Proposed RESPA Rule to Clarify the Settlement Process for Homebuyers - Background and Supporting, Peer-Reviewed Research

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On March 14, 2008, the Department of Housing and Urban Development (HUD) proposed a new rule under the Real Estate Settlement Procedures Act (RESPA) to simplify and improve the process for consumers to obtain home mortgages that would, among other things, standardize the Good Faith Estimate (GFE) to improve disclosure of loan terms and settlement costs. Previously, a proposed RESPA Rule was published July 29, 2002. In response to comments on the 2002 proposed rule, in 2003 and 2004, HUD tested several versions of mortgage disclosure forms, including a GFE form and a Mortgage Package Offer (MPO) form, in several locations throughout the United States (the March 14, 2008 proposed rule does not include the Mortgage Package Offer proposal).

In July and August 2005, HUD held seven roundtable discussions about possible changes to HUD's RESPA regulations with industry, including small business entities, consumers, and other interested parties. HUD reached out for public reaction to the GFE and other disclosure forms it was considering.

As the March 14, 2008 proposed rule was developed, HUD initiated more testing of the GFE form (Round 6) and the changes made to it in response to the comments received at the 2005 roundtable discussions.

These documents describe the testing performed during 2003, 2004, and 2007, and detail the development of the forms tested to improve borrower comprehension of the material presented and eliminate potential bias against mortgage brokers. Independent peer reviews of the testing reports are also available here. Round 5 of consumer testing showed that participants using the GFE form developed were highly successful in identifying the cheapest loans with success rates in the 90-plus percent range whether the GFE offer was from a lender, a mortgage broker, or the two offers cost the same.

These documents describe how the revisions were developed and tested, and detail the outcomes of the testing. Independent peer reviews of rounds 1 through 5 of the testing are available below. Separate peer reviews of Round 6 are pending.

Download the document in parts as follows:

• Rounds 1 and 2 Testing Report (*.pdf, 6.54MB)
  This report covers the first two rounds out of 6 that were conducted. The first round was qualitative of testing of the forms published with the proposed 2002 RESPA rule. The second round was qualitative testing of revised and improved versions of the Round 1 forms.
• Third Round Testing Report (*.pdf, 4.29MB)
  This report covers the third of 6 rounds of testing. In Round 3, the major focus is the qualitative testing of a new format, relative to that used in round 2, for disclosing the Yield Spread Premium (YSP).
• Rounds 4 & 5 Testing Report (Volume I: Test Results) (*.pdf, 2.11MB)
  This report covers the fourth and fifth rounds of testing. Rounds 4 and 5 were primarily quantitative tests of the consumers' ability to use the forms to identify the lowest cost loan, and show that the design of the YSP disclosure required of mortgage brokers was successful in eliminating consumer bias against brokers in identifying the lowest cost loan.
• Rounds 4 & 5 Testing Materials (Volume II: Appendices) (*.pdf, 5.89MB)
  These appendices to the Rounds 4 and 5 report contain the actual forms and scripts used in the rounds 4 and 5 testing.
  

• Round 6 Testing Report (*.pdf, 3.38MB)
  This report covers the sixth round of testing. Round 6 was a series of qualitative tests focused on the addition of new elements of the mortgage terms summary on the GFE, and the proposed closing script addendum to the HUD-1.
• Download the complete Good Faith Estimate Summary Report (*.pdf, 7.89 MB)
  This report summarizes all 6 rounds of testing.

Find more information about HUD's peer review agenda and process