HUD Announces Mortgage Reforms

For those of you in the real estate industry, whether as a mortgage lender, broker, attorney or consumer, this news is big. For the first time in more than 30 years, HUD (the U.S. Department of Housing and Urban Development) has announced mortgage reforms designed to help consumers better understand the mortgage process, allow them to compare a variety of different products, and protect against increases in closing costs once disclosed. HUD has revised the long-used “Good Faith Estimate of Settlement Charges” (GFE) and the form settlement statement (HUD-1) used at closings to provide clearer and more easily understandable information to consumers. The new forms and regulations go into effect on January 1, 2010.

The new rules include the following:
1. The GFE will be easier to read and provide simpler disclosures regarding loan term, interest rate information and prepayment penalties.
2. The GFE will set out closing costs in detail, display all prominently and group them into major categories to prevent “junk fees” and allow consumers more easily to compare different loan offers.
3. Changes to closing costs between the GFE and settlement statement are limited as set out on the GFE. The final settlement statement form has been revised so that each line on the final statement will make reference to the relevant line from the GFE.
4. Payments from lenders to mortgage brokers must be disclosed in clearer detail.
5. Lenders must provide the GFE to borrowers three days after receipt of all necessary information.

For more information, or to see the revised forms, visit
http://www.hud.gov/news/release.cfm?content=pr08-175.cfm.

I think these are welcome changes. Admittedly this puts a greater burden on those in the industry to get the information right the first time, but the new forms are far easier to understand and will remove much of the mystery in the mortgage loan process. I am all for anything that helps the clients to be informed participants in their own transactions.