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January 30th, 2010 8:11 AM by David W. Welch
I was fortunate enough this week to have two closings with the new HUD-1 settlement statement. The new form adds a section where the buyer's good faith estimate (GFE) from their lender is compared with the fees actually charged at the closing. There are three types of fees on the GFE and HUD-1 that are compared on this extra page. The first type of fee cannot have any variance between the GFE and the final HUD-1. When you meet with a lender, they know what their fees are, so obviously their estimate of these fees should be exact. The second set of fees are those that can change by up to 10%. That sounds like a lot of fluctuation, but an example is the days of interest the buyer pays at closing which is based on the day of the month. When estimating this number the lender may expect to close on the 30th, but the closing could get moved up (most get delayed, not moved up) to the 29th adding a day of interest. The final category of fees are those that can vary by any amount. The reason they can vary by any amount is that the buyer can shop for these services, and the lender has no control at all. A great example of this is homeowner's insurance. The buyer's lender can only estimate insurance, and insurance quotes can vary widely. One of my customers who closed this week had quotes that ranged from around $1,200 per year to $1,800.
Of course, as you can tell from the title of this post it is a government regulated, mandated change. Therefore, there are some things that you have to laugh at. The new improved HUD-1 is being called the three page HUD (the old HUD was two pages), but the two I closed this week were five pages long including one blank page in the middle? One of my customers brought his actual GFE with him to closing, and several of the estimates on his did not match what the lender reported on the third page. In the end they were immaterial, and his actual costs were lower. It begs the question of how this is being enforced. I suppose the buyer could stop the closing, and they should if they are getting ripped off. I just wonder how many will when they have a moving van and are anxious to get into their home.
The way that the fees roll up from the details on the side is rather difficult to see, which added a degree of confusion. Also, here in Florida the seller pays for the title insurance. The new HUD-1 requires it to show on the buyer's side of the ledger with a credit back from the seller on the front page. This added more confusion as the buyer questions why they are paying for it, and the seller questions why they are giving the buyer another credit. Both felt like it was a bit of a shell game. The other issue I have with the disclosure section (page three) of the form is that it shows the terms of the buyer's loan. What is wrong with that you might ask. Well those terms are disclosed already in their note - which is private. Now they are on the HUD-1 for everybody to see. I don't know that it is the seller's business, or anyone else for that matter. Here in Florida the note is not recorded, just the mortgage. I just find this a bit of an invasion of the buyer's privacy. The best part is HUD has a 48 page guide that you can download from their website on the shopping for settlement services and the new three page (five page) HUD-1.
Orlando Real Estate, David Welch Real Estate Optimist, As Seen on HGTV's House Hunters