Reporting from Washington – The federal government’s efforts to eliminate settlement cost surprises for home mortgage applicants may have opened the door to a new — and potentially costly — set of consumer problems.
Starting Jan. 1, mortgage lenders nationwide were required to begin issuing new “good faith estimates” to applicants covering loan fees and settlement charges.
Under the regulations issued by the Department of Housing and Urban Development, the estimates that lenders provide upfront must be accurate — the same or nearly the same as the fees that are later charged at closing.
The idea is to eliminate some of the most controversial practices in home mortgages — the intentional or inadvertent underestimation of fees. Under the old system, some lenders lowballed their estimates to lure applicants away from competitors.
The net effect was to hit unwary consumers with eleventh-hour surprises at closings — fees that sometimes were thousands of dollars higher than the estimates.
In the past, no federal rule penalized these lowball numbers, leaving shellshocked borrowers to pay the difference. Loan officers and others who provided the low estimates were not held responsible.
As of the new year, this was all supposed to change. The reformed good faith estimate, or GFE, requires lender-related fees to be identical — from application to closing — and allows just a 10% tolerance, or wiggle room, for estimates in other areas such as title insurance and closing fees.
When the charges at settlement exceed the estimates, the lender — not the customer — must eat the difference.
The new GFE also is designed to facilitate comparison-shopping on fees and other loan terms. It contains boxes allowing consumers to compare as many as four lenders’ quotes and estimates, each essentially guaranteed to be accurate at closing.
Consumer groups applauded the new rules. Banking and mortgage industry groups complained that the Jan. 1 start date was too early for them to master the complexities.
So how have the first two weeks of the reforms been going? Not exactly as planned. Many loan officers and lending institutions are sidestepping the new, price-bound GFE by giving shoppers “work sheets” and “loan scenario” forms that come with no legal requirements for accuracy, and were not even contemplated under the reforms.
In effect they are substitutes for the new GFEs but, in the wrong hands, they are open to lowballing and bait-and-switch games.
The work sheets purport to contain much of the information provided by a GFE. Typically they are issued only when shoppers do not provide — or are asked not to provide — key information that constitutes an “application” under HUD’s definition in the rules.
Related articles by Zemanta
- What a Mortgage Will Really Cost (online.wsj.com)
- The new standardized mortgage estimate (blogs.reuters.com)
- Ring Out the Old, Ring in the New Good Faith Estimate (raincityguide.com)
- Uncle Sams New Guide to Mortgage Shopping (blogs.wsj.com)
- Watch Out for Costly Loan Origination Fees on FHA Mortgages (zillow.com)
- 2010 Changes in RESPA (zillow.com)
![Reblog this post [with Zemanta]](http://img.zemanta.com/reblog_e.png?x-id=ece02b95-84f3-4234-87fe-34a1daa67b69)
