Real Estate Settlement Procedures Act (RESPA): Rule To Simplify and Improve the Process of Obtaining Mortgages and Reduce Consumer Settlement Costs, 68204-68288 [E8-27070]

Agencies

• DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

[Federal Register Volume 73, Number 222 (Monday, November 17, 2008)]
[Rules and Regulations]
[Pages 68204-68288]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E8-27070]



[[Page 68203]]

-----------------------------------------------------------------------

Part IV





Department of Housing and Urban Development





-----------------------------------------------------------------------



24 CFR Parts 203 and 3500



 Real Estate Settlement Procedures Act (RESPA): Rule To Simplify and 
Improve the Process of Obtaining Mortgages and Reduce Consumer 
Settlement Costs; Final Rule

Federal Register / Vol. 73, No. 222 / Monday, November 17, 2008 / 
Rules and Regulations

[[Page 68204]]


-----------------------------------------------------------------------

DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

24 CFR Parts 203 and 3500

[Docket No. FR-5180-F-03]
RIN 2502-AI61


Real Estate Settlement Procedures Act (RESPA): Rule To Simplify 
and Improve the Process of Obtaining Mortgages and Reduce Consumer 
Settlement Costs

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

ACTION: Final rule.

-----------------------------------------------------------------------

SUMMARY: This final rule amends HUD's regulations to further RESPA's 
purposes by requiring more timely and effective disclosures related to 
mortgage settlement costs for federally related mortgage loans to 
consumers. The changes made by this final rule are designed to protect 
consumers from unnecessarily high settlement costs by taking steps to: 
improve and standardize the Good Faith Estimate (GFE) form to make it 
easier to use for shopping among settlement service providers; ensure 
that page 1 of the GFE provides a clear summary of the loan terms and 
total settlement charges so that borrowers will be able to use the GFE 
to identify a particular loan product and comparison shop among loan 
originators; provide more accurate estimates of costs of settlement 
services shown on the GFE; improve disclosure of yield spread premiums 
(YSPs) to help borrowers understand how YSPs can affect borrowers' 
settlement charges; facilitate comparison of the GFE and the HUD-1/HUD-
1A Settlement Statements; ensure that at settlement borrowers are aware 
of final costs as they relate to their particular mortgage loan and 
settlement transaction; clarify HUD-1 instructions; expressly state 
that RESPA permits the listing of an average charge on the HUD-1; and 
strengthen the prohibition against requiring the use of affiliated 
businesses.
    This final rule follows a March 14, 2008, proposed rule and makes 
changes in response to public comment and further consideration of 
certain issues by HUD. In addition, this rule provides for an 
appropriate transition period. Compliance with the new requirements 
pertaining to the GFE and settlement statements is not required until 
January 1, 2010. However, certain provisions are to be implemented upon 
the effective date of the final rule.

DATES: Effective Date: This rule is effective on January 16, 2009.

FOR FURTHER INFORMATION CONTACT: Ivy Jackson, Director, or Barton 
Shapiro, Deputy Director, Office of RESPA and Interstate Land Sales, 
Office of Housing, Department of Housing and Urban Development, 451 7th 
Street, SW., Room 9158, Washington, DC 20410-8000; telephone number 
202-708-0502. For legal questions, contact Paul S. Ceja, Assistant 
General Counsel; Joan Kayagil, Deputy Assistant General Counsel; or 
Rhonda L. Daniels, Attorney-Advisor, for GSE/RESPA, Department of 
Housing and Urban Development, 451 7th Street, SW., Room 9262, 
Washington, DC 20410-0500; telephone number 202-708-3137. These 
telephone numbers are not toll-free. Persons with hearing or speech 
impairments may access these numbers through TTY by calling the toll-
free Federal Information Relay Service at 800-877-8339.

SUPPLEMENTARY INFORMATION: 

Background

    On March 14, 2008 (73 FR 14030), HUD published a proposed rule 
(March 2008 proposed rule) that submitted for public comment changes to 
HUD's regulations designed to improve certain disclosures required to 
be provided under RESPA (12 U.S.C. 2601-2617). The RESPA disclosure 
requirements apply in almost all transactions involving mortgages that 
secure loans on one-to four-family residential properties. HUD's 
regulations implementing the RESPA requirements are codified in 24 CFR 
part 3500. The revisions to the regulations adopted by HUD in this 
final rule are intended to make the process of obtaining mortgage 
financing clearer and, ultimately, less costly for consumers.
    The preamble of the March 2008 proposed rule presents an overview 
of the statutory requirements under RESPA, as well as a detailed 
account of HUD's efforts to initiate regulatory changes commencing in 
2002. HUD refers the reader to the March 2008 proposed rule for a 
detailed description of the background of this rulemaking. The 
principles that guided HUD in the development of this rule are also 
included in the March 2008 proposed rule.
    The preamble to this final rule highlights some of the more 
significant changes made at this final rule stage in response to public 
comment and upon further consideration of certain issues by HUD, 
summarizes the public comments received on the March 2008 proposed 
rule, and provides HUD's response to those comments. The following 
table of contents is provided to assist the reader in identifying where 
certain topics are discussed in this preamble. This final rule is also 
accompanied by a final regulatory impact analysis and regulatory 
flexibility analysis, which are addressed in sections VIII and IX of 
this preamble.

Table of Contents

I. Significant Changes from March 2008 Proposed Rule
II. Overview of Commenters
III. GFE and GFE Requirements--Discussion of Public Comments
    A. Overall Comments on the Proposed Required GFE Form
    B. Changes to Facilitate Shopping
    1. New Definitions for ``GFE Application'' and ``Mortgage 
Application.''
    2. Up-Front Fees That Impede Shopping
    3. Introductory Language on the GFE Form
    4. Terms on the GFE (Summary of Loan Details)
    5. Period During Which the GFE Terms Are Available to the 
Borrower
    6. Option to Pay Settlement Costs
    7. Establishing Meaningful Standards for GFEs
    a. Tolerances
    b. Unforeseeable Circumstances
    8. Lender Disclosure
    9. Enforcement and Cure
    10. Implementation Period
    C. Lender Payments to Mortgage Brokers--Yield Spread Premiums 
(YSPs)
    1. Disclosure of YSP on GFE
    2. Definition of ``Mortgage Broker.''
    3. FHA Limitation on Origination Fees of Mortgagees
IV. Modification of HUD-1/1A Settlement Statement
    A. Overall Comments on Proposed Changes to HUD-1/1A Settlement 
Statement
    B. Proposed Addendum to the HUD-1, the Closing Script
V. Permissibility of Average Cost Pricing and Negotiated Discounts--
Discussion of Public Comments
    A. Overview and Definition of ``Thing of Value''
    B. Methodology for Average Cost Pricing
VI. Prohibition Against Requiring the Use of Affiliates--Discussion 
of Public Comments
VII. Technical Amendments
VIII. Regulatory Flexibility Act--Comments of the Office of Advocacy 
of the Small Business Administration
IX. Findings and Certifications

