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Plan to Clarify Oro Valley Mortgage Disclosures Sparks Ire A single sheet of paper has the real estate industry in an uproar.
Every time a potential home buyer applies for a mortgage, he or she receives a document known as the Good Faith Estimate, which spells out the thousands of dollars in fees the buyer is expected to pay when the deal closes.
The problem is the document is confusing, lenders use different versions, and there is plenty of room for abuse, if not outright fraud.
"The unnecessary complexity of mortgages has actually greatly contributed to our housing crisis," says Brian Montgomery, assistant secretary for the Department of Housing and Urban Development. "We must do something to make mortgages more understandable and the process much more transparent."
HUD has proposed a comprehensive overhaul of the process of applying for a mortgage. And the agency predicts that simplifying the Good Faith Estimate to help borrowers better understand the terms of their loan could save home buyers $670 on every mortgage loan on average, or $1.2 billion a year.
But any changes to the stack of paperwork that consumers must sign before buying a house will have a big impact on thousands of real estate agents, mortgage brokers, banks and title companies, and they all want a say in how the documents look.
The deadline for comments was Thursday, and the real estate industry flooded HUD''s in-box with cries that the changes would be complicated and costly, and don''t necessarily make the process easier for consumers to understand.
"The whole idea is to simplify and save money, and it seems to be going in the opposite direction," said Jonathan Kempner, chief executive of the Mortgage Bankers Association.
HUD''s new four-page Good Faith Estimate includes a summary of loan terms, interest rate and monthly payment. More importantly, it explains whether the interest rate and principal balance can increase, by how much, and if there is a penalty if the borrower pays off the loan early.
Lenders would be required to provide this estimate before borrowers file a loan application, thereby allowing borrowers to compare rates and fees more easily.
In theory, if borrowers had a better understanding of loan terms, they might have avoided some of the riskier loan products that became popular in recent years - such as subprime loans, or so-called option ARMs that allow borrowers to pay only the interest on the loan or even less, so the principal increases.
Minorities have been most abused, research shows. A study of 7,500 mortgages released in May by the Urban Institute and HUD found that black borrowers paid $415 more in loan fees on average than white borrowers. For Hispanics, the difference was $315.
Another criticism is that HUD''s new Good Faith Estimate isn''t easily compared with the documents that borrowers actually receive at the closing table.
Plus, mortgage brokers and bankers are battling over what kind of fees should be disclosed to consumers, and in what fashion. Brokers say the HUD proposal treats them unfairly because a type of incentive payment given to mortgage brokers - known as yield-spread-premium - would be disclosed, while a similar fee for bankers would not be disclosed.
"This thing is getting stalled because of people''s self-interest," said George Hanzimanolis, president of the National Association of Mortgage Brokers. "We''re asking for something that would make it beneficial to consumers."
Consumer groups say some fees have been so widely abused among subprime loans, that they should be banned outright.
"We really don''t think that disclosure alone (can) save people from predatory and abusive practices," said Julia Gordon, policy counsel at the Center for Responsible Lending - a Durham, N.C-based consumer group.
While the changes to lending laws don''t need approval from Congress, it remains to be seen whether HUD will push forward with the big changes it currently wants or scale back.
David Zugheri, co-founder of lender First Houston Mortgage Ltd., said the fragmented nature of the mortgage industry has made it difficult for agreement to be reached.
Everybody''s fighting for their own agenda," he said. "You have this gridlock where nothing gets done."
Send me your comments to iandwight@orovalleyrealestate.com |
