Thursday, May 19, 2011

New Mortgage Disclosures being tested but...did they get them right this time?

Properly disclosing the cost, both upfront and over time, has been a long debated subject. The whole debate started many years ago and the original fix was RESPA - 'Real Estate Settlement Procedures Act' passed by Congress back in 1974. I vividly remember nobody believing that it would last, expecting it to never be enforced. I was working for a Title and Escrow company in downtown San Francisco. I remember that we were instructed to ignore it. It was onerous and time-consuming and would require additional expense for the training of employess and implementation in order to comply. The company held out as long as they could and finally succumbed; then they called for volunteers who had been trained properly and paid us overtime to pull all the old files and bring them into compliance. That original ruling 'RESPA' stayed in place for many years until someone decided that noone could understand the disclosure and amended it in 2008 and again in 2010, adding several pages of disclosure that made it even more difficult to understand because one had to read a page and go follow it on the other pages - it was a ridiculous accountant-like attempt at making something understandable for the consumer that became even more ridiculous at each amendment.

Well....They're at it again and you can read that article here: http://www.sfgate.com/cgi-bin/article/article?f=/n/a/2011/05/18/financial/f090501D83.DTL

In the article, you can click on the new samples which are available for consumers to comment on between now and June 12th. I found the newer versions to be a little better but I noted several things on my single perusal: There is no definition for Government Fees (which seem to be nearly 1% of the new loan amount...You'd think they'd try to explain that a little-I've been around the block and have no clue what that is); there appears to be a duplication of title fees (generally there is the following: Owner's policy fee, Lender's policy fee, Endorsements, and related miscellaneous charges); There is no disclosure of the amount of the Private Mortgage Insurance the disclosure purports is a requirement of the loan and we all know that's not free; and there is no reference to the deposit to the Escrow Account for future payment of Private Mortgage Insurance. These were items that stood out immediately for me and I didn't pull my fine tooth comb out of my pocket or read them a second time.

I would say that the good news is that somebody's out there trying for us all but like a novelist would have a proofreader, it would seem prudent to enlist the aid of industry professionals to give it the ol' once over before releasing it.....but Kudos for watching our backs.

As always .... Keep the faith!

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