I. Significant Changes From March 2008 Proposed Rule

    RESPA is a consumer protection statute, and, as further described 
in this preamble, consumer groups were, in general, very supportive of 
the basic goals and key components of the March 2008 proposed rule. For 
example, the National Consumer Law Center, in a joint comment with 
Consumer Action, the Consumer Federation of America, and the National 
Association of Consumer Advocates, stated, ``HUD has done an excellent 
job in moving the ball toward greater protection for consumers in the 
settlement process.'' In addition,

[[Page 68205]]

the Center for Responsible Lending, in its comment concluded: ``[W]e 
applaud HUD for addressing the challenge of reforming RESPA. We believe 
HUD's proposed GFE provides important improvements over existing 
requirements.''
    HUD received adverse comments about many aspects of the proposed 
rule, primarily from mortgage industry representatives, including 
requests that HUD withdraw its proposal entirely or that HUD postpone 
its current efforts in order to work with the Federal Reserve Board to 
arrive at a joint regulatory approach. HUD takes these comments very 
seriously and appreciates the concerns raised by these commenters. 
HUD's view continues to be, however, that improvements in disclosures 
to consumers about critical information relating to the costs of 
obtaining a home mortgage, often the most significant financial 
transaction a consumer will enter into, are needed, and that such 
disclosures are a central purpose of RESPA. Most commenters--including 
consumers, industry representatives, and federal and state regulatory 
agencies--supported the concept of better disclosures in general, and 
commended both HUD's efforts and particular provisions in the proposed 
rule.
    Moreover, given the current mortgage crisis, the foreclosure 
situation many homeowners are now facing because they entered into 
mortgage transactions that they did not fully understand, and the 
prospect that future homeowners may find themselves in this same 
situation, HUD believes that it is very important that the improvements 
in mortgage disclosures made by this final rule move forward 
immediately. Nevertheless, as noted in the preamble to the March 2008 
proposed rule, HUD will continue to work with the Federal Reserve Board 
to achieve coordination and consistency between the Board's current 
regulatory efforts and HUD's requirements.
    HUD has made many changes to the March 2008 proposed rule in 
response to public comment and further consideration of certain issues 
by HUD. Some of the provisions in the March 2008 proposed rule have 
been revised in this final rule and others have been withdrawn for 
further consideration. HUD believes that the result is a final rule 
that will give borrowers additional and more reliable information about 
their mortgage loans earlier in the application process, and will 
better assure that the mortgage loans to which they commit at 
settlement will be the loans of their choice. At the same time, in 
recognition of the concerns raised by industry commenters about the 
need for sufficient time for the industry to make systems and 
operational changes necessary to meet the requirements of the new rule, 
the final rule provides that the new GFE and HUD-1 will not be required 
until January 1, 2010. However, certain other provisions of the rule 
will take effect 60 days from the publication date of the final rule. 
The following are some of the most significant changes made at this 
final rule stage, and are discussed in more detail in the discussion of 
public comment.
     A GFE form that is shorter than had been proposed.
     Allowing originators the option not to fill out the 
tradeoff table on the GFE form.
     A revised definition of ``application'' to eliminate the 
separate GFE application process.
     Adoption of requirements for the GFE that are similar to 
recently revised Federal Reserve Board Truth-in-Lending regulations 
which limit fees charged in connection with early disclosures and 
defining timely provision of the disclosures.
     Clarification of terminology that describes the process 
applicable to, and the terms of, an applicant's particular loan.
     Inclusion of a provision to allow lenders a short period 
of time in which to correct certain violations of the new disclosure 
requirements.
     A revised HUD-1/1A settlement statement form that includes 
a summary page of information that provides a comparison of the GFE and 
HUD-1/1A list of charges and a listing of final loan terms as a 
substitute for the proposed closing script addition.
     Elimination of the requirement for a closing script to be 
completed and read by the closing agent.
     A simplified process for utilizing an average charge 
mechanism.
     No regulatory change in this rulemaking regarding 
negotiated discounts, including volume based discounts.

II. Overview of Commenters

    The public comment period on the March 2008 proposed rule was 
originally scheduled to close on May 13, 2008. In response to numerous 
requests, including congressional requests, to extend the comment 
period, and HUD's desire to develop a better rule, HUD announced an 
extension of the comment period. This announcement was made on both 
HUD's Web site and by publication of a notice in the Federal Register 
on May 12, 2008 (73 FR 26953). At the close of the extended public 
comment period on June 12, 2008, HUD had received approximately 12,000 
comments. Approximately two-thirds of the comments received were 
duplicative or repeat comments; i.e., individuals or organizations who 
submitted identical or virtually identical comments. For example, 
members of certain trade organizations, or employees of certain 
companies, frequently submitted identical comments.
    HUD received comments from homeowners, prospective homeowners, 
organizations representative of consumers, and numerous industry 
organizations involved in the settlement process, including lending 
institutions, mortgage brokers, real estate agents, lawyers, title 
agents, escrow agents, closing agents and notaries, community 
development corporations, and major organizations representative of key 
industry areas such as bankers, mortgage bankers, mortgage brokers, 
realtors, and title and escrow agents, as well as from state and 
federal regulators.
    HUD appreciates all those who took the time to review the March 
2008 proposed rule and submit comments.
    In addition to submission of comments, HUD representatives accepted 
invitations to participate in public forums and panel discussions about 
RESPA and HUD's March 2008 proposed rule. HUD also met, at HUD 
Headquarters or at the offices of the Office of Management and Budget 
(OMB), with interested parties, requesting meetings as provided by 
Executive Order 12866 (Regulatory Planning and Review), who highlighted 
for HUD and OMB areas of concern and support for various aspects of the 
rule.
    All of this input contributed to HUD's decisions that resulted in 
this final rule.
    HUD also received approximately 100 public comments that were 
submitted after the deadline. To the extent feasible, HUD reviewed late 
comments to determine if issues were raised that were not addressed in 
comments submitted by the deadline.

