HUD Unveils “new” Mortgage Disclosure Rules. Yay! An additional New Kind!

The United States Department of Housing and Urban Development (“HUD”) today announced new regulations intended to make the mortgage buying encounter more transparent. Whew. And not a moment too soon!

The centerpiece of the new regulation is the requirement that mortgage lenders and brokers offer borrowers with a “Good Faith Estimate” of the anticipated closing charges of the proposed house loan. Here’s a .pdf of the at the moment proposed kind that will be necessary. In its November 12, 2008 press release HUD states that it believes that use of the GFE will save borrowers up to $ 700 of the price of a loan. I am not certain how that works. It’s just far more data and disclosure, and as is shown below, it really is information that is already essential to be disclosed by Reg Z and the Truth in Lending Act.

In a remarkably candid characterization of the property loan process, HUD notes that “because 1974, tiny has changed about the method Americans endure when they buy and refinance their houses. Now, HUD’s final reform will increase disclosure of the key loan terms and closing expenses buyers spend when they purchase or refinance their home.”

Like its brethren, the “HUD-1,” the new Great Faith Estimate will be identified by its acronym, “GFE,” so we need to all commence seeking for that catchy new phrase to start off creeping into the mortgage lexicon sometime in late 2009. The new regulation also modified the HUD-1 for the initial time in decades. Use of the new types isn’t essential till January, 2010.

Soon after a prolonged comment period, HUD apparently rejected a proposal that the broker/lender read a canned script of disclosures and other data to borrowers. I can’t begin to envision what the comments to such a clever idea may well have been….but my thoughts conjures images of harassed borrowers running screaming from the room although an automaton mortgage broker drone reads an endless list of mandatory disclosures.

Will this new rule do anything beneficial? Perhaps. Perhaps it will support people get a better thought of the deal that they’re actually receiving themselves into. The new type needs disclosure of:

* What’s the term of the loan?
* Is the interest rate fixed or can it alter?
* Is there a pre-payment penalty must the borrower decide on to refinance at a later date?
* Is there a balloon payment?
* What are total closing costs?

What I’m not positive I am acquiring is what this adds to the already existing specifications of the Truth In Lending Act Disclosures. Correct, TILA is an FDIC customer protection statute, not a HUD lending regulation. And that is relevant to what? (For an exhaustive and tedious recitation of the specifications of TILA, check out the Workplace of the Comptroller’s TILA Handbook.)

So what does this mean? What’s the upshot to the consumer? Sorry to sound cynical, but it seems to just be the same essential details in a various format. Exact same wine, new bottle.

Distinct versions of the same details that is currently required to be disclosed. I’m not sure what is gained right here.

I can tell you that, as a genuine estate lawyer who has analyzed and litigated fairly a handful of failed loan transactions, the HUD-1 has usually been a helpful tool. But when I ask customers to send it to me? They seldom know what I am speaking about. To most borrowers it really is just one more layer in an endless pile of already mostly meaningless paper. Much more stuff to sign.

What HUD and the FDIC need to do is simplify the loan application and documentation method so that anybody smart adequate to fill out a loan application can also recognize what is happening to him or her following that application is completed and the deal is in escrow. It is inconceivable that anyone sensible adequate to get to the close of escrow should be so uniformly and broadly baffled by a approach which its governmental sponsors will jump and down claiming is intended to be straightforward.