“In Good Faith” – New Protection for Borrowers

3…2…1…Happy New Year! If you’re like me, you probably stayed up a little later than normal this New Year’s Eve to help usher in 2010 with Dick Clark and the masses in Times Square. You may have downed a glass of champagne in celebration or shared a kiss with that special someone in your life. However, as the Waterford crystal ball dropped to kick off the new decade, you were probably unaware that it was also a new beginning for the world of home mortgage financing.

On January 1, 2010, The U.S. Department of Housing and Urban Development issued a much anticipated mortgage reform that will impact all buyers that use financing to purchase their home. HUD now requires lenders and mortgage brokers to provide consumers with a new & improved Good Faith Estimate (GFE) that discloses key loan terms and closing costs. This new GFE is designed to make it easier for borrowers to more clearly understand the settlement charges and terms of their loan.

To further clarify the impact and costs of various interest rates and fees, HUD has also added a new page to the HUD-1 Settlement Statement. This new form will allow consumers to compare their final loan terms and closing costs with those on the original Good Faith Estimate provided by their lender. This additional page will also include a reference to the relevant line from the GFE, making it easy for the borrower to compare the two forms.

HUD’s nationwide reform effort will also provide clear answers for important consumer questions such as:
• What are the terms for the loan?
• Is there a fixed interest rate or can it be changed?
• Is there a pre-payment penalty if the borrower chooses to refinance at a later date?
• Is there a balloon payment?
• What are the total closing costs?

TIP TO HOME BUYERS: These new reforms are intended to make the home financing process easier to understand for buyers, but that does not mean that it’s easier for everyone. The changes will add additional stress (and paperwork) for mortgage lenders, which could possibly slow the approval process. To expedite the process, make sure that when your lender asks for any additional documents (proof of income, bank statements, etc) that you submit these forms in a timely manner. This will ensure that the process continues to run smoothly, and that your loan can close on time.

All-in-all, HUD’s reform should be seen as a positive thing, as it has made it easier for home buyers to shop for lower cost mortgages and avoid potentially harmful loan offers from unscrupulous lenders. In fact, the additional clarity and transparency provided by these changes is estimated to save consumers an average of $700 per closing, which can go a long way in helping buyer’s with the many expenses of moving into a new home.

If you would like to find more detailed information on the new reform you can visit www.hud.gov.

Happy Home Shopping!