HUD has once again put out, and and is asking for comments on a
“Proposed Rule: To Simplify and Improve the Process of Obtaining Mortgages and Reduce Consumer Settlement Costs.”
The proposed rule primarily deals with the Good Faith estimate. HUD states that the RESPA’s original disclosure requirements are no longer adequate. It estimates that the proposed rules will reduce settlement costs by $6.5 billion to $8.4 billion annually – with an average savings of $518 to $670 per transaction. That seems like a very aggressive and unrealistic estimate to me. Their argument is that effective advanced disclosure of settlement costs will allow people to shop around for a better arrangement and will result in substantial savings.
There could be some truth in that, I am nor sure. But here are a few of my comments on the GFE.. Some of which I know will be unpopular.
First of all, Layout of Info
Let’s not re-invent the wheel. The HUD-1 closing statement is very well-organized and is familiar to everyone in Real Estate. Each section represents a different party who gets paid. The 700 section is for Real Estate Agents; the 800-1000 section is for Lenders; the 1100 section is for Title Company or settlement agent; 1200’s for Government fees, etc. A GFE should mirror the charges to make it easier and clearer for a consumer to shop around for each party.
There should be a penalty if Fees on the GFE are bogus.
Since a goal of RESPA is to help the consumer shop around, the GFE needs to be guaranteed for a certain period of time – perhaps 10 days. Obviously the rate is subject to change until locked, but the charges are supposed to remain the same. GFE fees should also be available in a standard format, showing all fees that will be collected and paid from Title Companies, Real Estate Agencies, etc.
Mark-ups need to be made illegal! When a title company pays $9 for a courier fee and charges the customer $40. it is called a “mark-up.” The fee shown on the closing statement hides a significant amount of money actually being paid to the lender, title company, etc. Mark-ups should be required to be broken down and shown on the HUD-1 as they are actually paid. In the example above, the HUD-1 should state courier fee to Courier Service X $9, and Service charge for courier to ABC Title $31. This is a huge cost to the consumer. Unidentified “administrative fees”, “copy fees,” “recording Service Charges,” “Tax Service fees” and dozens of other misc. overcharges are routinely hidden within other legitimate fees on the HUD-1. These are “junk fees,” and should be made illegal!
Identify core info from the Mortgage Note and Deed on the GFE. Particularly pre-payment penalties, maximum rate a loan can go to along with the corresponding P&I payment.
As far as simplifying the mortgage and closing – ouch. How do your simplify hundreds of pages documents, including 25 page mortgages? I am not sure it can be done. I loved Robert Franco’s comments on Source of Title:
“I also got a kick out of HUD’s proposed rule for a “closing script.” The rule would ensure that at settlement, borrowers are aware of final loan terms and settlement costs, by reading and providing a copy of a “closing script” to borrowers. I think HUD is giving borrower much more credit than is due. Most don’t care about anything but the payment! I don’t know how many times I have repeatedly pointed out insane interest rates, ridiculous prepayment penalties, multiple junk fees, and harsh default provisions to borrowers. I have done everything short of beat them with a mop handle and chase them out of my office before they sign! They don’t care! When I’m done, they say “What’s my payment?” And, they sign as fast as they can without reading any of it for themselves.”
Sad, but true, for many consumers. Will new RESPA Rules and a new GFE make a difference? Hard to say.
Thanks for posting this RESPA info. I support the new GFE and closing script because in the long run I believe unscrupulous loan originators will be forced by the system to either get honest or get out of the business. The set-up is a nice easy to understand self-policing form of compliance. Mortgage lenders and settlement agents have compliance burdens which they are likely to take seriously.
Though the system is different, I believe the change will be worth it in the long run.