III. GFE and GFE Requirements--Discussion of Public Comments

A. Overall Comments on the Proposed Required GFE Form

    Proposed Rule. HUD proposed a four-page GFE form. The first page of 
the GFE included a summary chart with key terms and information about 
the loan for which the GFE was provided, including initial loan 
balance; loan term; initial interest rate; initial amount owed for 
principal, interest, and any mortgage insurance; rate lock period; 
whether the interest rate can rise; whether the loan balance can rise; 
whether the monthly

[[Page 68206]]

amount owed for principal, interest, and any mortgage insurance can 
rise; whether the loan has a prepayment penalty; whether the loan has a 
balloon payment; and whether the loan includes a monthly escrow payment 
for property taxes and possibly other obligations. The first page of 
the form also included information regarding the length of time the 
interest rate for the GFE was valid; the length of time the other 
settlement charges were valid; information about when settlement must 
occur if the borrower proceeds with the loan; and information 
concerning how many days the interest rate must be locked before 
settlement. At the bottom of the first page, the GFE included a summary 
of the settlement charges. The adjusted origination charges listed on 
the second page, along with the charges for all other settlement 
charges listed on the second page, would have been totaled and listed 
on this page.
    The second page of the GFE included a listing of estimated 
settlement charges. The loan originator's service charge would have 
been required to be listed at the top of page two, and the credit or 
charge (points) for the specific interest rate chosen would have been 
required to be subtracted or added to the service charge to arrive at 
the adjusted origination charge, which would have been shown on the top 
of page two. Page two of the GFE also would have required an estimate 
for all other settlement services. The GFE included categories for 
other settlement services including: Required services that the loan 
originator selected; title services and lender's title insurance; 
required services that the borrower would have been able to shop for; 
government recording and transfer charges; reserves or escrow; daily 
interest charges; homeowner's insurance; and optional owner's title 
insurance. The GFE would have required these charges to be subtotaled 
at the bottom of page two. The sum of the adjusted origination charges 
and the charges for all other settlement services would have been 
required to be listed on the bottom of page 2.
    The third page of the GFE would have required information 
concerning shopping for a loan offer. In addition, page three would 
have included information about which settlement charges could change 
at settlement, and by how much such charges could change. Page 3 also 
would have required the loan originator to include information about 
loans for which a borrower would have qualified that would increase or 
decrease settlement charges, with a corresponding change in the 
interest rate of the loan. (See section III.B.6 of this preamble 
below.)
    The fourth page of the GFE included a discussion of financial 
responsibilities of a homeowner. The loan originator would have been 
required to state the annual property taxes and annual homeowner's 
flood, and other required property protection insurance, but would not 
have been required to state estimates for other charges such as annual 
homeowner's association or condominium fees. The GFE included a section 
that advised borrowers that the type of loan chosen could affect 
current and future monthly payments. The proposed GFE also indicated 
that the borrower could ask the loan originator for more information 
about loan types and could look at several government publications, 
including HUD's Special Information Booklet on settlement charges, 
Truth in Lending Act (TILA) disclosures, and consumer information 
publications of the Federal Reserve Board. The March 2008 proposed rule 
invited comments on possible additional ways to increase consumer 
understanding of adjustable rate mortgages.
    Page 4 also would have included information about possible lender 
compensation after settlement. In addition, page 4 would have included 
a shopping chart to assist the borrower in comparing GFEs from 
different loan originators and information about how to apply for the 
loan for which the GFE had been provided.
Comments
Consumer Representatives
    Consumer representatives generally supported the proposed 
standardized GFE, while offering specific recommendations for 
improvement. The National Community Reinvestment Coalition recommended 
inclusion of the annual percentage rate (APR) on the GFE. The Center 
for Responsible Lending (CRL) stated that it believed that the proposed 
GFE has the potential to significantly improve current disclosure 
requirements because it offers a standardized shopping tool with better 
linkages to the HUD-1, requires that terms be binding, and takes 
important steps toward trying to alert consumers to the risky features 
of their loans. However, according to CRL, most consumers will not have 
the capacity to absorb everything in a four-page GFE and therefore it 
proposed an alternative two-page GFE.
    CRL noted that a new GFE should ensure that consumers have the best 
chance possible to understand the riskiest features of their loans. CRL 
commended HUD for adding several features that highlight risk to the 
first page of the GFE: The prepayment penalty, the balloon payment, the 
maximum possible loan balance, the maximum monthly payment, and whether 
certain fees are escrowed. CRL stated that knowing the maximum monthly 
payment of principal, interest, and mortgage insurance is critical to 
the consumer's ability to determine whether or not the loan is 
sustainable. It recommended that other features be added to page 1, 
including increased emphasis on total monthly payment. It also 
recommended that the monthly payment amount include an estimate of 
property taxes, property insurance, and the other charges listed on 
page 4 of the proposed GFE as one total line item, on page 1.
    CRL also recommended that page 1 of the GFE include the annual 
percentage rate (APR) instead of the note rate because the APR is the 
standardized measurement of loan cost in the industry, and because the 
APR captures the total cost of the loan. CRL further recommended that 
given that credit cost comprises the largest component of total loan 
cost, the form's emphasis on settlement costs should be reduced.
    In addition, CRL recommended that the first page of the GFE also 
include information on the first possible date on which the interest 
rate can rise; an explanation of what prepayment penalties are and how 
they are triggered; simplified broker compensation; and notification 
that mortgage terms are negotiable. While CRL supported aggregating 
fees on page 2 of the GFE to promote mortgage loan shopping, it 
recommended that the tradeoff table on page 3 be revamped in order to 
force the rate/point tradeoff that it is intended to disclose.
    The GFE proposed by CRL includes the APR, for reasons stated above. 
In addition, the GFE proposed by CRL includes the first date the 
interest rate can rise. CRL also included on page 1, ``estimated 
required additional housing expenses'' as well as ``total estimated 
maximum monthly housing costs.'' CRL stated that while it understands 
that consumers should not compare loans based on total estimated 
maximum monthly housing costs, CRL believes that it is critical that 
consumers, particularly those in the subprime market, begin evaluating 
their ability to afford the loan at the outset of the loan process. 
CRL's proposed GFE also includes a broader prepayment penalty 
disclosure than the prepayment penalty disclosure on the proposed GFE. 
In addition, CRL's proposed GFE includes a broker compensation 
disclosure, a

