Title, Escrow and HUD’s New Good Faith Estimate

I have been wondering how HUD’s new GFE, which goes into effect on January 1, 2010 will impact title and escrow companies.   It appears as though HUD would like to see the borrower have the possibility of more control in selecting those services instead of the current system where typically in our area of Washington, either the real estate agents thumb wrestle over their favorite title or escrow company or the lender may select.  Rarely does the consumer have a voice in who will be providing the title insurance on their home or who will be the “neutral third party” facilitating the closing one of their largest transactions in their lifetimes.

From a local escrow and title provider The Talon Group’s blog:

The current local practice of the seller choosing title insurance appears to be at odds with HUD reform that attempts to put the buyer back in the drivers seat. HUD makes no bones about it’s intentions for empowering buyers to shop for the best deal possible when choosing title and settlement services. Also going into effect January 2010, lenders  will face strict guidelines and tight tolerances when listing these services on the new Good Faith Estimate.

The “tolerances” define what the variance in costs for title and escrow/settlement services may be between the (soon to be) binding good faith estimate and the settlement statement at closing.   The tolerances for title and escrow fees fall into a couple “buckets”:

10% tolerance:the accumulative fees for title and escrow services cannot exceed higher than 10% of what was disclosed on the good faith estimate.

• the lender provides the consumer with a written list of their preferred service provider and is then subject to the 10% tolerance IF the consumer selects a service provider from said list.
• the lender does not permit the consumer to shop and requires certain service providers to be used.  No list is provided to the consumer.

Not subject to tolerance; there is no limit to what the difference may be at closing verses what was disclosed on the good faith estimate.

• The consumer selects their own title or escrow service provider that is not on the lender’s list. 
• When the seller or real estate agents direct title or escrow services that are not on the lenders list, it is presumed that the buyer selected (or agreed to) these services and therefore, they are not subject to tolerance (no 10% cap on fee increases at closing).

With these tolerances set forth on the new good faith estimate, I wrote an article at Rain City Guide predicting that the big banks will use the new Good Faith Estimate as a reason to mandateto their mortgage loan originators they must only use their “in-house” or affiliated providers and may not recommend outside escrow or title companies for service–regardless of established relationships or a proven track record of excellent service.   I believe this will follow in the footsteps of HVCC where banks are using AMCs (appraisal management companies) that they have ownership interest in–even if the HVCC fiasco is fixed, I think you’ll see banks still insisting that an AMC is used and will use the new GFE to gain title and escrow revenue.  They’ve tasted the gravy.