Mortgage Reform Finally On Its Way – Now What?

Near the end of October, California legislators demanded mortgage reform from Governor Schwarzenegger. While bailouts and loan modifications help solve the housing crisis of today, most agreed that mortgage reform would be necessary to prevent another mess in the future. Recently, Steve Preston of the Department of Housing and Urban Development shed some light on the issue by reforming a key document of the mortgage process.

A New Good Faith Estimate
Individuals looking for a new home or to refinance their existing mortgage can expect to see changes in the good faith estimate; changes that would help eliminate confusion and explain the mortgage details clearer. Currently, borrowers must deal with different lenders having different good faith estimate documents. While some already have trouble understanding the mortgage terms themselves, different sets of documents make it even more difficult to find the best deal. Sometimes it can be hard enough avoiding the worst deal! In response, HUD has developed a standard three page good faith estimate, in hopes of establishing a universal and understandable mortgage summary.

Sneek a Peek at the new 3 page Good Faith Estimate

Within the document, mortgage shoppers can find key mortgage details such as closing costs summary, prepayment penalty disclosure, fixed or adjustable interest rates, and other terms of the loan. In addition, HUD has attempted to simplify the details of how mortgage brokers often get paid by the lender in the form of yield spread premium (YSP).

Don’t Expect To See Changes Till January 1^st 2010

Most are welcoming this change as it helps to level the playing field in the consumer’s best interest. However, it’ll be about a year before this new standard is being implemented. According to HUD, lenders need this time to train and update operating procedures. In the meantime, proponents of mortgage reform see this change as only the beginning.

Take the Initiative and Protect Yourself
The goal of mortgage reform is to inform consumers and help avoid unscrupulous lending. Unfortunately, deceptive individuals will always be around and reform like this always seems one step behind. The truth is, you are the best source of protection when it comes down to securing the best mortgage. As protective as the laws may be and as honest as your loan agent may seem, the truth is no one will care more about your finances more than yourself.

While changes like these make the details of a mortgage more obvious and transparent, exploring these details on your own do much more to protect you. To get you started, here are three steps you can take to avoid getting taken advantage of during the mortgage process.