The White House has proposed new changes in mortgage terms to help home buyers understand their mortgage loans. Also, the new Bush proposal will provide the home buying public with average savings of $700 in closing costs.
President Bush wants to overhaul a 1974 law that requires mortgage lenders and mortgage brokers to give a "good faith estimate” making it easier for consumers to comparison shop during home buying or mortgage refinancing.
The Bush mortgage loan plan is the next step in a series of initiatives to aid the home loan and housing markets overcome the present downturn.
The problem facing many consumers is trying to understand the complexities of mortgage loans during the application process. President Bush hopes his proposals will make the mortgage process easier-to-understand. The plan calls for mortgage lenders to disclose to consumers the fees paid to mortgage brokers, known as yield-spread premiums.
Mortgage brokers obtain premiums for navigating customers toward particular lenders. Approximately 12.5 million Americans purchase or refinance a home annually. The plan mandates a federal disclosure form be provided to consumers who perform a mortgage refinance or get a mortgage loan for a new home.
The government intends to have a standard form given to customers rather than the current, private-industry disclosure form that can vary widely by state. The government disclosure form includes the monthly payment and interest rate, a rundown of home loan terms, disclose any prepayment penalty or balloon payment, whether the principal balance and interest rate can increase and by what amount, total settlement costs, and other important information.
The form allows consumers to better compare home loan terms offered by various mortgage lenders. The home buying process is sometimes a time consuming and confusing process. The Bush plan helps alleviate some of the confusion by assuring home buyers and mortgage refinancers that the loan process is efficient and transparent.
One of the main reasons for the subprime mortgage crisis was that some consumers had difficulty understanding fully their adjustable rate mortgages. Many didn’t comprehend that their monthly mortgage payments would jump once the mortgage rates were reset to higher levels after the initial period of low introductory interest rates.
It is good news that the government is enhancing regulations governing the housing market. The recommendations are a broad effort by the government to provide more protection for consumers and promote easy-to-comprehend language in the mortgage arena.