[[Page 68207]]

notice that the consumer can negotiate settlement charges and a summary 
of charges to facilitate reconciliation to the HUD-1.
    Comments by the National Consumer Law Center (NCLC) (filed on 
behalf of NCLC and Consumer Action, the Consumer Federation of America, 
and the National Association of Consumer Advocates) stated that the 
proposed standardization of the GFE, the increased linkage between the 
GFE and the settlement statement, and the proposed requirement that 
some terms on the GFE be binding, are important changes that should 
increase consumer understanding and competition in the mortgage 
marketplace. NCLC recommended that HUD go further by requiring the 
prominent disclosure of the APR on the GFE instead of the interest 
rate. According to NCLC, failure to include the APR on the GFE obscures 
the cost of credit and hinders consumer shopping.
    NCLC expressed concern that the proposed GFE gives far greater 
prominence to settlement costs than to interest. NCLC stated that if 
the GFE is successful in getting consumers to shop on settlement costs, 
there is a risk that consumers will neglect the primary cost component 
of loans, interest. According to NCLC, while settlement costs matter, 
they matter most not as a stand-alone cost, but in relation to the 
interest rate. NCLC recommended that the GFE be revised by reducing the 
focus on settlement costs through reduction of the font size and 
elimination of the bold type for settlement costs. NCLC also 
recommended that HUD work with the Federal Reserve Board to produce 
disclosures that are not misleading or that obscure the actual cost of 
credit. In addition, NCLC recommended that the first page of the GFE 
provide only a total for all settlement costs, without breaking out the 
origination costs.
    NCLC supported the loan summary on page 1 and recommended that the 
summary sheet refer to the APR instead of to the interest rate. NCLC 
also recommended that the first page provide only a total of the 
estimated settlement charges, not separate lines for the origination 
and total settlement costs.
Industry Representatives
    Generally, lenders and their associations opposed the proposed GFE 
on the grounds that the form is too lengthy and, in their opinion, 
would only confuse borrowers. The American Bankers Association 
commented that the proposed GFE is overly prescriptive. The Mortgage 
Bankers Association (MBA) stated that the length of the form will cause 
borrowers to ignore its important information. MBA submitted a two-page 
GFE as an alternative to the proposed GFE that combines the RESPA and 
TILA disclosures. While lenders and their associations expressed 
general support for the goals of the proposed rule, many lenders 
recommended that HUD work together with the Federal Reserve Board to 
produce a combined RESPA and TILA disclosure and to implement this 
combined product simultaneously, to replace the current RESPA and TILA 
disclosures provided at the time of application.
    MBA stated that it generally supports grouping of the amount or 
ranges of specific services on the GFE in a manner that is 
comprehensible and comparable, but recommended that the form be 
modified so that it is mainly a list of charges with minimal 
supplementary material, as on the GFE form submitted by MBA. MBA 
recommended that the material on page 3 and page 4 of the proposed GFE 
be moved to explanatory materials such as the Special Information 
Booklet. While MBA stated that a summary of loan terms could be useful, 
it recommended that the summary be removed from the GFE and issued by 
the Federal Reserve Board in consultation with HUD. MBA further 
recommended the deletion of the term ``adjusted origination charge'' 
from the bottom of page 1.
    A major lender expressed the concern that the proposed form is so 
laden with information that lenders cannot convey key cost information 
in a clear and conspicuous manner. This commenter stated that the 
proposed form would pose a significant compliance burden for lenders 
and would not provide borrowers with any greater understanding of their 
loan. Specifically, the lender objected to the disclosures required on 
page 3 of the proposed form.
    The National Association of Mortgage Brokers (NAMB) generally 
supported the inclusion of information listed on page 4 of the proposed 
GFE. However, NAMB objected to consolidating major categories on the 
GFE on the grounds that such categories tend to lead to consumer 
confusion since components are not evident to consumers until presented 
with the HUD-1, on which they are disclosed separately. NAMB also 
asserted that the proposed GFE is in conflict with the current RESPA 
requirements on affiliated business disclosure, because the proposed 
GFE eliminates the name of the provider on the GFE. NAMB submitted, in 
place of the proposed GFE, a model that provides symmetrical disclosure 
of originator compensation. NAMB stated that its model form not only 
remedies the disparity among originator disclosures, it more closely 
mirrors the HUD-1 than the proposed GFE; it does not create groupings 
of disclosures that must be broken out; and it is one page, making it 
more user friendly.
Other Commenters
    Many other commenters also expressed concern about the length of 
the form. The National Association of Realtors (NAR) stated that the 
proposed GFE fails to achieve the right balance between providing the 
necessary information and presenting such information simply in a 
manner to be useful to the consumer. NAR asserted that the disclosures, 
tables, and instructions in the proposed GFE will serve as a 
``psychological barrier'' to many consumers who will feel overwhelmed 
with having to read, comprehend, and act on this amount of information. 
NAR stated that the decision not to include itemized costs in the 
proposed GFE will result in consumers getting less than the full 
disclosure Congress intended in the original statute. NAR asserted that 
the proposed GFE creates the opportunity to bury additional, 
undisclosed fees into ``packages'' and prevents individual provider 
cost comparison to the detriment of consumers.
    NAR also recommended that the proposed GFE and the HUD-1 mirror 
each other in order to assist consumers in understanding whether the 
terms and expenses that were disclosed at loan application are those 
that are the governing terms at closing. NAR noted that, along with 
CRL, it previously recommended that HUD provide consumers a summary GFE 
accompanied by a full GFE with detailed explanations of each 
subcategory of fees to help consumers understand the services and fees 
for which they are being charged. NAR reiterated this recommendation 
for the final rule and, along with the American Land Title Association 
(ALTA), submitted a summary GFE and a full GFE for HUD's consideration.
    The Credit Union National Association (CUNA) opposed increasing the 
GFE to the proposed four-page form. CUNA stated that the proposed form 
would not benefit borrowers who could be confused by the additional 
information, rather than helped in understanding their loan options. 
The National Association of Federal Credit Unions (NAFCU) stated that 
the length of the proposed form is too long for the purpose of the GFE, 
which is simply to provide a good faith estimate of settlement costs. 
NAFCU recommended that pages 3 and 4 of the proposed form

[[Page 68208]]

