New HUD Rules, Too Little, Too Late for “Uninformed” New York Borrowers?

If anyone has ever closed on a HUD inspired (guaranteed) loan, you know that there are millions of forms that are designed to provide notice of the borrowers’ rights and responsibilities. The prevailing view of policy makers was let the borrower beware, give them notice, and then let them make the mortgage– move the closing along.

The present housing crisis, however, has everyone re-thinking whether the borrowers are really getting well advised about the meaning of all these lending terms, prices, fees, etc. Hardly surprising given American’s thirst for debt and former “equity” in their homes.

The problem, however, should not be so prevalent in New York, where attorneys are still largely responsible for closing with clients and, presumably, advising them of the mortgage process.

Nevertheless, the policy makers don’t want anyone looking at them for the blame. So, the Department of Housing and Urban Development recently released a new set of rules designed to help homeowners understand the products they are borrowing against. The update modifies the Real Estate Settlement Procedures Act, known as RESPA (enacted 1974).

Various industry lobbyists, lenders and others involved in mortgage transactions opposed the new rules, but HUD pressed them through anyway. Note, however, that HUD officials still have no enforcement mechanisms to require or penalize non-compliance, but state and federal regulators could insist on “compliance” with the federal rules. Indeed, the threats of class actions may also “encourage” lenders to comply.

Now, in addition to the standard HUD form signed at closing, the revised “good-faith estimate” for borrowers will explain rates, fees, any prepayment penalties and the possibility of later increases in monthly payments. Fortunately, closing attorneys avoided having to orally read the disclosures to the closing participants!!

The new HUD-1 form (January 1, 2010) is designed to help consumers before they sign so that they can compare the promises made by the lender with what they are actually being charged at the closing. Again, borrowers will not have the opportunity to review the new forms at the comfort of their home kitchen, because they will only be given the HUD-1 form shortly before the closing. Why can’t we just get the Truth in Lending Document from all prospective Lenders so we can compare the Annual Percentage Rates for each particular loan.

The new form should also help consumers understand that the broker is being paid in fees, often called “yield spread premiums.”

The bottom line– hire competent New York real estate attorneys to represent you at your mortgage closing, or get a competent mortgage broker to explain the different products. Then, if you cannot pay the mortgage, expect to be foreclosed upon.