President Lyndon Johnson’s “Great Society” programs were a campaign to continue the domestic policy work of his predecessor, John F. Kennedy, who had been ready to initiate a number of reforms before his assassination in 1963. Johnson’s goals were to eliminate economic and racial disparities in society, leading him to pass such legislation as the Civil Rights Act in 1964. In 1965, Johnson created the Cabinet office of the Department of Housing and Urban Development, or HUD, to answer the challenge of poverty and homelessness in American cities.

HUD’s stated mission is “to create strong, sustainable, inclusive communities and quality affordable homes for all…to strengthen the housing market to bolster the economy and protect consumers; meet the need for quality affordable rental homes; utilize housing as a platform for improving quality of life; build inclusive and sustainable communities free from discrimination.” HUD administers or has administered a number of programs in urban markets, including financial incentives for home buyers in economically depressed communities, grants for renovation, and the provision of service workers for the elderly in order to allow them to remain in their own homes rather than be moved to a facility. They provide counseling services for new homebuyers and also function with enforcement authority regarding the Fair Housing Act, hearing and prosecuting complaints regarding housing discrimination. As a Cabinet-level department, HUD also oversees a number of other departments and corporations, including the Federal Housing Administration (FHA), which insures mortgages, and the Government National Mortgage Association (Ginnie Mae), which guarantees certain loans and makes mortgages more affordable to lower-income home buyers.

HUD operates its own department of Policy Development and Research to gather and analyze the statistical data from its own programs. They are then able to revise existing programs, phase out those that are clearly ineffective, or consider options for new ones. All of the information is made available for public examination via HUD USER, a web-based resource. HUD USER also publishes four periodicals: ResearchWorks, Breakthroughs, Cityscape, and U.S. Housing Market Conditions. ResearchWorks is devoted to case studies regarding housing; Breakthroughs looks at new strategies and resources, Cityscape spotlights innovative ideas or policies that will improve urban housing programs, and U.S. Housing Market Conditions gives regional and historical synopses of specific housing markets throughout the nation.

Today, HUD has taken a central role in resolving the economic crisis, much of which was caused by housing and lending practices. The Obama administration has devoted several million dollars to HUD in order to implement foreclosure-prevention programs and offer grants for housing counseling and development. The state of the housing market has been significantly destabilized by the financial downturn, and the high rate of unemployment has created a glut of loan defaults. HUD currently works to reverse the trend of the housing market and provide avenues for all citizens to own their own homes, even in the midst of such economic turmoil.

New for 2010!

The U.S. Department of Housing and Urban Development (HUD) is rolling out a series of new changes surrounding RESPA, the Good Faith Estimate, and the HUD-1 settlement statement all borrowers receive at closing. Below is an outline of some of these changes.

What is RESPA?
The Real Estate Settlement Procedures Act, also known as RESPA, was passed by Congress in 1974 to give borrowers a clear estimate of fees that would be incurred during the mortgage process. RESPA is overseen by HUD.

Why is HUD changing RESPA?
The purpose is to further simplify forms for borrowers so they know what costs they can anticipate when they’re purchasing or refinancing. With a national need for more transparency in the mortgage process, these changes aim to eliminate surprises and stress at the closing table.

Will the mortgage application change?
The application process will stay the same, however, the definition of the actual “application” will change. Previously, the “application” referred to an actual form, as well as the initial information-gathering process. HUD is now defining the application as the time at which the mortgage originator obtains 6 key pieces of information from a potential borrower:

1. Borrower’s name
2. Borrower’s SSN
3. Borrower’s gross monthly income
4. Subject property address
5. Estimated subject property value
6. Amount of mortgage loan sought

This is important, because the mortgage originator will be required to disclose a Good Faith Estimate within 3 business days of receiving this information – but the Good Faith Estimate itself will change.

What is a Good Faith Estimate, and why is it changing?
The form is changing in appearance, but more importantly, it’s changing in use. The Good Faith Estimate, which is a form outlining potential charges that a borrower will see at closing, will be less of an “estimate” and more of a “binding forecast” – effectively requiring the lender to cover any overages in charges incurred between application and closing.

Will lenders cover fee increases no matter what?
No. Because the home buying process is unique to every single borrower, HUD has taken certain potential fee-changing events into consideration and defined these as “changed circumstances.”

What are Changed Circumstances?
HUD-approved events that cause changes in fees on the Good Faith Estimate that naturally occur and are beyond a lender’s control. HUD defines these occurrences as Acts of God, disaster, or other emergencies.

Does HUD allow for any other fee-changing events?
Yes. HUD won’t require lenders to cover increases in fees incurred if initial information is found to be inaccurate or if circumstantial events (such as a last-minute out of town business trip requiring a Power of Attorney and new documents) occur. Numerous factors can lead to HUD-approved changed circumstances.

What about Origination Charges?
In the past, the origination charge wasn’t common in the Chicago area on all conventional loans, but now fees previously listed on the Good Faith Estimate (such as the Appraisal Fee, Underwriting Fee, etc.) will now be listed as the lender’s Origination Charge. Once this fee is listed on the Good Faith Estimate, HUD requires the fee to remain the same. Any overages must be covered by the lender.

What about Transfer Tax?
Once the City of Chicago’s transfer tax has been disclosed on the Good Faith Estimate, this charge cannot change under the new HUD guidelines. If the transfer tax on a particular loan changes during the mortgage process, the lender will be responsible for any overages.

Will this go into effect right away?
These new guidelines go into effect beginning January 1, 2010. New Good Faith Estimate and HUD Settlement Statements will be used at the closing table. If there are any overages not covered through HUD-approved changed circumstances, the lender can “cure” these fees within a 30-day cure period if they’re not able to rectify overages at the closing.

For more information, please listen to this recent podcast.

The Real Estate Settlement Procedures Act, also known as RESPA, was passed by Congress in 1974. HUD is rolling out a series of new changes surrounding RESPA, the Good Faith Estimate, and the HUD-1 settlement statement all borrowers receive at closing. Attorney and Mortgage Consultant Dan Fogel discusses these changes and how they’ll affect the mortgage process from application to closing.

For more information, please visit this PDF article on the HUD website.

Click the play button to listen!