For the first time ever, HUD will require mortgage lenders and brokers to provide borrowers with an easily understood Good Faith Estimate that will clarify exactly what he/she is paying at the closing table. The borrowers will know what the term of the loan is, whether or not the interest rate is fixed or adjustable, whether or not there is a pre-payment penalty if the buyer should choose to refinance at a later date, whether or not there is a balloon payment, and exactly what the total closing costs will be.

HUD estimates that by improving the disclosures on the Good Faith Estimate and limiting the amount of estimated charges, consumers can actually save money. This new regulation of good faith estimates will save consumers nearly $700 at the closing table. HUD will now require lender payments to mortgage brokers to be disclosed in a manner that is easy to understand. These payments are directly dependent on the interest rates that consumers have agreed to. To ensure the new requirement is beneficial for all, the Department did a rigorous consumer testing and found that the new GFE helped consumers to select the lowest cost loan almost every time, regardless of whether or not the loan was originated by a broker or a lender.

The new Good Faith Estimate has also shortened the form to three pages instead of the four pages. They did this because there were industry commenter’s that had complained that four pages was too long. This will help borrowers not only understand their loan offer, but also what each payment represents. There is also an instructional page that will clearly explain all costs. HUD believes that borrowers need to be aware of all of the fine details of their loan and understand the settlement costs.

Consumers are also allowed to compare their estimated closing costs with the actual costs included on their HUD Settlement Statement. In order to simplify this comparison, the HUD statement will now include a reference to the relevant line of the Good faith estimate.

All of these new requirements are set to take place in January, 2010. HUD will allow lenders and settlement service providers to update what could be potential violations of RESPA’s new disclosure and tolerance requirements. They will have 30 days from the date of closing to correct any errors or violations and they will repay consumers any overcharges.