Thursday, March 04, 2010

RESPA 2010 - purchase with a 1st and 2nd mortgage

We are getting ready to close our first simultaneous 1st and 2nd under the new rules.  Our buyer is getting a line of credit 2nd mortgage and as far as I know, drawing the whole line now for closing.

When we got the title order, we checked the RESPA FAQ and saw on page seven that there should be TWO GFEs and TWO HUD-1 forms.  We asked the lender for both GFEs and held back delivery of the title commitment because we couldn't get a GFE on the second.

I did some more research and found that the RESPA final rule does have an exception for a line of credit.  The lender can opt to not do a GFE and instead provide the consumer with the appropriate disclosures under Reg Z.  I then asked for the Reg Z disclosure.

After a series of requests including chatting with a supervisor in the home equity department, I was given what they said was the full disclosure pack that had been given to the consumer.  I looked at every page and couldn't find anything resembling the Reg Z disclosure.

I decided to move the transaction forward by releasing the title commitment and producing both prelim HUDs.  Note that I could not input any GFE data for the 2nd - the line of credit, so I wasn't able to do any test comparison.

I then sent an e-mail inquiry to HUD and got a prompt response that the issue had been covered in the FAQ and we needed TWO GFEs and TWO HUDs.  I replied that I seem to be having a problem because the lender isn't doing a GFE because the mortgage is a line of credit and that the final rule appears to allow that opting out.  How, I asked does the settlement agent complete a HUD-1A and do a GFE comparison without having a GFE?  I am awaiting a response on that question and will post back here when received either directly or through updated FAQs.

After submitting the prelim HUD-1A to the home equity department I received a response saying they didn't want title insurance on the 2nd and they wanted me to remove the title services charge.  I replied that I didn't charge for title insurance on the second but our other related fees are in that figure.

This morning I received another reply asking then if I intended that figure to be a settlement fee and I responded that under RESPA 2010 rules I had to lump all my charges into that one figure and I gave her the breakdown which had been provided with the prelim.

Here's the reason for my post.  How is it that this subject hasn't come up before?  This is March!  

PS - Some may wonder why we are charging anything to close the 2nd.  Our decision to charge or not is based upon the amount of extra work.

We have two local banks for whom we close line of credit seconds for no extra charge because there is little paperwork, no draw/disbursements, and all we have to do is have a couple of extra docs signed and record the second.  Docs are provided by the banks and they are delivered back with the 1st package to the same department.  We'll see if this changes under the new rules.

When we have a 2nd closing with a large doc pack, separate set of instructions, working with a draw/disbursement - delivering and dealing with a different lender or a different department, we charge for those extra services because we are doing double the work - so two incoming wire fees, two couriers, two edoc printing and two settlement fees.

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