HUD Unveils Proposed Changes to Mortgage Process
The federal department of Housing and Urban Development plans to unveil proposed changes to the American mortgage application process and real estate settlement system. The changes are the end-product of HUD's five-year effort to streamline mortgage disclosures, promote comparison shopping by loan applicants, and stamp out eleventh-hour surprises at closings, where fees come in much higher than initial estimates. The changes are designed to overhaul the current, much-criticized "Good Faith Estimates" (or GFE) disclosures and the "HUD-1" closing procedures.
Among the key changes are:
1. Transformation of the GFE into a consumer education and shopping tool. The GFE will now explain to an applicant how a particular loan works, how high monthly payments could rise, disclose any potential fees such as prepayment penalties, and provide information about escrow items.
2. New, strict limits on how much settlement charges can depart from the Good Faith Estimate stage within three days of the loan application to the HUD-1 closing stage.
3. The Good Faith Estimate and the HUD-1 forms are aligned with each for easy comparison, with similar categories and graphic displays of loan origination charges and settlement cost items on both.
4. All fees paid to mortgage brokers by a lender in connection with the interest rate charged to the consumer must now be disclosed and listed on the Good Faith Estimate as a "credit to the borrower."
5. All settlement agents will be required to "read aloud" a new "closing script" to mortgage borrowers which walks consumers through the various charges on the revised HUD-1, and whether/why they differ from earlier estimates. The script requires the settlement agent to explain the loan terms and mechanics as stated in the mortgage note.
Source: Realty Times