HUD Saves $9.5 Billion — For Lenders

by Peter G. Miller
November 13th, 2008

It’s one of those good news, bad news stories.

After much deliberation HUD has come out with a new, better, clearer good faith estimate form, one that it estimates will reduce closing costs by $700 apiece.

The bad news: Lenders need not use the new form until January 1, 2010. Yes. Not 2009, but January 1, 2010.

Let’s figure out what this delay will cost the public.

The National Association of Realtors says that right now we sell about 5.18 million homes this year. Let’s say we have 5.2 million existing home sales in the coming year. At $700 each it means consumers will miss out on savings worth $3,640,000,000.

In addition, of course, we have millions of loans which are refinanced each year, about 8.4 million in 2007 according to the Federal Reserve. Times $700 that means another $5,880,000,000.

So, in total, consumers are losing roughly $9.5 billion because the new form will not quickly go into effect.

Surely lenders are smart enough to know a local printer who can produce a three-page form. Surely lenders are clever enough to program software to fill out the form quickly and automatically.

Do you think it would have taken 14 months to get going with the new form if it meant more money for lenders?

HUD could just as easily have said the new forms will go into effect as of January 1st 2009. But then that would have been reduced consumer costs by $9.5 billion.

Isn’t HUD’s goal to make homes more affordable? Wouldn’t smaller closing costs help achieve that goal? Wouldn’t the FHA mortgage program be more attractive is settlement expenses were reduced?

Ask yourself: If borrowers are not getting that $9.5 bill then who is?

Here’s an idea. The new form is online. Print out your own copy — and ask lenders to complete it.

To get the form, press here.

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One Response to “HUD Saves $9.5 Billion — For Lenders”

  1. Marc Brinitzer Says:

    Peter, I have reviewed the new form and I like it. That may sound strange coming from a mortgage broker, since we are the group perenially targeted by Respa Reform. The form is much clearer in many ways for the consumer than past disclosures, and it smartly allows for variation in fees over which we have no control, like title and escrow costs (when our side didn’t pick the title and escrow companies).

    I question HUD’s assumption–and by extension your figures–with respect to $700 savings per transaction consumer can expect. Exactly where will this come from? Lender fees, appraisal, title escrow–what we call “third party fees” are not generally negotiable items. That really leaves broker fees, and Yield Spread Premium (YSP) in particular as the focus. Certainly this is the spot where bad loan originators have traditionally hidden part of their commission from view, but I’m not buying the estimate.

    With respect to adoption of the new rule, banks have already begun requiring similar disclosures as we speak, and I’m convinced most will have this in place by the end of Q1 2009. Wells Fargo and Vertice (Wachovia Bank) here in our market require new Mortgage Broker Fee Disclosure designed to starkly reveal any and all fees paid to the broker, including YSP, early in the loan process.

    But bad mortgage brokers are only half the problem. Mortgage bankers–like the dude at your local BofA branch–doesn’t have to tell the consumer about all the YSP he’s stuffing into his pockets. Thank the mortgage banking industry lobby for this tilted playing field. I assume the new RESPA rule will be similarly bias.

    And ironically, here is what that disparity ultimately leads: the wholesale channels for third party originations gets choked off as the industry points fingers at mortgage brokers. Mortgage brokers either become bankers or go to work for them, reducing competition in the marketplace and forcing consumers to get their mortgages from the only group allowed to gouge them by not disclosing all their fees.

    Great idea; unintended consequence.

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