Updated Forms Will Give Buyers Much-Needed Information

· Is the interest rate fixed, or can it change? If the rate is adjustable, when will the change take place? What is the maximum monthly payment?

· Is this a balloon note? That means that even though you pay the lender each month, it's not enough to completely pay down the loan, so at the end of a set period, the balance becomes become due; that is, it balloons.

· If the mortgage is refinanced, will there be a prepayment penalty? If so, how much?

· How much money will be due at settlement for closing costs?

All this information is meaningless, however, if the dollar amounts change at the settlement table. It's usually too late to complain. The seller expects the buyer to go through with the purchase as agreed in the sales contract. A buyer who tries to back out because loan charges change could be in default on the contract. The seller could try to keep the earnest-money deposit and sell the property to someone else. As far as the seller is concerned, dealings between a buyer and lender are irrelevant.

The new form adds an explanation of which charges can change at settlement, which can't and which can vary by no more than 10 percent.

The revised GFE and HUD-1 are meant to work together to help the borrower verify these charges. The third page of the settlement statement breaks charges into those same three categories and refers to them by the line number on the estimate form. "Borrowers will now be able to easily compare their estimated and actual costs," said Brian Montgomery, commissioner of the Federal Housing Administration.

Perhaps the most significant change in the new HUD-1 is a section titled "Loan Terms." This will contain almost the same information about things such as loan size, rate and other terms that was in the good-faith estimate. It will make it very easy for the consumer to confirm at settlement that the lender is honoring its promises.

These two documents are important steps toward the goal of allowing borrowers to fully understand upfront what it will cost them to buy their house. "None of us can lose sight of the fact," Montgomery said, "that millions of Americans simply don't understand all of the fine print of their mortgages, and this, in many respects, is at the heart of today's mortgage crisis."

I hope that legitimate mortgage lenders will not wait until Jan. 1, 2010, to adopt these consumer-friendly changes. They should begin using the forms as soon as their computer systems make them available.

Benny L. Kass is a Washington lawyer. For a free copy of the booklet "A Guide to Settlement on Your New Home," send a self-addressed stamped envelope to Benny L. Kass, 1050 17th St. NW, Suite 1100, Washington, D.C. 20036. Readers may also send questions to him at that address or contact him through his Web site, http://www.kmklawyers.com.