Now that the barn door is open and the horses have galloped off into a landscape of foreclosed homes, the U.S. Department of Housing and Urban Development has developed guidelines to help people more aware that they’re entering into dubious mortgage arrangements.
The Real Estate Settlement Procedures Act www.hud.gov/offices/hsg/ramh/res/respa_hm.cfm) took effect on January 1, and represents a whole new set of guidelines lenders must follow in order to keep consumers from doing stupid things and avoiding common sense entirely. Part of RESPA is the requirement that lenders deliver a new four-page good-faith estimate about the costs of a mortgage. In response to the government tradition of trying to bring simplicity to finance, Wells Fargo has issued a 35-page document to help brokers understand the four-page form.
I’m not going to come out against consumer protection, but these changes are doubling or maybe even tripling the workload of real-estate financing professionals. It’s not clear who’s going to pay for this added administrative time, though it’s likely that it’ll be taken care of by higher, hidden fees. Then the vicious circle will continue: the government will require another form to explain the hidden fees. The lender will have to have still another form for borrowers to sign saying that they have been given the hidden-free form and understands what that form explains.
Where does this extra work come from? We used to be able to get a good-faith estimate of costs at the beginning of a client’s search for a home. It was always helpful to give the client a sense of what kind of property to look for. Now RESPA requires one form at the beginning of the process, and another good-faith estimate when there’s a property in sight. And that good-faith estimate must be within a small percentage of the final cost, or the lender is out of compliance. This makes one wonder, then, why it’s called an estimate.
It’s a merry-go-round. Consumers do stupid things, like applying for no-money-down, interest-only loans, in the expectation that their property value will rise. Economic laws kick in, bringing down the house of cards, and the government comes along trying to fix a problem that’s already taken place. It asks for more forms and more signatures from consumers who still don’t know what they’re signing; they just look to their real-estate professionals, who confirm that if they don’t sign the form, they can’t get the loan. Those two-hour hand-cramping signing sessions are just going to get longer.