be consolidated into one page by removing the section on page 3 
entitled ``understanding which charges can change at settlement'' and 
the section on page 4 entitled ``using the shopping chart.'' NAFCU 
suggested that the information contained in these sections should be 
provided in the Special Information Booklet.
    The Conference of State Bank Supervisors (CSBS), the American 
Association of Residential Mortgage Regulators (AARMR), and the 
National Association of Consumer Credit Administrators (NACCA) stated 
that they support HUD's goal to provide clear and valuable information 
to consumers regarding adjustable rate mortgages on the GFE. These 
commenters recommended that HUD work with the Federal Reserve Board to 
develop coordinated, consistent, and cooperative disclosures to ensure 
that consumers are not confused. They recommended that the GFE contain 
an estimate of taxes and insurance even when there will be no reserve 
for taxes and insurance in the monthly payment. According to these 
commenters, if the estimate is not included in the monthly payment 
amount, the borrower will not clearly understand whether they can 
afford the monthly payment. While these commenters indicated their 
general support for the grouping of fees and charges on the proposed 
GFE into major settlement cost categories, they expressed concern that 
some in the industry might take advantage of this format by putting 
additional fees and charges in a totaled category.
    ALTA stated that page 1 of the proposed GFE presents the summary of 
loan terms and the total costs for settlement services in an 
understandable format. However, ALTA urged HUD to improve the 
individual fee disclosures by using a page that is identical to page 2 
of the current HUD-1. ALTA stated that revising page 2, as it 
recommended, would allow consumers to know all fees included within the 
total amount listed on the GFE summary page and to more directly 
compare these fees to the final charges and closing.
    With respect to the categorization of fees on page 2 of the 
proposed GFE, ALTA objected to the proposed requirement that a single 
fee be disclosed for title services and lender's title insurance on 
Block 4 and for primary title services in the 1100 section of the HUD-
1. ALTA stated that the elimination of required itemization of these 
fees is of concern and can only serve to lessen, rather than enhance, 
competition for these services.
    ALTA asserted that HUD's views that consumers: (1) Shop among 
lenders based on the lender's estimates of charges in the 1100 series 
on the HUD-1, and (2) have no need to know the amounts of the various 
charges that comprise the aggregate amount, are in error. ALTA stated 
that with regard to the itemization of individual costs that comprise 
the aggregate Block 4 charge, consumers who want to shop for these 
services will be seriously disadvantaged because there is no way to 
determine the lender's estimated price for the title company, escrow 
company, attorney, or surveyor.
    ALTA also stated that the disclosure of a single fee for title 
insurance fails to recognize that, in most areas of the country, the 
seller generally pays a substantial portion of the title insurance 
charges. ALTA noted that the March 2008 proposed rule failed to provide 
instruction as to how to disclose title-related fees when these costs 
are paid by the seller. ALTA expressed concern that if the GFE and HUD-
1 do not itemize the fees for title insurance services, the possibility 
exists that the borrower could pay for services for which sellers 
currently assume payment, and this would result in higher costs to the 
borrower. ALTA requested that HUD continue to require title insurance 
fees disclosed in the 1100 series of the HUD-1 to be separately 
itemized on both the GFE and HUD-1.
    With respect to the category for owner's title insurance on page 2 
of the GFE, ALTA requested that the word ``optional'' be dropped from 
the disclosure on both the proposed GFE and the proposed HUD-1. ALTA 
expressed concern that, by including the word ``optional'' in both 
disclosures, HUD appears to be suggesting that a consumer does not need 
separate coverage for title insurance, which may discourage borrowers 
from obtaining owner's coverage. ALTA also noted that owner's title 
insurance is required in residential real estate transactions in many 
states and that, by labeling owner's title insurance as optional on 
both the GFE and the HUD-1, HUD's requirement would directly conflict 
with various state requirements.
Federal Agencies
    The Federal Deposit Insurance Corporation (FDIC) also expressed 
concern about the length of the proposed GFE. While considering the 
proposed GFE to be an improvement over the current model form, the FDIC 
expressed concern about whether the proposed GFE provides information 
that consumers will understand in an easily understandable format. The 
FDIC also commented that more information about potential payment shock 
and the adjustment of interest rates should be included on the GFE. 
Specifically, the FDIC recommended that the GFE explain when an initial 
interest rate expires and when monthly payments increase.
    The Federal Trade Commission (FTC) staff comment stated that the 
proposed GFE form offers several features that will benefit consumers. 
These features include a summary overview of loan terms and charges on 
the first page; the additional details regarding categories of fees and 
shopping options on subsequent pages; and the focus on total settlement 
costs, rather than itemized costs. However, FTC staff stated that the 
form raises concerns that warrant clarification or modification. For 
example, FTC staff stated that consumers may be confused based on the 
differences between the GFE and the HUD-1 disclosures and the TILA 
forms they receive, particularly the difference in monthly amounts. 
Rather than explain the differences in the Special Information Booklet, 
FTC staff recommended that HUD provide a clear explanation of the 
difference between the forms on the GFE and the closing script, or use 
an alternative disclosure on the GFE and closing script to ensure as 
much consistency with the TILA disclosures as possible.
    The Office of Thrift Supervision (OTS) commented that HUD should 
consider revising its settlement cost booklet to include illustrations 
reflecting the impact that loan features and terms can have on the cost 
of the mortgage. In particular, OTS stated that such illustrations 
would be particularly useful in reflecting payment shock, among other 
features, that a borrower may experience when rates reset.
HUD Determination
    In response to comments, HUD has made a number of changes to the 
revised GFE, including shortening the form from four pages to three and 
clarifying important information for borrowers throughout the form. 
While HUD recognizes that too much information on the form may 
overwhelm borrowers, HUD is also cognizant that borrowers need to be 
aware of the important aspects of the loan, as well as the settlement 
costs. While HUD considered all of the various alternative forms 
submitted by commenters, HUD determined that its proposed GFE, with 
certain modifications made at this final rule stage, would best meet 
the needs of borrowers to shop and compare loans from different loan 
originators. As

[[Page 68209]]

