Consumers encouraged to compare mortgage lenders thanks to RESPA changes
January 7, 2010 by admin
The mortgage industry is about to get turned upside down thanks to some recent changes from RESPA, the real estate settlement and procedure act. The agency is attempting to streamline the way consumers obtain mortgages and significantly alter the way lenders charge settlement fees.
The first major change is that being introduced is a standardized good faith estimate that all lenders will be required to follow. The good faith estimate is a part of the borrowers loan application that outlines the fees a lender is charging a borrower in conjunction with their loan as well as identifying the loans interest rate. Yield spread premiums are now going to be required to be disclosed to borrowers upfront. Yield spreads are the expected revenue a mortgage broker will earn from the lender they are securing the mortgage for. This has been strongly contested from the Mortgage Brokers Association who believe
this is an unfair policy.
One of the more critical elements with the proposed changes to the GFE will be the elimination of the bait and switch practices lenders have made common practice of. Consumer groups have often complained that mortgage brokers and lenders offer consumers one offer and dramatically change this when the borrowers gets to closing. The new changes will eliminate the possibility of lenders to change certain fees they quoted to consumers up front as well as limit the fees that can change through the course of underwriting. Loan fees can adjust due to a properties loan to value which can raise or lower fees based on the equity in a property, which is often determined after the GFE is originated and the appraisal is completed.
A new part of the RESPA changes will be an encouragement for consumers to shop and compare mortgage rates and offers. The process of obtaining a home mortgage should include comparing offers from multiple lenders or banks to help consumers be certain they are obtaining the best possible finance scenario. Consumers who can do an apples to apples mortgage comparison will benefit from uniform GFE’s to identify which lenders are offering the best rates and fees in a uniform process.
The mortgage industry has benefitted from extremely low mortgage rates and tax incentives from the government this year to help drive loan volume. The government has been adamant about pushing for changes following the subprime mortgage meltdown. There is a strong belief that mortgage brokers played a large role in pushing consumers into loans they should not have qualified for as charging extremely large fees. The new RESPA changes are specifically designed to level the playing field and make the process of shopping for a mortgage easier.