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Feds Overhaul Mortgage Disclosure Rules

Prospective home buyers would get a simpler way to understand often-confusing mortgage terms under new rules issued Wednesday by the federal government.

The Department of Housing and Urban Development overhauled a 1974 law requiring lenders to give a so-called "good faith estimate" of mortgage costs, including lenders' payments to mortgage brokers.

HUD Secretary Steve Preston said in prepared remarks that "consumers deserve to understand this, and they need to get credit for essentially paying these premiums."

The government, which originally proposed revising these forms more than six years ago and released its latest proposal in March, says the new forms should save consumers around $700 in closing costs. The new forms will be required starting in 2010.

But 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.

The real estate industry had flooded HUD with complaints that the changes would be complicated and costly, and don't necessarily make the process easier for consumers to understand.

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.

"None of us can lose sight of the fact that millions of Americans simply don't understand all the fine print of their mortgages and this, in many respects, is at the heart of today's mortgage crisis," Brian Montgomery, HUD's Assistant Secretary of Housing, Federal Housing Commissioner, said in a prepared statement.
By Alan Zibel

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