demonstrated by the testing of the form conducted by HUD's forms 
contractor, consumers liked the general format of the form and were not 
overwhelmed by its length. Accordingly, HUD has maintained several 
important features of the proposed GFE in the final form. Other 
features from the proposed form have been removed from the form, as 
revised at this final rule stage, and will be included in the revised 
Special Information Booklet. The final GFE continues to inform 
borrowers about critical loan and settlement cost information and 
allows borrowers to effectively shop among loan originators without 
burdening them with extraneous information.
    The top of page 1 of the revised form continues to include blank 
spaces for the loan originator's name, address, phone number, and email 
address, as well as the borrower's name, the property address, and the 
date of the GFE. In addition, the top of the revised page 1 includes a 
statement about the purpose of the GFE, and information on how to shop 
for a loan offer. This section of the form also references HUD's 
Special Information Booklet on settlement charges, as well as Truth in 
Lending disclosures and information available at https://www.hud.gov/
respa. Such information was included on page 4 of the proposed form. 
While the revised page 1 also continues to include information about 
important dates, such as how long the interest rate is available and 
how long the estimate for all other settlement charges is available, 
the rate lock period information that was included in the loan summary 
chart on the proposed GFE has been moved from the summary chart to the 
``important dates'' block on the revised form. This change was made to 
consolidate all the information about dates in one section of the form 
and to minimize potential borrower confusion.
    The revised page 1 also includes a summary chart of the loan on 
which the GFE is based, but this section of the form is now referred to 
as ``summary of your loan'' instead of ``summary of your loan terms,'' 
as proposed. The revised summary continues to include key terms and 
information about the loan for which the GFE was provided, but certain 
changes were made to headings on the chart to address specific 
comments. While the proposed GFE included information about the monthly 
escrow payment in the summary chart, the revised form includes a 
separate section concerning the escrow account. This section, referred 
to as ``escrow account information,'' informs the borrower that some 
lenders require an escrow account to hold funds for paying property 
taxes or other property-related charges in addition to the monthly 
payment. The section includes a disclosure as to whether an escrow 
account is required for the loan described in the GFE. If no escrow 
account is included for the loan, this section informs the borrower 
that the additional charges must be paid directly when due. If the loan 
includes an escrow account, the section informs the borrower that it 
may or may not cover all additional charges.
    The bottom of page 1 on the revised form retains the ``summary of 
your settlement charges'' section, as set forth in the proposed GFE. 
The summary includes the amount from Block A on page 2, ``your adjusted 
origination charges''; the amount from Block B on page 2, ``your 
charges for all other settlement services'' ; and reflects the ``total 
estimated settlement charges'' as the sum of Blocks A and B.
    Page 2 of the revised GFE, like page 2 of the proposed form, 
contains a listing of estimated settlement charges. The top of the 
second page continues to require that the origination charge be listed, 
and the credit or charge for the specific interest rate is required to 
be subtracted or added to the origination charge to arrive at the 
adjusted origination charge. However, this portion of the second page 
includes some minor changes from the proposed form. First, Block 2 now 
references ``points'' after the ``charge'' in the heading, rather than 
at the end of the sentence, to better inform the borrower. The heading 
now reads, ``Your credit or charge (points) for the specific interest 
rate chosen.'' In addition, to draw the borrower's attention to the 
effect of the credit in Block 2, the term ``reduces'' is now bolded in 
box 2. To draw the borrower's attention to the effect of the charge in 
Block 2, the term ``increases'' is now bolded in box 3 of the second 
block. Finally, the second sentence in box 2 and box 3 in Block 2 
refers to ``settlement'' charges rather than ``upfront'' charges, in 
order to be consistent with other language on the form.
    Page 2 of the revised GFE, like the second page of the proposed 
GFE, also contains an estimate for all other settlement services. While 
the categories from the proposed form have generally been retained on 
the final form, certain changes have been made to the categories to 
streamline the form in response to comments. Block 10 of the proposed 
form ``optional owner's title insurance'' is now Block 5 of the revised 
form and informs the borrower that the borrower may purchase owner's 
title insurance to protect the borrower's interest in the property.
    Block 6 of the revised form, ``Required services that you can shop 
for,'' is the same as Block 5 of the proposed form. While Block 6 of 
the proposed form included both government recording charges and 
transfer taxes, in response to comments, government recording charges 
are now listed in Block 7 of the revised form, along with the 
explanation that ``these charges are state and local fees to record 
your loan and title documents.'' Block 8 now lists transfer taxes with 
the explanation that ``these charges are state and local fees on 
mortgages and home sales.'' This change was made in response to 
comments so that these two different types of government fees could be 
treated differently with respect to tolerances, as explained below.
    Block 7 of the proposed form, ``Reserves or escrow,'' is now Block 
9 of the revised form and is now listed as ``initial deposit for your 
escrow account.'' The sentence below the title now explains that the 
charge is held in an escrow account to pay future recurring charges on 
the property and includes check boxes to indicate whether the escrow 
includes all property taxes, all insurance or other payments. The 
``other'' category may include non-tax and non-insurance escrowed 
items, and/or specify which taxes or insurance payments are included in 
the escrow if the escrow does not include all such payments.
    Block 8 of the proposed form, ``Daily interest charges,'' is now 
Block 10 of the revised form. Block 9 of the proposed form, 
``Homeowner's insurance'' is now Block 11 of the revised form.
    The revised GFE requires the charges in Blocks 3 through 11 to be 
subtotaled at the bottom of page 2. The sum of the adjusted origination 
charges and the charges for all other settlement services are required 
to be listed on the bottom of page 2. This figure will also be listed 
on the bottom of page 1, in the block ``Total Estimated Settlement 
Charges.''
    In light of comments received on various aspects of the proposed 
form, page 3 of the revised form has been redesigned to include the 
most important information from pages 3 and 4 of the proposed form. At 
the top of the redesigned page 3, the section ``Understanding which 
charges can change at settlement'' includes information to assist the 
borrower in comparing charges on the GFE with the charges listed on the 
HUD-1 settlement statement. Next, the tradeoff table provides 
information on different loans for which the borrower is qualified that 
would increase or decrease settlement

[[Page 68210]]

charges, with a corresponding change in the interest rate of the loan. 
Completing this tradeoff table is now optional. This table is intended 
to be read in conjunction with the section on ``adjusted origination 
charges'' on page 2 of the form. The tradeoff table on the final form 
has been modified to require ``your initial loan amount'' in the first 
category, as opposed to ``your initial loan balance'' on the proposed 
form, to be consistent with the change in terminology on the first page 
of the form.
    Page 3 of the revised form also includes the shopping chart 
included on page 4 of the proposed form, to assist borrowers in 
comparing GFEs from different loan originators. Finally, the lender 
disclosure that was included on the proposed form has been retained on 
the revised form, as discussed below.

