The ""Department of Housing and Urban Development"":http://www.hud.gov (HUD) released its final rule under the Real Estate Settlement Procedures Act (RESPA) yesterday to improve disclosures in the home financing process. RESPA, a law originally enacted in 1974, now includes new Good Faith Estimate (GFE) and HUD-1 Settlement Statement forms, which require lenders and mortgage brokers to clearly disclose key loan terms and closing costs.
""HUD Secretary Steve Preston"":http://www.hud.gov/news/speeches/2008-11-12.cfm said that recent changes in the housing market and increases in home foreclosures demand changes in regulatory requirements. ""It has been a long road but today we can finally announce a better way to buy homes in America,"" Preston said in announcing the final rule changes. ""Consumers need and deserve to know what they're getting themselves into before they sign on the dotted line. After carefully considering the concerns of consumers and the different businesses in the housing sector, we have developed an approach that empowers the average family to shop for the most appropriate loan to meet their needs.""
The new rule will become effective 60 days from when it is published in the Federal Register, which is expected on Friday. Lenders will have until January 1, 2010 to implement the new GFE and HUD-1 forms under the regulation. The new rule is expected to help consumers compare terms on loans offered by different lenders and prevent lenders from offering final terms that differ from initial estimates.
According to a report in %{=font-style: italic}""The Wall Street Journal"":http://www.wsjonline.com%, many Americans now in default on their mortgages say they didn't fully understand the terms of loans they were encouraged to take during the housing boom. One big problem is that legally mandated disclosures are so voluminous that almost no one ever reads them before signing, the %{=font-style: italic}Journal% explained.
Chairman of the ""Mortgage Bankers Association"":http://www.mbaa.org (MBA), David G. Kittle, CMB, commended HUD and its leaders for their work in finalizing the rule, particularly for taking into consideration concerns voiced by stakeholders. ""The rule's new estimate and settlement forms are an important step toward developing more consumer-friendly forms that will help borrowers better understand the loan they are getting and the fees they are paying, while making it much easier for a borrower to shop and compare the different loans they are offered,"" Kittle said.
However, the MBA, along with several other industry organizations like the ""Center for Responsible Lending"":http://www.responsiblelending.org, argue that HUD should have updated the RESPA rule in tandem with the ""Federal Reserve's"":http://www.federalreserve.gov ongoing efforts to enhance consumer disclosures required by the Truth in Lending Act (TILA). ""We are disappointed that HUD did not coordinate more closely with the Federal Reserve as the Fed implements its own improvements under TILA,"" said MBA's COO John A. Courson. ""As we have said many times, these two efforts ought to be undertaken together to ensure that the new guidelines and disclosures actually make the loan process simpler and more transparent for borrowers.""
Courson added, ""We also believe that HUD should provide greater clarity concerning the new requirements on disclosure of broker fees tied to the interest rate selected by the borrower."" He did note, however, that his organization appreciated that HUD provided one year for implementation of these changes.
For additional information on HUD's final RESPA rule, including access to the GFE and HUD-1 documents, ""click here"":http://www.hud.gov/news/release.cfmxcontent=pr08-175.cfm.