In what appears to be a delayed reaction to the subprime mortgage meltdown (it’s the government so of course it took some time), the HUD settlement statements have changed so buyers will have more clarity on their closing costs.

The Good Faith Estimate is the first major document affected.  The lender must have on the first page how long the locked-in interest rate is available, the loan amount, the term of the loan, the initial interest rate, and monthly mortgage amount.  Lenders must also disclose whether an interest rate can rise, if the cash loan balance can rise, whether the monthly payment can increase, if there is a prepayment penalty, and if there is a balloon payment.  Also on the first page are whether or not there will be an escrow account for insurance and taxes and how much that will be.  Finally, the lender must show the total estimated settlement charges (closing costs).

The second page of the new good faith estimate details expenses including origination fee, required services (appraisal, credit report, flood certification, etc.), cost of title services, government recording charges, transfer taxes, escrow, daily interest charges, initial escrow amount (which will be insurance and taxes), and the cost of homeowners insurance.

Finally, the back page includes a “shopping cart” section where the buyer can shop the loan.  Lenders are not crazy about this because FROM THEM the buyers get that they can look around for better loan options.  However this should keep a lender honest because it eliminates junk fees (they all must be included with the loan origination fee).

How are they kept honest?  If there is more than a 10 percent increase between the good faith estimate and the HUD settlement statement, the lender has 30 days to cure the discrepancy.  If the overage is the fault of the lender, they must refund the buyer the amount of the overage.  However, there is a caveat.  If the buyer picks someone not on the lender’s list to provide the survey, credit report, flood certification, or other items required by the lender, then the lender is not at fault if the HUD is more than 10 percent of the GFE.

I feel more protected now, how about you?