The U.S. Department of Housing and Urban development issued mortgage reforms last November by requiring lenders and mortgage brokers to provide consumers with a standardized good faith estimate (GFE) that discloses key loan terms and closing costs.
The improved Good Faith Estimate will answer important questions that consumers might have when applying for a loan including:
- What's the term of the loan?
- Is the interest rate fixed or can it change?
- Is there a pre-payment penalty should the borrower choose to refinance at a later date?
- Is there a balloon payment?
- What are total closing costs?
The intention of this reform is to help consumers shop for the lowest cost mortgage and avoid costly and potentially harmful loan offers. According to HUD's estimates, this new regulation will save consumers an average of $700 at the closing table. HUD has also improved the HUD-1 Settlement Statement. Each designated line on the final HUD-1 will now include a reference to the relevant line from the GFE. HUD will require the new standardized GFE and HUD-1 to start on January 1, 2010. Read full article here.