B. Changes to Facilitate Shopping

 1. New Definitions for ``GFE Application'' and ``Mortgage 
Application''
    Proposed Rule. The March 2008 proposed rule provided separate 
definitions for a ``GFE application'' and a ``mortgage application'' in 
an effort to promote shopping. Under the proposed rule, a loan 
originator would have provided a borrower a GFE once the borrower 
provided the originator six pieces of information that included: 
Borrower's name, Social Security Number, property address, gross 
monthly income, borrower's information on the house price or best 
estimate of the value of the property, and the amount of the mortgage 
loan sought. The rule provided that the GFE application would have to 
be in written form and, if provided orally, would have to be reduced to 
a written or electronic record. Under the March 2008 proposed rule, a 
separate GFE would have to be provided for each loan where a 
transaction involved more than one mortgage loan.
    The proposed rule would have required that once a borrower chose to 
proceed with a particular loan originator, the loan originator could 
require the borrower to provide additional information through a 
``mortgage application'' in order to complete final underwriting. This 
additional information could be used to verify the GFE, and could 
include income and employment verification, property valuation, an 
updated credit analysis, and the borrower's assets and liabilities.
    The March 2008 proposed rule provided that a borrower could be 
rejected at the GFE application stage if the loan originator determined 
that the borrower was not creditworthy. The borrower could not be 
rejected at the mortgage application stage unless the originator 
determined there was a change in the borrower's eligibility based on 
final underwriting, as compared to information developed for such 
application prior to the time the borrower chose the particular 
originator. Under the proposed rule, the originator would have been 
required to document the basis for such a determination and maintain 
the records for no less than 3 years after settlement.
    The March 2008 proposed rule also provided that where a borrower 
was rejected for a loan for which a GFE had been issued, but the 
borrower qualified for a different loan program, the originator would 
have to provide a revised GFE. If a borrower was rejected for a loan 
and no other loan product could be offered, the borrower would have to 
be notified within one business day and the applicable notice 
requirements satisfied.
    Under the March 2008 proposed rule, for loans covered by RESPA, the 
TILA disclosures would be provided within 3 days of a written GFE 
application, unless the creditor, i.e. the loan originator, determined 
that the application could not be approved on the terms requested. The 
proposed rule indicated that based on consultations with the Federal 
Reserve Board, when a GFE application is submitted, an initial TILA 
disclosure would also have to be provided, so long as the application 
was in writing, or, in the case of an oral application, committed to 
written or electronic form. HUD noted that whether a GFE application 
under a particular set of facts triggered the Home Mortgage Disclosure 
Act (HMDA) or the Equal Credit Opportunity Act (ECOA) requirements 
would be determined under Regulation B and Regulation C, as interpreted 
in the Federal Reserve Board's official staff commentary.
Comments
Consumer Representatives
    Consumer representatives supported early delivery of the GFE, 
which, under the proposed rule, would be issued when a lender receives 
the proposed ``GFE Application.'' However, they emphasized that 
enforcement and private rights of action are necessary to ensure that a 
meaningful GFE will be provided to consumers early in the mortgage 
application process.
    Consumer representatives also raised the issue of whether HUD's 
definition of ``GFE Application'' triggers other regulatory 
requirements. They recognized the Federal Reserve Board's rulemaking 
authority under ECOA and the Fair Credit Reporting Act (FCRA) and 
indicated that requirements under these statutes and their implementing 
regulations would be triggered by the newly defined GFE application. 
They noted that current definitions in both statutes and their 
implementing regulations cover the GFE application.
    According to their comments, the application of ECOA and FCRA to 
the GFE application is important because such application ensures 
binding and accurate disclosures. These commenters recommended that HUD 
coordinate with the Federal Reserve Board to ensure that the GFE 
application remains covered by ECOA and FCRA.
Industry Representatives
    Industry representatives expressed significant concerns about the 
``GFE Application'' and ``Mortgage Application'' approach under the 
March 2008 RESPA proposal. Specifically, they expressed concerns about 
the limited information originators would be permitted to collect in 
order to conduct preliminary underwriting before issuing a GFE. One 
commenter stated that this limitation precludes an originator from 
considering, at the GFE application stage, important information that a 
lender currently collects early in the transaction in order to develop 
a GFE. Some of those additional items include loan product type sought, 
purpose of loan, and information to compute the loan-to-value ratio. 
The commenters claimed that limiting consideration of this type of 
information would make it difficult for originators to provide a 
meaningful GFE, because they would be unable to provide any reliable 
estimate of cost or determine a borrower's ability to repay the loan. 
They also stated that the inability to consider important underwriting 
information until the mortgage application stage would result in the 
issuance of more than one GFE. The net result, they concluded, would 
lead to borrower confusion and increased costs to the borrower.
    Industry commenters also expressed further operational concerns 
related to the limitations on underwriting information at the GFE 
stage. They stated that the limitation on information that loan 
originators can take into consideration, in developing a GFE, would 
force lenders to develop systems that could underwrite based on very 
limited information. They further stated that the originator would not 
have sufficient information to determine the type of property the 
consumer is considering--such as whether the property is commercial, 
industrial,

[[Page 68211]]

vacation, or residential--or the type of loan the consumer is 
considering, such as a purchase money loan, refinance, or home equity 
loan. They stated it is important for the lender to have this 
information because the lender may not engage in the kind of lending a 
consumer seeks.
    In addition, industry commenters expressed confusion over whether a 
credit report was one of the six pieces of information they could 
collect as part of the GFE application, and requested that HUD provide 
clarification on this subject.
    Industry representatives also requested that HUD permit borrowers 
to expedite the application process and proceed to the mortgage 
application stage, when the borrower so desires due to timing or other 
concerns.
    Industry representatives stated that the new application 
definitions in the March 2008 proposed rule would present uncertainty 
in complying with other mortgage-related statutes and regulations. They 
commented that compliance with other statutes and regulations is 
triggered by a mortgage ``application.'' Because HUD's proposal 
included both a ``GFE Application'' and a ``Mortgage Application,'' 
they commented that it is not clear which one is the ``application'' 
for purposes of compliance with other regulations. In particular, 
lenders expressed concern with the possibility that the ``GFE 
Application'' would trigger compliance obligations under FCRA, ECOA, 
HMDA, and the TILA requirements. They requested that ambiguities 
surrounding compliance with these statutes and other laws be addressed 
to provide clarity and mitigate litigation exposure. For example, one 
lender noted that to calculate the spread for high-cost loans under 
Regulation Z and many state predatory lending laws, the index used is 
based on the month in which the ``application'' for credit is received 
by the creditor. This lender stated that it was not clear from the 
proposed rule whether the GFE application is an application for 
purposes of Regulation Z.
    Industry commenters expressed confusion about preamble statements 
regarding whether HMDA or ECOA is triggered by the GFE Application. 
They indicated that the preamble stated that whether HMDA or ECOA is 
triggered by the GFE Application should be determined under Regulations 
C and B, as interpreted by the Board. They noted, however, that the 
preamble stated that based on consultations with the Federal Reserve 
Board, TILA disclosures would be provided within 3 days of a written 
GFE application unless the creditor determines that the application 
cannot be approved on the terms requested. The commenters further noted 
that the Regulatory Impact Analysis states ``[t]he proposed rule 
clarifies that only the mortgage application would be subject to 
Regulations B (ECOA) and C (HMDA), which is the current situation 
today.'' These commenters requested clarification of this matter.
    Industry representatives questioned HUD's legal authority to: limit 
information originators can request to underwrite a loan; require that 
originators accept an abbreviated application from which to complete a 
GFE; require a new GFE when a counteroffer is made; and require a 
consumer to be notified within one business day of a lender's decision 
to reject an application, among other concerns.
    Additionally, one lender commented that under HUD's March 2008 
proposed rule, lenders would be required to retain the GFE application 
for 3 years, which is different from the 25-month retention requirement 
by TILA or ECOA. The lender commented that this difference presents 
additional expense without a substantive benefit to the consumer.
Other Commenters
    The FTC staff recommended that HUD reevaluate the proposed ``GFE 
application,'' as this terminology is new and could generate consumer 
confusion in the already complex mortgage process. FTC staff suggested 
that HUD characterize it as the ``GFE application'' concept so that 
consumers do not confuse it with the mortgage application. They also 
recommended that HUD educate consumers about these two components of 
the mortgage lending process. Further, FTC indicated that the industry 
would also benefit from guidance on how the GFE application relates to 
other mortgage lending laws that include an ``application'' concept.
    CSBS, AARMR, and NACCA also expressed concern over the creation of 
a ``GFE application'' and a ``mortgage application'' because, they 
asserted, these application concepts will cause consumer confusion. 
They recommended that HUD coordinate with other federal regulatory 
agencies to ensure consistency and clarity to regulatory requirements 
from loan application to loan closing.
HUD Determination
    To address the concerns raised by the commenters about the 
bifurcated application approach set forth in the proposed rule, HUD has 
adopted a single application process for the final rule. Under this 
approach, at the time of application, the loan originator will decide 
what application information it needs to collect from a borrower, and 
which of that collected application information it will use, in order 
to issue a meaningful GFE. However, before providing the GFE, the loan 
originator will be assumed to have collected at least the following six 
items of information: the borrower's name, Social Security Number, and 
gross monthly income; the property address; an estimate of the value of 
the property; and the amount of the mortgage loan sought. The 
borrower's Social Security Number would be collected for purposes of 
obtaining a credit report. The final rule now defines ``application'' 
to include at least these six items of information. Therefore, under 
this single application process, a loan originator may ask for, or a 
borrower may choose to submit, more information than the loan 
originator intends to use to process the GFE, for example the 
information on a standard 1003 mortgage loan application form, but 
beyond the six items of information, the loan originator will determine 
what it needs to issue a GFE. HUD strongly urges loan originators to 
develop consistent policies or procedures concerning what information 
it will require to minimize delays in issuing GFEs.
    In order to prevent overburdensome documentation demands on 
mortgage applicants, and to facilitate shopping by borrowers, the final 
rule specifically prohibits the loan originator from requiring an 
applicant, as a condition for providing a GFE, to submit supplemental 
documentation to verify the information provided by the applicant on 
the application. Loan originators, however, can require applicants to 
provide such verification information after the GFE has been provided, 
in order to complete final underwriting. In addition, the rule does not 
bar a loan originator from using its own sources before issuing a GFE 
to independently verify the information provided by the applicant.
    Once the applicant submits to the loan originator all the mortgage 
application information deemed necessary by the loan originator to 
process the GFE, the originator will be required to deliver or mail a 
GFE to the applicant within 3 business days. HUD is now also limiting 
the fee that may be charged for providing the GFE, consistent with the 
Federal Reserve Board's recently finalized rule limiting the fees that 
consumers can be charged for the delivery of TILA disclosures (see

