HUD (the Federal Agency Housing & Urban Development - which defines Federal regulations related to home buying, etc. ) has issued a proposed new requirement regarding the disclosure and good faith estimate documents used in the home purchase process.
In my experience, after moving to FL and buying a home here in 2005, Florida is inept at the disclosure of future estimated property taxes and insurance costs. Below is the comment I filed with HUD regarding the new document design:
The failure by HUD and the States to require accurate estimates of future property taxes and insurance costs for new home buyers is a major factor that causes economic distress to them about 12-15 months after closing the transaction.
I wish to ADD a suggested component to the home buying process.
The problem is that the good faith documents always use out of date property tax and insurance estimates, if at all, and yet here in Florida, everyone gets hit with much higher taxes and insurance than expected because the prior homeowner paid taxes and insurance based upon his original purchase price, which could be much lower. There is NO specific, professional requirement to calculate an accurate estimate of property taxes and insurance (and flood insurance) on Florida properties (and probably other states) based upon the new property value and current market conditions. Then what happens is the old, lower values are used for escrow impounds. When the higher tax bills and insurance bills come in after a year, the mortgage company is short in the impounds, and they DOUBLE the impound amounts to make up the undercollected withholdings for taxes and insurance. Thus I started with a property that had a monthly payment of $1100. Then the new tax bill came in, plus insurance hikes, and the mortgage company, with only one month notice, hiked the monthly payment up to $1500. After a year, they recovered the first year shortfalls, and the monthly payment dropped to $1320. This has nothing to do with ARM's. I had a flat, fixed payment 30 year loan. All the excess, surprise costs came from underestimating the new tax and insurance costs.
You need to also address this problem, and force an objective method to prepare new property tax and insurance estimates based upon new property values and current market conditions so homeowners don't run into the almost 50% payment hike I got from not getting accurate estimates. This is a major factor in why people may have problems paying for a home, and they hit about 12-15 months after they move in. I even asked my realtor for an estimate during the purchase process and she said they use the old owner's payment history because no other data was available.
I have been a corporate auditor for 20 years, and this lack of accurate estimates is unprofessional to me, and HUD needs to straighten it out for all homeowners.
In my view, I should be able to file a complaint and get state governments to pull the license of any realtor or mortgage broker that failed to provide accurate estimates of future property taxes and insurance costs.
Additionally, I believe Florida should have a regulation that either the County Elected Clerk, Appraiser or the Elected Tax Collector must have an online calculator that a prospective homebuyer can use that provides an objective, current market value estimate of future property taxes and insurance costs based upon a proposed house purchase price. They already have historical data in their property databases. (Maybe not for insurance, but they could link to objective sources for that info.)
Vance Jochim
www.fiscalrangers.com
Below is the link to the HUD page with the proposed new regs and where you can submit a comment.
http://www.regulations.gov/fdmspublic/component/main?main=DocketDetail&d=HUD-2008-0028
vj
Below is an article from the LA Times about the HUD proposal.
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http://www.latimes.com/business/printedition/la-fi-mortgage15mar15,0,4810970.story
From the Los Angeles Times
LENDING
Plain-talk disclosures proposed
By Jonathan Peterson and Kathy M. Kristof
Los Angeles Times Staff Writers
March 15, 2008
WASHINGTON — Mortgage disclosure forms, long considered baffling, incomprehensible and misleading, are about to get an overhaul, federal officials promised Friday.
In a bid to prevent misunderstandings and bait-and-switch tactics that have helped fuel today's mortgage crisis, U.S. housing officials proposed the first major overhaul of mortgage loan disclosures in 30 years.
Housing officials estimated that the proposal could save consumers an average of $670 on each loan because borrowers could finally make simple comparisons of loan terms and fees -- before they sign on the dotted line.
"It's not right that millions of consumers go to the settlement table without fully understanding the mountain of paperwork they are asked to sign and, on top of that, are expected to pay thousands of dollars in closing costs for services that they have never heard of," said Brian Montgomery, assistant secretary for housing at the Department of Housing and Urban Development, which proposed the rules.
As many homeowners can attest, the forms are complicated. They are intended to spell out the rates, terms and conditions on increasingly complicated mortgage loans.
But, the key elements of the loans -- such as balloon payments, prepayment penalties or other risks -- are often buried in pages of boilerplate language and confusing legalese.
The government's proposal Friday would drastically revamp mortgage disclosures, demanding that all key terms be disclosed on the first page of a new, four-page good-faith estimate that would be used by all lenders.
This estimate would prominently disclose whether the loan's interest rate could rise and whether the loan includes a prepayment penalty, as well as what the borrower can expect to pay upfront for appraisals and title insurance.
Moreover, the 96-page proposal, which updates the Real Estate Settlement Procedures Act (RESPA) that governs mortgage loans, would bar lenders from steeply hiking costs at closing -- a common complaint today -- by designating which fees could vary from the estimate and by how much.
"This is the most fantastic news consumers could have," said Jeff Lazerson, president of Mortgage Grader, an Internet-based loan broker. "We have needed this since RESPA was enacted in 1974. It was a poorly written law that protected crooked operators. This spells the end of bait-and-switch loan pricing."
The standardized good-faith estimate is the centerpiece of the initiative. But, housing officials also recommended that settlement agents read a prescribed script to borrowers at closing, informing them once again about key terms of the loan.
Some consumer advocates saw the proposal as only a first step that needed to be followed with legislation.
"We welcome anything that makes mortgage disclosures more clear and transparent," added Allen Fishbein, director of housing and credit policy at the Consumer Federation of America. "But Congress needs to act on the issue of enforceability."
Under current law, borrowers have little recourse if the estimate they receive when securing a loan turns out to be vastly different from the charges they pay at closing. Legislation needs to be passed to establish penalties, Fishbein said.
In addition, some consumer activists felt the proposal fell short in its treatment of payments that brokers receive when they steer borrowers into loans with higher rates than they could otherwise obtain. Such payments are called yield spread premiums. Under the HUD plan, these charges would have to be included on the estimate, but they would be lumped under a heading called "Our service charge." As a result, some borrowers would not understand what they were being charged for, critics say.
"That has left the door wide open for continuing abuses," said Howard Glaser, a mortgage industry consultant and former HUD official. "I think HUD blew an opportunity to move the mortgage brokers toward a fixed, flat-rate system that would have served borrowers much better."
Still, HUD officials said that in consumer testing, borrowers picked the lowest-cost loan with the proposed disclosures more than 90% of the time.
Agency officials added that the proposed disclosure was more neutral, because it did not discriminate between broker charges and those levied by a lender. Both types are ultimately passed on to the consumer, so who gets the fee is less important than the amount.
With that exception, Glaser said, the overall proposal was a step forward: "Getting consumers early, accurate and certain information is very meaningful," he said, describing the proposal as "a significant step" in that direction.
The public has 60 days to offer comments, which HUD must consider and potentially incorporate into any final proposal. If there are no snags, the agency could adopt the new rules within a year.
In the past, mortgage brokers, consumer activists and others have battled over proposals to overhaul the mortgage settlement process. A similar proposal was nixed two years ago, after the agency received tens of thousands of critical comments.
But some observers believe that in today's politically charged, crisis atmosphere it would be difficult to oppose loan reforms that are characterized as pro-consumer. Indeed, the initial response of brokers and lenders to the HUD proposal was friendly, if guarded. Although most said they had not reviewed the rule carefully enough to take an official position, they welcomed the improved disclosures.
"This proposed rule represents a major step forward in terms of consumer protections," said Roy DeLoach, executive vice president of the National Assn. of Mortgage Brokers.
jonathan.peterson
@latimes.com
