HUD promises cheaper, more transparent home loans

11.13.08
By Timothy Jones

Shopping for a home loan can be a stressful and uncertain experience - even after reading all the paperwork, how can you be sure that you know exactly what you will end up paying?

That is the issue that the Department of Housing and Urban Development was aiming to address when it introduced new mortgage reforms on Tuesday.

For example, HUD said that by using a form known as a Good Faith Estimate (GFE), homebuyers and mortgage providers alike can be upfront and clear on the total cost that will need to be paid as a result of the transaction.

Acting in good faith sure sounds promising, but what could this actually mean for your wallet? The department estimates that spelling out loan terms and closing costs before a homebuyer agrees to a deal could save the average person around $700.

"Consumers need and deserve to know what they're getting themselves into before they sign on the dotted line," commented HUD secretary Steve Preston.

Upon settlement, people will also be able to clearly compare each line of the final form with what was promised on the GFE.

Some in the mortgage loan industry have praised the reforms for helping empower consumers and encouraging them to shop around for deals.

However, the Wall Street Journal points out that although lenders will be required to use the GFE by 2010, HUD does not actually have the power to penalize those who do not comply.

The department has defended its position by saying that regulators can monitor compliance. It has also suggested that lenders would probably choose to follow the rules rather than face a potential law suit.

If you are in the market for a home loan, remember that having a good credit score is one of the very best ways to land a favorable interest rate on your mortgage.

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HUD says mortgage reforms will empower homebuyers