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Feds propose overhaul of mortgage process

By Holden Lewis • Bankrate.com

Getting a mortgage can be confusing and frustrating.

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To make it less so, the federal housing department has proposed an overhaul of the mortgage process, from application to closing.

The proposed regulatory changes are designed to do a number of things: make it easier to compare mortgage offers while shopping, force lenders to estimate closing costs more accurately, and ensure that borrowers know the terms of their loans.

Here are the changes that would have the biggest impact on consumers.

Proposed changes to good faith estimate:

•	After providing basic information to the broker or loan officer, the applicant would receive a four-page good faith estimate of closing costs. The first page would give a standardized summary of costs. The next three pages would provide details about the fees -- and tips on how to compare loan offers.
•	The good faith estimate, or GFE, would have to be somewhat accurate. The total charges couldn't exceed the estimated total by more than 10 percent.
•	The trade-off between interest rates and lender's fees would be clearer: A "no closing cost" mortgage has a higher rate than a home loan in which the borrower pays fees out of pocket.
•	A broker's compensation from the lender, in the form of yield-spread premiums, would have to be disclosed.
•	It would be easier to compare the numbers on the good faith estimate with the numbers on the final HUD-1 statement of fees. The HUD-1 is the final statement of mortgage-related fees that the borrower gets at closing. Right now, the GFE and HUD-1 don't have to look alike, making it difficult to compare them side-by-side to see how the fees changed between application and closing.
•	Someone would have to read aloud a "closing script" that accurately summarizes the loan deal and the settlement charges. Any inconsistencies between the rate and fees described in the GFE and the final rate and fees would have to be pointed out.
•	Many homebuilders have "affiliated business arrangements" with mortgage lenders and title companies. The builders tell homebuyers something like this: "If you don't use our approved mortgage company, you'll have to make a bigger earnest-money deposit, and you won't get a $2,000 'closing incentive.'" The proposed regulation seeks to ban that much-complained-about practice.

This is the second time that the Bush administration has tried to change the regulations that apply to mortgages under the Real Estate Settlement Procedures Act. The Clinton administration tried more than once, too. Each effort died after drawing opposition from lenders, brokers and title insurers. Those industry players have given this latest proposal a warmer reception. They had more input this time.

Next: "... Lenders would have to give accurate estimates."

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