HUD Requiring Lenders to Provide "Good Faith Estimate" Forms to Borrowers -- Will It Work to Prevent TILA Violations?
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From the Los Angeles Times' L.A. Land Blog; SEE BOLD CAPS for commentary:
Past attempts to disclose mortgage information to homebuyers have resulted in thick stacks of documents dropped like bricks on the table as the sale is completed. (WHICH ALLOWED FOR RAMPANT TILA VIOLATIONS: KEY LOAN INFORMATION WAS AMBIGUOUSLY DISCLOSED AND LACKED TRANSPARENCY PUTTING THE BORROWER AT A HUGE DISADVANTAGE AND/OR INFORMATION -- LIKE THE LOAN BEING A NEGATIVE AMORTIZING LOAN -- WAS OMITTED ALL TOGETHER.)
All too often, consumer advocates say, borrowers simply grab the pen and start signing with little regard to what's in the documents, especially in states such as California where lawyers aren't required at closing. That, the advocates say, has contributed to the fraud that seemed especially prevalent in the market for subprime and complex nontraditional mortgages (E.G. PICK A PAYMENT OPTION ARM LOANS.)
Attempts continue to make mortgages terms clearer, the latest coming today from the U.S. Department of Housing and Urban Development, which is requiring lenders and mortgage brokers to provide a standardized three-page good faith estimate to borrowers. Key aspects of the loan, including settlement costs, are on lines replicated on the final settlement document known as HUD-1, to make any changes apparent. (THE PROBLEM WITH THIS THREE (3) PAGE FORM IS THAT IT DOES NOT ADDRESS ONE OF THE MAIN THE INADEQUACIES UNDERLYING THE SUBPRIME AND OPTION ARM LOAN MESS: UNEQUIVICALLY DISCLOSING LOAN INFORMATION BASED ON THE TRUTH IN LENDING ACT.)
The new regulations, in the works since March, take effect on Jan. 1. HUD estimated they would save consumers nearly $700 on average. (BUT WILL THAT KEEP BORROWERS FROM GETTING TRICKED INTO BAD LOANS IN THE FUTURE?)
HUD Assistant Secretary Brian Montgomery said in a statement that the agency considered opinions "from every corner of the mortgage market" while developing the new rule. "None of us can lose sight of the fact that millions of Americans simply don't understand the fine print of their mortgages and this, in many respects, is at the heart of today's mortgage crisis," Montgomery said.
HUD Secretary Steve Preston also issued remarks saying changes in the housing markets and the epidemic of foreclosures demanded action.
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