Mortgage 'Reform' Is Just a Small Step Forward

That's more than a year from now.

And why is it taking more than a year to implement this new form?

Preston said many of the lenders felt they needed time to make "operational changes."

The industry needs time to train people to use the new form, said Robert R. Davis, executive vice president of mortgage finance, risk management and public policy for the American Bankers Association.

Are we not a technologically advanced society? My 13-year-old daughter knows how to download a PDF. HUD is giving the industry the forms. Besides, much of the information on the revised statements is something loan originators should have been disclosing and discussing with mortgage applicants anyway.

While HUD's effort is helpful, it's by no means a mammoth leap forward for consumers.

"Rather than make the process simpler, it will be harder to understand," Davis said. "This is going to increase confusion."

Davis also complained that the new form does not explain "yield-spread premium," although there is a place on the document to disclose this fee, which a lender pays a mortgage broker for putting a borrower into a home loan with a higher interest rate. This is not an illegal practice, but it is a back-end way for a broker to earn more money. In some cases, borrowers get stuck with a higher interest rate even though they could qualify for a less expensive loan.

Yield-spread premiums are "rarely understood by, or fully disclosed to, borrowers," Preston said. "These premiums are directly tied to the higher interest rates that borrowers pay. Consumers deserve to understand this."

To be fair, efforts by HUD to get better disclosure for consumers have been met with considerable resistance from the industry. It did take a mammoth effort to get what the agency got.

But for me, mammoth reform would include legislation that imposes bone-chilling cash penalties and prison sentences for anyone who deceives consumers anytime during the mortgage process.

Mammoth would be creating a commando-type enforcement division at HUD to aggressively pursue bad lenders and mortgage brokers. Mortgage professionals should be as afraid of HUD as many people are of the IRS.