Maryland Mortgage Rates, HUD-1 and Good Faith Estimate Changes for 2010

Happy New Year and best wishes for 2010!

This post is the first of a series of entries that will report on important changes impacting the Maryland residential real estate and home mortgage markets. 

Home mortgage interest rates leading up to the 2009 Holidays were especially volatile. The 10 year treasury yield index (ticker TNX) moved from its recent lows in December of 32.5 up to 38.15 as of Friday, January 8. This, along with other key economic factors have caused 30 year fixed rates to climb from 4.625% to 5.25% in just a few weeks.

Yes, rates are still very attractive but many buyers seem to be emotionally attached to sub 5% rates and are back in a "wait and see" mode. Keep in mind that the Federal Reserve said it will discontinue its practice of purchasing mortgage backed securities after 4th quarter 2009. It remains to be seen if the investment community will have an appetite for these very low yielding long term bonds. If they don't, expect rates to climb rapidly.

One of the major changes to the real estate lending industry for 2010 will be implementation of the newly modified Good Faith Estimate (GFE) and HUD-1 Settlement Statement forms.  There are a variety of new changes which if not properly adhered to could delay or ultimately derail real estate settlements.

For example, the Truth In Lending (TIL) disclosure Annual Percentage Rate (APR) must be within .125% (1/8 of a percent) of the final closing amounts provided in the TIL.  If the amounts are not within the allowed .125% (up or down) tolerances it is required that there be a 3 day review period for the borrower, which potentially can delay a settlement. In this Real Estate Settlements Procedure Act (RESPA) change, the borrower is allowed to waive this review period if said borrower writes a letter explaining financial hardship. Investors are still NOT allowing for this 3 day period to be waived regardless of the circumstance. There are a number of sections of the new forms that have a ZERO tolerance. If the HUD-1 is off by even a penny in these sections the settlement cannot occur unless the violating party agrees to "cure" this with the borrower. The definition of "cure" is for the lender to pay the borrower the difference. It is doubtful the fly by night and internet mortgage companies will agree to pay $3k or even more if they misdisclose transfer taxes to the buyer. Other sections of the HUD-1 have a 10% tolerance. Successful settlements will only happen if the real estate agent, mortgage company and title companies work well together from the beginning.

These changes cannot be ignored and real estate professionals cannot just hope to get it right.  Some lenders don't even have the new compliance software yet, which is why it is important for homebuyers and borrowers to make sure they work with reputable real estate professionals and lenders who are up-to-date on the latest regulatory changes.

Some information in this market update was provided by Brent Ellwood, Regional Manager of PCR Mortgage Services, who can be contacted at (410) 991-9595.