A HUD-1 Statement is a list broken down item by item of all seller and buyer costs incurred during a consumer credit mortgage transaction. Both creditors and closing agents use it.
HUD-1 Statement Details
The HUD-1 statement is now a defunct statement that lenders used to detail the costs of a mortgage transaction. The statement was most commonly used for reverse mortgages and refinance agreements and was issued by the lender, not the seller. Both the seller and the buyer receive copies.
HUD-1 Statements fell out of use in favor of the Closing Disclosure form. The Closing Disclosure form was introduced in 2015. With HUD-1, there was too much information crammed in one place.
Example of HUD-1 Form
An example of the HUD-1 form in use would be when someone puts up a property for a reverse mortgage. People use reverse mortgages as retirement investments. In this situation, a property owner releases equity in the property to access their home's value.
If John decided to retire at 68 years old, he might want to access his home's equity. In this case, John would go to the bank and take out a reverse mortgage. When John would sit down with his lending agent at, or shortly before, closing, they would provide him with a HUD-1 statement. Here, John would have the ability to see a line-by-line description of all of the fees he incurred during this process. This would theoretically give him a clearer understanding of the financial burden John may face.
HUD-1 Statement vs. Closing Disclosure
In 2015, the United States Department of Urban Housing and Development (HUD) laid to rest the HUD-1 statement in favor of a new form, the Closing Disclosure. This change was the result of the Dodd-Frank Wall Street Reform and Consumer Protection Act. This act put consumer's rights in the spotlight. Previous to this act, regulations were not in the consumer's favor. Now, the forms needed to be more transparent and easier for the borrower to understand.
Before the Dodd-Frank Act, the Consumer Financial Protection Bureau was not involved in creating or managing these forms. Without consumer protection aiding in the process, it left buyers susceptible to error. While the HUD-1 statement lists all the costs incurred by any party involved in the transaction, Closing Disclosures do not. Closing Disclosures are split between the buyer and the seller, who receive their own copies. Allowing each party to receive separate closing statements ensures that the buyer can read all necessary information clearly. When the buyer can understand all of the information presented, it's easier for them to spot errors. This protects the buyer from signing off on charges that may be inaccurate.
As well as protecting the buyer financially, this new act assisted real estate agents. Before the act, real estate agents did not have access to their clients' HUD-1 forms. As a result, agents were often unable to provide accurate guidance to their clients. With a clearer summary of costs, the real estate agent can better guide their clients to what they need and want.