Finally, they might be getting it right.
As a part of the sweeping changes to the mortgage industry, the federal government about two years ago stepped in and decided to redesign the good-faith estimate form that all lenders are required to give borrowers. Now the government is moving steadily toward a new, more friendly disclosure that will ultimately combine the good-faith and another oft-misunderstood piece of paper — the truth-in-lending statement.
Historically, the good-faith estimate would try to simulate what the actual final settlement sheet would detail. However, before the changes, lenders and brokers had any number of ways they could show (or not show) consumers what charges they would be responsible for when applying for a mortgage.
The government put a stop to that and required a uniform good-faith estimate to be used by all lenders. It would show your interest rate, what you would pay, if the loan amount could increase over time, if the interest rate would increase. In addition, it also showed what fees could not rise, those that could and those that could be off by no more than 10 percent when compared to the final HUD1 settlement sheet.
Overall, it was a good start, but many in the industry thought the government missed the target. Missing were two of the most important questions that borrowers have: How much do I need to bring to the table? And, what is my total monthly payment?
Another document that is required to be given to the borrower is the truth-in-lending statement — known as the TIL. Basically, the TIL would generate the annual percentage rate and show the cost of interest over the entire lifetime of the loan — always a scary number for borrowers when they actually see how much interest they will pay over 30 years.
The document, however, always tended to confuse borrowers because the APR is calculated by adding in the non-recurring lender fees, and that percentage rate is almost always higher than the actual note rate the borrower is asking for. The goal was to allow consumers to compare APRs from lender to lender to see where the best deal really was. In reality, by the time a consumer received the TIL, they rarely had the time or inclination to shop based on this document.
Now the government, required by the Dodd-Frank financial reform act, is in its second round of comments on devising a new document that will combine the good-faith estimate and truth-in-lending statements to truly give the consumer an easy-on-the-eyes summary of the mortgage they are seeking. There is no specific date when the document will be launched, but it is coming.
Instead of two documents that are five pages combined, the new disclosure will be just two pages. The disclosure is being put together by the new Consumer Protection Financial Bureau. And if you want to see, and even comment, on the latest design, go to www.consumerfinance.gov/knowbeforeyouowe.
The first page generally is called the “shopper page”; it details the loan terms, projected payments and comparisons. The second page breaks down actual costs such as lender fees, title fees, escrows for taxes and insurance, and the total estimated funds that would be needed to close. If you are seeking an adjustable rate mortgage, it has a section that will show the margin, the index and the maximum or minimum interest rate the note could go to.
Ultimately, it seems that a government-produced document is actually going to be well thought out and consumer-friendly — a far cry from what is being given to the consumer today.
Robert Nusgart is a loan officer with Prospect Mortgage LLC., which is associated with The Strata Group in Baltimore. He can be reached at 443-632-0858 or by email at [email protected] Visit his website at www.RobertNusgart.com for the latest mortgage and financial news.