (4) The lender is not permitted to charge, as a condition for 
providing a GFE, any fee for an appraisal, inspection, or other similar 
settlement service. The lender may, at its option, charge a fee limited 
to the cost of a credit report. The lender may not charge additional 
fees until after the applicant has received the GFE and indicated an 
intention to proceed with the loan covered by that GFE. If the GFE is 
mailed to the applicant, the applicant is considered to have received 
the GFE 3 calendar days after it is mailed, not including Sundays and 
the legal public holidays specified in 5 U.S.C. 6103(a).
* * * * *
    (b) * * *
    (4) The mortgage broker is not permitted to charge, as a condition 
for providing a GFE, any fee for an appraisal, inspection, or other 
similar settlement service. The mortgage broker may, at its option, 
charge a fee limited to the cost of a credit report. The mortgage 
broker may not charge additional fees until after the applicant has 
received the GFE and indicated an intention to proceed with the loan 
covered by that GFE. If the GFE is mailed to the applicant, the 
applicant is considered to have received the GFE 3 calendar days after 
it is mailed, not including Sundays and the legal public holidays 
specified in 5 U.S.C. 6103(a).
* * * * *
    (f) Binding GFE. The loan originator is bound, within the 
tolerances provided in paragraph (e) of this section, to the settlement 
charges and terms listed on the GFE provided to the borrower, unless a 
revised GFE is provided prior to settlement consistent with this 
paragraph (f) or the GFE expires in accordance with paragraph (f)(4) of 
this section. If a loan originator provides a revised GFE consistent 
with this paragraph, the loan originator must document the reason that 
a revised GFE was provided. Loan originators must retain documentation 
of any reason for providing a revised GFE for no less than 3 years 
after settlement.
    (1) Changed circumstances affecting settlement costs. If changed 
circumstances result in increased costs for any settlement services 
such that the charges at settlement would exceed the tolerances for 
those charges, the loan originator may provide a revised GFE to the 
borrower. If a revised GFE is to be provided, the loan originator must 
do so within 3 business days of receiving information sufficient to 
establish changed circumstances. The revised GFE may increase charges 
for services listed on the GFE only to the extent that the changed 
circumstances actually resulted in higher charges.
    (2) Changed circumstances affecting loan. If changed circumstances 
result in a change in the borrower's eligibility for the specific loan 
terms identified in the GFE, the loan originator may provide a revised 
GFE to the borrower. If a revised GFE is to be provided, the loan 
originator must do so within 3 business days of receiving information 
sufficient to establish changed circumstances. The revised GFE may 
increase charges for services listed on the GFE only to the extent that 
the changed circumstances affecting the loan actually resulted in 
higher charges.
    (3) Borrower-requested changes. If a borrower requests changes to 
the mortgage loan identified in the GFE that change the settlement 
charges or the terms of the loan, the loan originator may provide a 
revised GFE to the borrower. If a revised GFE is to be provided, the 
loan originator must do so within 3 business days of the borrower's 
request. The revised GFE may increase charges for services listed on 
the GFE only to the extent that the borrower-requested changes to the 
mortgage loan identified on the GFE actually resulted in higher 
charges.
    (4) Expiration of GFE. If a borrower does not express an intent to 
continue with an application within 10 business days after the GFE is 
provided, or such longer time specified by the loan originator pursuant 
to paragraph (c) of this section, the loan originator is no longer 
bound by the GFE.
    (5) Interest rate dependent charges and terms. If the interest rate 
has not been locked, or a locked interest rate has expired, the charge 
or credit for the interest rate chosen, the adjusted origination 
charges, per diem interest, and loan terms related to the interest

[[Page 40616]]

rate may change. When the interest rate is later locked, a revised GFE 
must be provided showing the revised interest rate-dependent charges 
and terms. The loan originator must provide the revised GFE within 3 
business days of the interest rate being locked or, for an expired 
interest rate, re-locked. All other charges and terms must remain the 
same as on the original GFE, except as otherwise provided in paragraph 
(f) of this section.
    (6) New construction home purchases. In transactions involving new 
construction home purchases, where settlement is anticipated to occur 
more than 60 calendar days from the time a GFE is provided, the loan 
originator may provide the GFE to the borrower with a clear and 
conspicuous disclosure stating that at any time up until 60 calendar 
days prior to closing, the loan originator may issue a revised GFE. If 
no such separate disclosure is provided, the loan originator cannot 
issue a revised GFE, except as otherwise provided in paragraph (f) of 
this section.
* * * * *

0
4. In Sec.  3500.8, the paragraph heading of paragraph (c) is corrected 
to read as follows:


Sec.  3500.8  Use of HUD-1 or HUD-1A settlement statements.

* * * * *
    (c) Violations of section 4 of RESPA (12 U.S.C. 2603). * * *
* * * * *

0
5. Appendix A to Part 3500 is amended as follows:
0
a. Revise the Instructions for Lines 601 and 602.
0
b. Revise the first paragraph of the Instructions for Page 3.
    The revisions read as follows:

Appendix A to Part 3500--Instructions for Completing HUD-1 and HUD-1a 
Settlement Statements; Sample HUD-1 and HUD-1a Statements

* * * * *
    Lines 601 and 602 are summary lines for the Seller. Enter the 
total in Line 420 on Line 601. Enter the total in Line 520 on Line 
602.
* * * * *
Page 3

Comparison of Good Faith Estimate (GFE) and HUD-1/1A Charges

    The HUD-1/1-A is a statement of actual charges and adjustments. 
The comparison chart on page 3 of the HUD-1 must be prepared using 
the exact information and amounts for the services that were 
purchased or provided as part of the transaction, as that 
information and those amounts are shown on the GFE and in the HUD-1. 
If a service that was listed on the GFE was not obtained in 
connection with the transaction, pages 1 and 2 of the HUD-1 should 
not include any amount for that service, and the estimate on the GFE 
of the charge for the service should not be included in any amounts 
shown on the comparison chart on Page 3 of the HUD-1. The comparison 
chart is comprised of three sections: ``Charges That Cannot 
Increase'', ``Charges That Cannot Increase More Than 10%'', and 
``Charges That Can Change''.
* * * * *

    Dated: July 1, 2011.
Robert C. Ryan,
Acting Assistant Secretary for Housing-Federal Housing Commissioner.
[FR Doc. 2011-17230 Filed 7-8-11; 8:45 am]
BILLING CODE 4210-67-P