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A document detailing how much a borrower should pay in fees and interest rates and how much brokers will earn, is hailed by the U.S. Housing and Urban Development (HUD) as its answer to the country’s foreclosure crisis.
The HUD requires all brokers and lenders to use its Good Faith Estimate guidelines starting 2010 in an effort to abate the foreclosure problem.
The document contains several questions that brokers and lenders need to answer, such as their initial loan amount, interest rate, the possibility that their interest rate will increase, when the first rate increase will be, the maximum possible amount of increase and maximum possible monthly due.
Assemblyman Ted Lieu criticized HUD’s guidelines saying that it failed to stop the abuse of some industry incentives, such as the yield spread premiums (YSP). Lenders pay an YSP to brokers for making a deal with an interest rate higher than other rates in the market.
Lieu further noted that disclosure-based deregulation rules adopted by the Wall Street have only caused financial disaster.
Meanwhile, HUD Secretary Steve Preston explained that Real Estate Settlement and Procedures Act (RESPA) aims to give homebuyers transparent information to help them understand what they have agreed or signed to do, and thus protect them from foreclosure.
He adds that HUD wants to help homebuyers make an informed decision to help them avoid situations that might lead to foreclosure.
Preston also explained that HUD is trying to create a balance between the quality of information it is providing to homeowners and the mortgage industry’s ability to provide the needed information.
RESPA, according to Preston, is based on good faith estimate, a document that would outline what the loan is to help borrowers avoid foreclosure.
Preston believes that it is the responsibility of the HUD to improve the loan process to help the industry and homebuyers and eventually, alleviate the foreclosure crisis.
HUD Fair Housing Equal Opportunity