Remember predatory lending? Not long ago the media was full of stories about how unfair and abusive lending practices were cheating people out of their homes.
Now, as the economy wobbles down the path to recovery, the government is finally putting into effect some new mortgage rules to protect consumers.
Starting New Years Day, lenders and mortgage brokers now must give potential borrowers a standard Good Faith Estimate
that clearly discloses key loan terms and closing costs. The goal is to eliminate surprises and help borrowers compare loan offers.
It may come too late for people who have already been hit with surprise closing fees or higher-than-expected payments, but the rules may prevent another wave of predatory loans.
Lenders and brokers have had to give out Good Faith Estimates since 1974, thanks to the Real Estate Settlement Procedures Act. But until now, there was no standard format for the estimates, and the forms could get wildly complicated, with fees divvied up and called different names by different lenders. That made it hard for consumers to understand what they were looking at - let alone to comparison shop.
In addition to establishing a standardized form for estimating costs, the new rules, set out by the Department of Housing and Urban Development (HUD), require lenders and mortgage brokers to issue an estimate within three days of receiving of receiving a loan application.
Closing agents will also have to provide borrowers with a new standardized settlement statement that states their final and estimated costs. The new rules also strictly limit the ability of lenders to bump up or add to the fees listed in their estimate. That's a rule I really wish was in place when I closed my own home mortgage last spring...
The new rule won't do anything, however, to prevent mortgages that have lax underwriting - like those sub-prime loans that required no documentation of borrower's ability to make their payments. The cure for that problem is yet to come.
HUD explains the new mortgage rules and a lot more in a new handbook
available on its website. There's also a Webcast
that explains the new rules for real estate professionals.