The new RESPA rules significantly change the way lenders must disclose settlement services, in particular closing attorneys’ fees, and title insurance. Generally, under the new rules, loan costs are divided into one of three “buckets”:

(1) those that cannot change from initial Good Faith Estimate (GFE) disclosure

(2) those subject to a 10% tolerance–that is, those which cannot increase by more than 10% from the GFE to the closing, and

(3) those that can change, i.e., increase without limitation.

For closing attorney fees (which HUD now calls “title services”) and title insurance, bucket #1 does not apply, and whether the cost belongs in bucket #2 or #3 will depend on whether the lender recommended the service provider on a written list of preferred providers. If the borrower selects a provider from the list, such as a closing attorney, their charges cannot increase by more than 10% from the GFE to the closing.

Thus, lenders have an incentive to recommend trusted providers whose charges are standard and predictable. If the borrower wants a particular attorney or title insurance provider not on the preferred list, their charges are not subject to the 10% tolerance and can go up (or down) by any amount.

Also remember that lender’s title insurance is universally required by virtually every mortgage lender and paid by the borrower (except for no closing cost loans). Owner’s title insurance is optional, but highly recommended by HUD (and me)! (See HUD’s Shopping For Your Home Loan Booklet and my post, Title Insurance Demystified for some horror stories about what happens when you don’t purchase an owner’s title insurance policy).