New Mortgage Rules Aimed at Consumers

The Department of Housing and Urban Development plans to announce Wednesday morning its final version of new rules designed to help Americans shop for mortgages more effectively.
The rules update requirements of the Real Estate Settlement Procedures Act, known as Respa, a 1974 law that sets federal rules for home-purchase transactions.
Among other things, the new rules, debated for years, are supposed to help consumers compare terms on loans offered by different lenders and limit the ability of lenders to offer final terms that are far different from initial estimates given to potential borrowers.
Many Americans now in default on their mortgages say they didn't fully understand the terms of loans they were encouraged to take during the housing boom. One big problem is that legally mandated disclosures are so voluminous that almost no one ever reads them before signing.
Lobbyists said HUD appears to have dropped a provision that would have required a lengthy "script" to be read to borrowers at the closing table, setting out the terms of the loan. Lenders had complained that the script would raise costs by taking up too much time. A HUD spokesman declined to comment on any changes.
Mortgage industry groups have called for HUD to withdraw the planned rules and instead work with the Federal Reserve to create a coordinated set of disclosure rules stemming from Respa and the Truth in Lending Act. The Federal Reserve has responsibility for making rules under the latter law.
But the Bush administration, which was forced by intense industry opposition to withdraw an earlier set of Respa rules in 2004, has insisted it would complete the process this time.
The Obama administration is likely to try to go well beyond the new Respa rules and look more comprehensively at disclosures lenders are required to make to borrowers, said Howard Glaser, a mortgage industry consultant who served as a senior HUD official in the Clinton administration. "This won't be viewed as sufficient to restore borrower confidence in the mortgage process," Mr. Glaser said.
There is general agreement on a need for simpler forms of disclosure. "In today's market, people shop more effectively for a new flat screen TV than they do for a mortgage," the Mortgage Bankers Association, a trade group, told Congress in testimony earlier this year. But the association said HUD's planned rules failed to simplify the process.