HUD released a new RESPA reform proposal which includes a standardized Good Faith Estimate.
Technically this is an old reform proposal as they attempted the introduction of the 3-page GFE in 2002, but where met with heavy resistance. They estimate this could save borrowers an average of $668 at settlement or $8.35 billion per year.
The new GFE would include: the interest rate, monthly payment, loan terms, origination charges, settlement charges, and disclosure of any yield spread premiums. Here is a sample of the new GFE:
HUD believes the new GFE would make it easier for borrowers to shop around. The savings that borrowers will receive will come at a cost of $5.88 billion per year to loan originators and $1.79 billion per year to title companies. Also, Loan originators and settlement service providers will have to pay $570 million to become compliant with the rule changes up front, and expect reoccurring compliance costs of $1.2 billion per year. This includes software, training, and legal advice.
I believe that all consumers have the right to shop for the best possible deal. Some lenders, brokers, and title companies are indeed overpriced. But, the educated consumer already knows how to shop around and we all know that cheaper is not always better. Many loan originators and title companies (such as Advantage Title) compete based on service and not on price. Putting loans in the hands of discount lenders and settlement service providers could make the problem worse. From a title companies perspective, would you rather have a $50 notary present at settlement that has no loan closing experience, or a $150 licensed settlement agent that brings with them knowledge and expertise. Sure, the borrower saved $100, but tell me how that is supposed to help borrowers better understand their loan...
The bottom line is the current mortgage mess was not caused nor will be solved by any piece of paper. It was caused by a general lack of common sense, blindly optimistic expectations of the market, and over ambitious lenders and borrowers.
What do you think of HUD's RESPA reform? Do you think making it easier to shop around will solve anything?