Today’s Wall Street Journal featured an article about the Bush Administration’s plan to expand mortgage disclosures ($), which will give borrowers a clear picture of how much they are paying and what they are paying for. This is a good thing!
According to the article, the Bush Administration had tried to do something three years ago but faced so much opposition from the mortgage industry that they shelved the plan. I guess the mortgage industry loved being able to hide fees from borrowers.
The Bush Adminstration also wants to make changes to the Good Faith Estimate. From the article:
The biggest change is expected to be to the Good Faith Estimate, a document given to borrowers that lists costs such as title insurance, appraisals and other fees. The administration wants a more explicit detailing of mortgage-broker fees and loan terms, such as whether the interest rate increases or if there is a prepayment penalty.
I think these are good things to do. No, they won’t bail out people from their mistakes, but it could help to keep people from making the same mistakes in the future. I don’t understand why the AFFIL isn’t praising these changes. Are they truly the Americans For Fairness in Lending or just another Moveon.org?
One other interesting thing I found in the article:
The housing industry is bracing for HUD’s revised proposal — in particular, mortgage brokers, who are barraged with criticism in the current housing crisis. Members of Congress, consumer groups and others have accused mortgage brokers of steering individuals, including those with good credit, into subprime loans with higher interest rates that benefited them financially.
Brokers often receive fees from the lender when the borrower agrees to pay a higher interest rate than he or she qualifies for. The higher the rate, the higher the fee for the broker, though some lenders cap the amount they will pay. HUD is expected to require more explicit disclosure of broker compensation so borrowers clearly understand the relationship between broker and lender.
President Bush singled out the industry in a speech last month, saying his administration “will soon issue regulations that require mortgage brokers to fully disclose their fees and closing costs.”
Mark Savitt, president-elect of the National Association of Mortgage Brokers, said his industry already provides adequate compensation information. “I don’t know of anybody else in our industry where you completely disclose every dime you make in a transaction, so I don’t know what more we could disclose,” he said.
Regarding Mark Savitt’s comment: I would be willing to bet that the fee disclosure does not mention the fact that the broker makes MORE money from a subprime loan than a regular loan. So, although they may disclose their fees, there’s nothing for borrowers to base those fees on.
I think this is a move in the right direction.