HUD vows to end 'sticker shock'
October 7, 2002
Proposed RESPA reform would give consumers upfront information about loan settlement
Inman News Features
Consumers have the right to receive upfront and firm cost information that will prevent sticker shock when they buy or refinance their homes, U.S. Department of Housing and Urban Development Secretary Mel Martinez said yesterday in testimony before the House Financial Services Committee.
Martinez outlined HUD's proposal to overhaul the nation's mortgage settlement process and told committee members that current regulations are outdated and don't adequately protect consumers from a process that is "too complicated, too costly and too much of a mystery for many borrowers."
In June, Martinez announced a plan to reform the regulatory requirements under the Real Estate Settlement Procedures Act. The proposal is currently in a public comment period that expires Oct. 28.
HUD's proposal calls for clear disclosure of mortgage broker fees or what is often called a "Yield Spread Premium," when a borrower chooses to pay a slightly higher interest rate in exchange for the lender's payment of closing costs. Under current rules, these payments or "kickbacks" are not clearly disclosed to borrowers.
The proposal also calls for lenders to provide borrowers with a more clear and simple "Good Faith Estimate," at no or nominal cost, so that they can better understand the charges and use it to shop for loans. The new proposed Good Faith Estimate would limit lenders' ability to raise their charges at the last minute.
In addition, the proposal calls for the removal of regulatory barriers to lower costs. Current regulations inhibit the practice of offering consumers a single guaranteed package including the price for total settlement costs and a mortgage interest rate. Under the proposed reform, any entity would now be able to assemble and offer consumers a guaranteed mortgage interest rate and a guaranteed price for a complete package of settlement services.
Copyright: Inman News Service