As part of its ongoing Mortgage Reform program in November of 2008 HUD published 24 CFR Parts 203 and 3500 Rule to Simplify and Improve the Process of Obtaining Mortgages and Reduce Consumer Settlement Costs.

In short this was the result of a process which started in 2002 aimed at simplifying and clarifying the Good Faith Estimate (GFE) to enable the average borrower to easily understand a mortgage offer from any particular lender and to compare it with an offer from another.  A secondary goal was to harmonize the GFE with the HUD 1 final settlement statement enabling the average borrower to be able to easily comprehend any changes between the GFE and the HUD1.

The GFE is as you would think an estimate of the costs that a borrower will incur in doing a particular loan. Because it is an estimate there can be changes to the final loan costs which are reflected on the HUD1.  Some of these are justified due to changes that will occur in the mortgage process. However many times the GFE was issued artificially low in order to lure a borrower into doing a loan then the fees and charges would be added later and then reflected on the HUD1 with a surprise at closing.

After reading the lengthy document what became clear to me was that the consumer was never in the forefront of the process. According to HUD and I quote “The changes made by this final rule are designed to protect consumers from unnecessarily high settlement costs by taking steps to: improve and standardize the GFE form to make it easier to use for shopping among settlement service providers:”

Whatever the original intent at HUD for this process was, by the time the various industry groups (Bankers, Brokers, Realtors, Closing Agents’ Appraisers etc…),  plus the lobbyists, and politicians had put in their 2 cents worth, what has emerged is a regulation that is anything but simple and straight forward for the consumer.  As you read the document and the various statements by the different industry groups it is quite interesting that it reads more like a turf war than anything else. For example the Bankers support the bill as long as the Mortgage Brokers have to disclose the yield spread premium, the Brokers agree except they want to be able not to show the YSP just like the bankers. After the 6 year period of being pulled, poked, prodded by all concerned what has emerged is at best a weak compromise that accomplished only marginal improvements.

It seems to me that the simplest way to do this is to give the consumer a good faith estimate outlining all charges in a logical comprehensive way with no differentiation for the lending source and make this form standard in same format in the preliminary GFE as it is in the final HUD 1 settlement statement. List in detail all the charges that are involved in the loan and who they are paid to. Unfortunately the only group that would benefit from this is the consumer. So we have ended up with a compromise document that will like the Truth in Lending (TIL) form will probably do as much confusing as clarifying.

If we can learn anything from past experience it is that once various special interest groups get involved the interest of the people gets sidetracked or at least diminished. The complexity and variability of the Mortgage Process has made it much easier for those who wish to perpetuate mortgage Fraud. Half baked attempts at reform will not result in change. The real answer for the average borrower is to understand the process. This is and will be the ongoing goal at marshonmortgages.com