BIG proposed change to the mortgage industry - way to go Mr. Bush!

I saw this article come out today from FloridaRealtors.org and the parts I have bolded below are what jumps out at me most.  I am sure some mortgage brokers won't be happy about this but this is a badly needed reform.  It calls for the "Good Faith Estimate" to truly disclose everything. 

For example, the yield-spread from lenders to mortgage brokers would be disclosed.  This is big.  Personally, I feel that before I was in real estate, I myself was "duped" into getting a loan for an interest rate that was much higher than what I probably could have received elsewhere.  But when a mortgage broker tells a client "You qualify for a 10% loan" - how are they to know any different else the yield-spread is disclosed? 

Previously there has been no disclosure and I personally believe this may have contributed to the many bad loans out there now that have people drowning in debt.  This is why there are so many short sales right now as well as foreclosures.  On the MLS, I was searching for Tampa Foreclosures & Short Sales and came up with THOUSANDS.  Its shocking but also believable with many people upside down in their loans right now due to so many sub-prime loans that have been issued over the last several years.  And my guess is many of these people didn't deserve a sub-prime rate but wouldn't know any differently unless there had been full disclosure.

This could be a huge reform for the housing market.  No one is saying we don't want mortgage brokers to make money - but they just ought to have to disclose what you are paying them exactly (or what the lender is).  Realtors have to disclose their commissions to all parties, why shouldn't mortgage brokers?  Am I wrong here?  I am not normally a huge President Bush fan, but I have to give him props on this one.  Nice George.  Nice.

HUD unveils reformed mortgage-term disclosure form for consumers

WASHINGTON - March 14, 2008 - Prospective home buyers would get easier-to-understand information on mortgage terms and save an average $700 in closing costs under a proposal to be unveiled Friday by President Bush.

The proposed overhaul to a 1974 law requiring lenders to give what's called a "good faith estimate" is aimed at making it simpler for consumers to comparison shop when they buy a house or refinance a mortgage.

It's the latest in a series of White House initiatives to help end a housing market crisis that has stalled the U.S. economy and sparked global financial market turmoil.

"A lot of the mortgage problems we see today are directly related to the fact that few people understand (the mortgage lending) process," Alphonso Jackson, secretary of the Department of Housing and Urban Development, said in a statement.

The mortgage broker industry is expected to oppose the proposal because it also calls for lenders' payments to brokers, known as yield-spread premiums, to be disclosed to borrowers.

Brokers receive the premiums for steering customers toward certain lenders although consumer advocates argue that the practice prevents consumers from getting the most competitive interest rate and loan terms on mortgages.

About 12.5 million Americans buy or refinance a home each year. HUD's proposed revision to the 34-year-old Real Estate Settlement Procedures Act would mandate a federal disclosure form to be given to consumers who refinance a mortgage or borrow to buy a home.

The form is simpler than private-industry disclosure forms, which can vary widely state by state. It includes a summary of loan terms, interest rate and monthly payment, whether the interest rate and principal balance can increase and by how much, whether the loan has a prepayment penalty or balloon payment, settlement costs and other details.

HUD tested the proposed form over several years, which allowed consumers in nearly every instance to better compare home loan terms offered by different lenders, agency officials said.

After a 60-day public comment period, the HUD proposal could go into effect before the summer.

"Buying a home can be very intimidating. Consumers have had no assurance that the loan terms and closing costs they are offered will reflect what they confront at the settlement table, and that's been one of the factors driving the current housing downturn. Our proposal fixes that," Jackson's statement said.

Friday's proposal follows recommendations made Thursday by Treasury Secretary Henry Paulson to regulate mortgage lenders more strictly, all part of a broad federal effort to encourage recovery in the beleaguered housing market.

Paulson's proposal covers regulations for mortgage lenders and other financial institutions as well as investors, regulators and Wall Street credit-rating agencies.

 

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