Almost anyone who’s bought a house or taken out a mortgage in recent years knows the problems:
Good-faith estimates of fees provided at application too often are off the mark.
The process of obtaining a mortgage lacks transparency, and loan features often are confusing to consumers or never are explained by lenders and brokers.
There is too much pressure to use lending, title and settlement service affiliates of the builder or realty broker. These and other problems are targets of an effort by federal authorities to reform the system with better disclosures and a crackdown on scammers.
Among the changes you can expect if the proposal, outllined March 14, is adopted after HUD’s 60-day public comment period:
*A new, nationally uniform four-page good-faith estimate that is laid out graphically to highlight all the key working features of a loan, including rate, points, origination fees, prepayment penalties, potential payment increases, escrows, title insurance and closing charges by category. The form then prompts applicants to compared the lender’s estimates with those provided by up to three competitors.
The new, easy-to-follow disclosures were tested by focus-group researchers who found that they enabled consumers to pick the “best” loan deal — lowest rate, lowest total fees and most advantageous terms — 90 percent of the time.
*Strict limits — the first imposed — on variations between upfront cost estimates at the application stage and the final charges that appear on the settlement sheet. Certain costs controlled by lenders could not increase from the application to the closing, absent tightly defined “unforeseeable” circumstances such as wars or disasters. Total settlement fees could never be more than 10 percent higher.
*All fees paid to mortgage brokers tied to the interest rate must be disclosed and labeled as a “credit” to the borrower. This is intended to red-flag extra payments that brokers and some loan officers receive for steering applicants into higher note rate deals. At the same time, though, the rule change allows cash-short borrowers to pay for closing costs with a slightly higher mortgage interest rate.
*Incentive packages marketed by builders and others that effectively pressure consumers to use affiliates — but don’t deliver true economic benefits or discounts — could violate the law under the new proposals.
But incentives and discounts that are real — where buying a package of mortgage, title and other services costs much less than if purchased individually — would still be permitted.
The reform proposals were greeted with initial broad statements of approval from major lending groups, but some critics said they will require extensive and costly changes in the mortgage and settlement services industries.
Washington attorney Phillip L. Schulman of K&L Gates, who represents title, mortgage and settlement clients, called HUD’s proposal “complicated, confusing and controversial,” and predicted tough opposition from industry groups.
Brian D. Montgomery, assistant secretary for housing, disagreed, saying “the timing is right. There is a lot of anguish out there” among homeowners saddled with confusing loans.
VA loans: Following my column on the omission of loans backed by the Department of Veterans Affairs from the economic stimulus package, Rep. Steve Buyer (R-Ind.), ranking member of the House Veterans Affairs Committee, introduced a bill that would amend the legislation to raise VA loan limits to the same levels as those for FHA, Fannie Mae and Freddie Mac.
Senate Veterans Affairs Committee Chairman Daniel K. Akaka (D-Hawaii), introduced legislation to do the same, but would extend the time limit on VA increases to Dec. 31, 2011 from Dec. 31, 2008 in the stimulus law.
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Contact Kenneth Harney by e-mail at realestate @tribune.com or send letters to: Kenneth R. Harney, Chicago Tribune, Real Estate, 435 N. Michigan Ave., Chicago IL 60611. Sorry, he cannot make personal replies. Answers will be supplied only through the newspaper.
