HUD Issues Mortgage Reforms to Help Consumers Avoid Costly Offers

NWREporter January 2009

Consumers should save nearly $700 at the closing table, thanks to mortgage reforms issued in November by the U.S. Department of Housing and Urban Development. The long-anticipated changes – the first such revisions in more than three decades – are intended to help consumers shop for the lowest cost mortgage and avoid costly and potentially harmful loan offers.

For the first time in its history, HUD will require lenders and mortgage brokers to provide consumers with a standard "Good Faith Estimate" (GFE) that clearly discloses key loan terms and closing costs.

In announcing HUD's final changes to the regulatory requirements of the Real Estate Settlement Procedures Act (RESPA), HUD Secretary Steve Preston said that changes in the housing market and increases in home foreclosures demand action. He expects the new regulations will bring more clarity and certainty into the market.

Preston explained the new GFE will be given to borrowers at the time an estimate is provided. It will more clearly answer several key questions consumers have when applying for a mortgage:

• Is the interest rate fixed or can it change?
  
• Is there a pre-payment penalty should the borrower choose to refinance at a later date?
  
• Is there a potentially crippling balloon payment?
  
• What are total closing costs?

The new standardized GFE will offer consumers more certainty about the loan they’re agreeing to, while enabling them to shop more effectively for the lowest cost loan.

Last March, HUD proposed reforms to the longstanding regulatory requirements of the Real Estate Settlement Procedures Act (RESPA) by improving disclosure of the loan terms and closing costs consumers pay when they buy or refinance their home.

Last May, HUD extended the rule's comment period to June 12th to allow for more opportunity for comment on the Department's proposed GFE form. HUD received approximately 12,000 comment letters. Upon considering the feedback, the Department made considerable modifications, including shortening the form.

Brian Montgomery, HUD's Assistant Secretary of Housing, Federal Housing Commissioner, said, "I am convinced that we successfully balanced the needs of consumers with those in the business of homeownership. None of us can lose sight of the fact that millions of Americans simply don't understand all the fine print of their mortgages and this, in many respects, is at the heart of today's mortgage crisis."

This new, final RESPA rule is effective 60 days after publication. HUD will require the new standardized GFE and HUD-1 Settlement Statement beginning January 1, 2010.

"It has been a long road but today we can finally announce a better way to buy homes in America," said Preston. "Consumers need and deserve to know what they're getting themselves into before they sign on the dotted line. After carefully considering the concerns of consumers and the different businesses in the housing sector, we have developed an approach that empowers the average family to shop for the most appropriate loan to meet their needs."