Dean’s note: I would like to thank Bill Risser, the branch manager of Chicago Title – Gilbert office for contributing the following explanation of the new HUD-1. Bill is also a fellow ASU Sun Devils fan whom I have run into at basketball games. When Bill is not teaching social media or attending ASU sporting events you can find Bill on Twitter at @billrisser.

There has been a lot of talk over the last few months about the new Good Faith Estimate (GFE) for 2010. Lenders are under the gun to comply with the new RESPA guidelines and remain compliant. There have been many posts and articles discussing these changes. In addition to the GFE changes, the HUD-1 Settlement Statement also underwent renovation. Below I’ll highlight the major changes in the 2010 HUD-1 Settlement Statement.

The overall look of the first two pages changed very little. The top of page 1 contains all the relevant names, addresses, file numbers and dates as before. The balance of page 1 summarizes the buyer’s charges and credits as well as the seller’s charges and credits. Prorations are also accounted for on page 1.

Page 2 is where we begin to see the effect of the new RESPA requirements. Lines 801-1001 now contain a section “outside the column” designating where on the new GFE the fees being charged on the HUD-1 can be found. This is part of the government’s effort to make the transaction more transparent. A borrower can now see if the GFE accurately represented the fees being charged on the HUD-1 Settlement Statement. A significant change in the lenders section of the form is line 803. This now contains a lump sum total of all origination fees (origination, doc prep, admin fee, etc) less any credit for the specific interest rate chosen by the borrower. In the past, every fee charged by the lender or mortgage broker has been detailed in the 800 section. This is no longer the case with the new HUD-1. The same is true in the Reserves section (Lines 1001-1009) and the Title Charges section (Lines 1101-1113). These sections also “roll up” the charges to the borrower into one fee. For people familiar with the old version of the HUD-1, these are dramatic changes. One reason the government did this is apparent on page 3.

Page 3 is a new addition to the HUD-1. This page indicates to the borrower whether the lender complied with the new RESPA guidelines. The first portion of page 3 is called Comparison of Good Faith Estimate (GFE) and HUD-1 Charges. It refers to four lines of page 2. They are 801, 802, 803, and 1203. For Arizona, line 1203 is not important as we do not have a transfer tax. The total of this section can not be higher than the GFE by any amount. This is the zero tolerance portion of page 3.

The next section is called Charges Than in Total Cannot Increase More than 10%. This includes title and escrow fees, appraisal fees, credit report fees and tax service fees. As the section name implies, the sum total of all these fees cannot be more than 10% higher than the GFE. The new HUD-1 conveniently displays the GFE figures right along side the HUD-1 figures, including the totals and the percentage difference. One caveat for this section is that if the borrower selects any of the providers in this section, there is no 10% tolerance requirement on that fee.

The last of the comparison sections is called Charges That Can Change. These are charges to the borrower that are out of the control of the lender or title company that can change without affecting compliance of the loan.

A question I’ve been asked many times is what happens if the tolerances are exceeded on the new HUD-1? Will it delay closing and recordation? We have been instructed that as long as the lender funds the loan, we will proceed with recording and close the escrow, even if the HUD-1 is non-compliant.. The lender will then have 30 days to bring the loan into compliance, and refund any overages to the borrower. This will more than likely involve the title company as a revised HUD-1 will need to be issued with any refund.

Finally, the rest of page 3 simply restates language found in the GFE. This lays out for the borrower one final time the particulars of the loan program they are being provided.

Below is a sample of the 2010 HUD-1. There is more information on the new GFE and HUD-1 at the HUD website.

2010 Official HUD-1 Settlement Form