New Mortgage Rules Help Home Buyers Shop for Loans

Jan. 1, 2010— -- New federal rules that go into effect today may ease the stress of finding a home mortgage for many prospective buyers.

Changes to the Real Estate Settlement Procedures Act require mortgage lenders and brokers to provide consumers with a standardized Good Faith Estimate that discloses a loan's key terms and settlement costs. The new regulations, first announced by the Department of Housing and Urban Development in 2008, seek to help consumers compare offerings from different loan originators before choosing to go forward with the process.

"For a lot of people, purchasing property is one of the biggest financial commitments you're going to make in your life," said Lucas Miller, compliance director for the Neighborhood Assistance Corporation of America, a nonprofit homeownership organization. "It's a stressful process."

To comply with the new regulations, loan originators must complete a three-page Good Faith Estimate form, providing estimated settlement charges based on the loan's term, initial interest rate and monthly amount owed.

According to HUD's Settlement Cost Booklet, the GFE form is "designed to encourage you to shop for a mortgage loan and settlement services so you can determine which mortgage is best for you."

Though Good Faith Estimates have been used for years, the new estimate regulates which charges can and cannot change at the time of a loan settlement, thereby preventing loan originators from adjusting certain costs after providing an estimate.

"In the past, it was a common thing for a buyer to walk into a closing and find fees they had no idea about," Miller said. "It could be a substantial change when it comes down to the consumer's pocket."

While origination charges cannot change from the estimate, fees for certain services, like government recording, can increase up to 10 percent in total at the settlement. There are no such regulations for certain charges, such as homeowner's insurance and services provided by third parties selected by the borrower.