Buying a home is a stressful process, and many a home buyer can attest to
that sinking feeling in their stomach come closing time, when they're
staring at fees and expenses they didn't know about.
"That's the most common complaint when you get to the closing table –
there's a fee that wasn't disclosed or it wasn't disclosed accurately,"
says Craig Jarrell, president of the Dallas branch of Pulaski Mortgage
Co.
Uncle Sam is aiming to take the confusion out of the process.
The Department of Housing and Urban Development is proposing to reform
the part of the Real Estate Settlement Procedures Act that governs
settlement fees home buyers pay.
"Americans spend approximately $50 billion each year on settlement costs
without knowing exactly what they are paying for or having the
opportunity to shop effectively for the best mortgage to suit their
needs," says HUD Secretary Mel Martinez.
"The Bush administration believes it is time to take the confusion and
uncertainty out of the home-buying process by making loan shopping and
settlement less frustrating and more understandable and ultimately, less
costly."
Under the proposed Home Buyer Bill of Rights, home buyers would:
• Receive settlement-cost information early in the process, allowing
them to shop for the mortgage and settlement services that best meet
their needs.
• Have the disclosed costs be as firm as possible, thereby avoiding any
surprises at settlement. The proposal would improve HUD's Good Faith
Estimate settlement cost disclosure to make it clearer and more useful
so that consumers can use it to shop for the best deals.
• Have access to better borrower education.
• Benefit from new products, competition and technological innovations
that could lower settlement costs.
Many borrowers don't understand a mortgage broker's role and what fees
the broker charges, HUD officials say.
A mortgage broker, who represents lenders, brings together lenders and
borrowers and is paid a fee by lenders for the service.
HUD's proposal would "fundamentally change the way lender payments to
mortgage brokers – yield spread premiums – are recorded and reported to
consumers," the agency says.
Mr. Martinez wants mortgage brokers to tell consumers about what they
charge and how lender payments can help lower settlement costs.
Mortgage Bankers Association of America supports HUD's efforts.
"MBA has long advocated that mortgage reform is necessary to effectively
ensure that consumers are protected and that they receive full and
meaningful disclosures throughout the mortgage process," says John A.
Courson, the group's chairman-elect.
The association also strongly supports removing regulatory barriers to
give consumers more competitive choices under a "guaranteed closing
cost" option, he says.
Mr. Jarrell says consumers need to know and exercise their rights under
the law.
The law requires lenders to give you a good faith estimate within three
business days of your applying for a loan, he says.
"It is a big area of fraud of low-balling a good faith estimate on
purpose to try to get your business," Mr. Jarrell says.
To determine how much a mortgage would really cost you, look at the
annual percentage rate or APR, he says.
