On November 12, 2008 the U.S. Department of Housing & Urban Development issued long-anticpated mortgage reforms that will help consumers shop for the lowest cost mortgage and avoid costly and potential harmful loan offers. This reform will require, for the first time ever, that lenders and mortgage brokers provide consumers with a standardized Good Faith Estimate (GFE) that clearly discloses key loan terms and closing costs. It is estimated that this new regulation will save consumers nearly $700 at the closing table.
Very little has changed about the process Americans endure when they buy and refinance their homes since 1974. The new HUD reform will improve disclosure of key loan terms and closing costs consumers pay when they buy or refinance a home.
Fact Sheet on HUD's Final RESPA Rule:
- For the first time ever, HUD will require mortgage lenders and broker to provide borrowers with an easy-to-read standard Good Faith Estimate (GFE)that will clearly answer the key questions consumers have when applying for a loan: What's the term of the loan?; Is the interest rate fixed or can it be changed?; is there a pre-payment penalty should the borrower choose to refinance at a later date?; is there a balloon payment? What are total closing costs?
- Loan originators will be required to provide borrowers their Good Faith Estimate three days after the loan originator's receipt of all necessary information. To facilitate shopping, loan originator's could not require verification of GFE information (tax returns, etc.) until after the applicant makes the decision to proceed.
- HUD will allow lenders and settlement sevice providers to correct ptential violations of RESPA's new disclosure and tolerance requirements. Lenders and settlement providers will now have 30 days from the date of closing to correct errors or violations and repay consumers for overcharges.
- HUD will require payments to mortgage brokers (often called Yield Spread Premiums) to be disclosed in a more meaningful way. These payments are directly dependent on the interest rates consumers agree to. To ensure that HUD's new requirement will not create a consumer bias against brokers, the Department did rigorous consumer testing and found the new Good Faith Estimate helped consumers to select the lowest cost loan nine out of ten times, regardless of whether the loan was originated by a lender or broker.
- To help borrowers compare their Good Faith Estimate with their HUD-1 Settlement Statement, each designated line on the final HUD-1 will now include a reference to the relevant line from the GFE. Borrowers will now be able to easily compare their estimated and actual costs in the same manner many commenter's suggested.
To read more on all the changes and to read HUD Secreatry Steve Preston's comments visit www.hud.gov.
