Standard Form Would Provide Details on Terms and Costs to Borrowers
By Dina ElBoghdady
Washington Post Staff Writer
Saturday, March 15, 2008
A federal proposal announced yesterday aims to give mortgage borrowers clearer information about their loans and encourage them to shop around for the best deals.
Housing officials said borrowers' confusion about loan terms and closing costs has contributed to the current mortgage crisis. So the Department of Housing and Urban Development is backing a standard form that lenders would give borrowers before they commit to loans.
The form would:
¿ Disclose terms of a loan, including the interest rate and monthly payment; whether the rate or principal balance can increase and if so, by how much; and whether the loan has a prepayment penalty or a large final payment, known as a balloon payment.
¿ Display settlement charges prominently, including fees paid for outside services. The proposed form would also specify which of those charges could change at settlement, and by how much.
¿ Require lenders to reveal the fees they pay to mortgage brokers, who are liaisons between borrowers and lenders. Consumer advocates say such fees encourage lenders to steer borrowers to higher-cost loans.
HUD would also require mortgage-settlement agents to read a "closing script" to borrowers at the settlement table, and to provide copies.
"We don't think the average home buyer should need a finance degree to understand what it takes to buy a home," said Brian D. Montgomery, assistant secretary for housing.
HUD officials said that in consumer testing, the proposed rules helped borrowers select the lowest-cost loan more than 90 percent of the time and saved borrowers nearly $700 on average.
The agency is gathering public comment on the rule changes until May 13 and hopes to have them in place before President Bush's term ends.
The Mortgage Bankers Association praised the proposal as "well-intentioned" and "very comprehensive." The National Association of Mortgage Brokers said it is reviewing the proposal but expressed relief that the rules would apply to all who make loans -- such as federal banks -- and not just to brokers.
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