[[Page 68212]]

revisions of 12 CFR 226.119(a), 73 FR 44522, July 30, 2008).
    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. As noted, at 
that time, verification information or any other information could be 
required from the applicant, such as bank statements and W-2 forms, to 
confirm representations made by the applicant in the application.
    None of the information collected by the originator prior to 
issuing the GFE may later become the basis for a ``changed 
circumstance'' upon which a loan originator may offer a revised GFE, 
unless the loan originator can demonstrate that there was a change in 
the particular information or that it was inaccurate, or that the loan 
originator did not rely on that particular information in issuing the 
GFE. A loan originator would have the burden of demonstrating 
nonreliance on the collected information, but may do so by various 
means, including through, for example, a documented record in the 
underwriting file or an established policy of relying on a more limited 
set of information in providing GFEs. If a loan originator issues a 
revised GFE based on information previously collected in issuing the 
original GFE and ``changed circumstances,'' it must document the 
reasons for issuing the revised GFE, including, for example, its 
nonreliance on that information or the inaccuracy of the information, 
and retain that documentation for at least 3 years. Additional guidance 
on what constitutes ``changed circumstances'' will be provided by HUD 
during the implementation period.
    Furthermore, the loan originator is presumed to have relied on the 
borrower's name, the borrower's monthly income, the property address, 
an estimate of the value of the property, the mortgage loan amount 
sought, and any information contained in any credit report obtained by 
the loan originator before providing the GFE. The loan originator 
cannot base a revision of the GFE on this information, unless it 
changes or is later found to be inaccurate. HUD determined that this 
approach provides the flexibility originators need to properly 
underwrite, while limiting bait-and-switch methods whereby the 
originator uses the GFE to draw in a borrower and, after a significant 
application fee is paid or burdensome documentation demands are made, 
claims that a material change has resulted in a more expensive loan 
offering.
    If a loan originator receives information indicating that changed 
circumstances necessitate the issuance of a new GFE, such new GFE must 
be provided to the borrower within 3 business days of receipt of such 
information. The 3-day requirement is in response to comments on the 
proposed rule that stated that providing a new GFE within one day is 
not workable.
    The approach set forth in this rule furthers HUD's goal to promote 
consumer shopping among mortgage originators, because it does not 
overly burden a consumer at an early stage. Rather, a consumer provides 
information that is easily communicated and pays a nominal fee in order 
to get a GFE.
    As noted, this public policy is further supported by the Federal 
Reserve Board through its recently issued final rule limiting fees that 
can be charged for the delivery of the TILA disclosure. Under this 
rule, borrowers must receive the TILA disclosure before paying or 
incurring any fee imposed by a creditor or other person in connection 
with the consumer's application for a closed-end mortgage, except that 
creditors may charge a bona fide and reasonable fee for obtaining the 
consumer's credit history. Whether an application under a particular 
set of facts triggers ECOA or HMDA requirements must be determined 
under Regulation B or Regulation C, as interpreted by the Federal 
Reserve Board's Official Staff Commentary.
2. Up-Front Fees That Impede Shopping
    Proposed Rule. The March 2008 proposed rule provided that a loan 
originator, at its option, could collect a fee limited to the cost of 
providing the GFE, including the cost of an initial credit report, as a 
condition of providing the GFE to a prospective borrower. The loan 
originator was not permitted to collect, as a condition of providing a 
GFE, any fee for an appraisal, inspection, or other similar service 
needed for final underwriting.
Comments
Consumer Representatives
    Consumer representatives expressed concerns about the opportunity 
for consumers to be charged a fee for a GFE and a credit report. They 
are concerned such costs would discourage borrowers from shopping for a 
mortgage. They stated that lenders would charge a fee for the GFE to 
offset lenders' costs for issuing the GFE, because the cost of 
preparation of the GFE cannot otherwise be passed on to consumers. 
Consumer advocates pointed out tha