New Good Faith Estimate will hold Lender’s feet to the fire

Starting January 1, 2010 all lenders will be required under the Department of Housing and Urban Development (HUD) to use a uniform Good Faith Estimate of closing costs. Under this new rule, lenders will no longer be able to charge a laundry list of lender fees such as processing, underwriting, closing, post-closing etc… which in the past was a tactic to squeeze more money from unsuspecting borrowers at the last minute. With this new form borrowers will have a simple way to see exactly what lenders are making. The money a mortgage company makes for all their work will be shown as the Origination Fee and/or the Yield Spread Premium which will also be disclosed. In addition, if the lender’s fees at the closing table end up being higher than what was quoted on the Good Faith Estimate, the lender may be obligated to refund the difference to the borrower. In fact, for the first time in 30 years the Uniform Residential Settlement Statement or HUD-1 has also been changed. Now, buyers/borrowers will have both the figures that were quoted to them in the Good Faith Estimate and the final figures that are charged at closing all on one document. This is great news for buyers/borrowers. Thanks to these regulations we should see more transparency and accountability by the lending industry. The only thing is what about the secondary market? Why do we not see regulatory agencies coming down on the investment banks that fueled the fire by demanding hundreds of Billions of Dollars of mortgages in order to spin off high risk mortgage paper through credit default swaps and other complicated slight of hand tactics to lure investors looking for high yield returns. Have we really learned anything from the “junk bond” days?