"The rule and its accompanying forms will provide more loan information in a more understandable manner, so consumers can shop for the best loan," Montgomery says. "We believe this will result in better mortgage products, lower interest rates and lower origination and settlement costs for borrowers."
By emphasizing comparison-shopping, HUD put less emphasis on other things:
- The HUD-1 statement has a chart for comparing the estimated fees with the final fees, but most borrowers would have difficulty filling it out. If the closing agent or the lender leaves those blanks unfilled, it's probably unrealistic to expect the borrower to be able to complete the chart and make the comparisons.
- At three pages each, the new GFE and HUD-1 are longer than they usually are today. Some advocates had lobbied for a one-page GFE that even an idiot could understand, but Montgomery says that was unrealistic.
- The revised good-faith estimate and HUD-1 don't try to discourage consumers from getting unwise loans -- even though these new documents were finalized during a time of financial turmoil that began with foolish mortgage lending.
Alex Pollock, a resident scholar with the American Enterprise Institute, has been lobbying federal and state regulators to adopt a one-page GFE. He believes HUD got distracted from the wrong issue. Instead of helping consumers find the best mortgage deal, the good-faith estimate should let consumers know if they're making a mistake.
"It should help you, the borrower, clearly answer the single most important question about the mortgage: Can I afford this loan?" Pollock says. He adds, with a laugh, "You may get the lowest-cost loan and not be able to afford it."
Revisions to the GFE and HUD-1 have been in the works for more than six years. The documents and procedures surrounding a mortgage closing are governed by a 34-year-old law called the Real Estate Procedures Settlement Act, or RESPA. In 2002, the Bush administration began trying to amend the regulations surrounding RESPA to make the GFE more accurate and easier to understand. The title insurance industry stymied the first effort in 2004, and this second attempt to fix the regulations has taken almost four years.
In March, the housing department came out with its final proposal for reforming RESPA regulations and solicited comment. The comment period was extended because of the volume of the response. This week's announcement is the culmination of that process.
HUD made one substantial change as a result of the comments it received. In March, HUD proposed that the settlement agent be required to read a "closing script" aloud, reciting details about the loan. The closing script was scrapped because settlement agents worried that they could be sued for any errors they made while reading aloud.
Preston says the revised RESPA regulations will save an estimated $700 for the typical borrower as a result of lower fees and encouragement of comparison-shopping. "Our estimate is based on very extensive consumer testing, which showed us that when consumers were presented with this information, in over 90 percent of the cases, they chose the lowest-cost loan," Preston says.