Government Proposal to Enlighten Homebuyers Proves Controversial

[Jun 18, 2008.]

The Department of Housing and Urban Development has been hit with a deluge of criticism from members of the real estate industry, the finance industry, and consumer groups alike. Why? Thursday was the final day for the public to comment on the HUD's recent proposal to simply and explain the procedure for applying for and receiving mortgages for buying a home.

As it stands now, the mortgage application process involves a confusing, long document called the Good Faith Estimate. This document tells would-be homeowners what kinds of fees they have to pay before they can get their mortgage, and when they have to pay those fees. This document has been widely criticized for being unclear, inconsistent, easily misinterpreted, liable to be interpreted differently by different banks, and easily used by unscrupulous lenders to trick mortgage applicants.

HUD, claiming that this confusing document is costing mortgage applicants an average of $670 per loan, has suggested changes and refinements to be made to the existing documentation. The proposed new version of the Good Faith Estimate is to be only four pages long. The revamped document supposed to sum up the interest rate, the monthly payment the mortgage buyer is expected to make, and the conditions of the loan. Moreover, the new document is supposed to outline whether or not the interest rate and balance of the mortgage can go up, and to warn mortgage applicant if they stand to lose any money in paying off the mortgage ahead of schedule.

Yet, the public is far from receptive to the HUD's plan. Jonathan Kempner of the Mortgage Bankers Association argues, "the whole idea is to simplify and save money, and [this plan] seems to be going in the opposite direction."

Meanwhile consumer advocacy organizations argue the HUD isn't going far enough with this plan. They claim clarifying fees for certain kinds of mortgages doesn't help, because these fees are inherently unfair. "We really don't think that disclosure alone [will] save people from predatory and abusive practices," explains Julia Gordon of the Center for Responsible Lending.

The HUD's proposed plan doesn't require the Congressional okay. However, the controversy this plan has generated may prevent it from being implemented in its full, present form