FrontDoor.com

Getting a mortgage can be confusing and frustrating. To make it less so, the federal housing department has proposed an overhaul of the mortgage process, from application to closing.

The proposed regulatory changes are designed to do a number of things: make it easier to compare mortgage offers while shopping, force lenders to estimate closing costs more accurately, and ensure that borrowers know the terms of their loans.

For consumers, the most visible change would be on the top page of the four-page good faith estimate. The proposed document is less cluttered than today's good faith estimates. The top page of the revised estimate would summarize the costs in two categories: those charged directly by the lender, and those imposed by third parties, such as credit bureaus, appraisers, title insurers, homeowner insurance companies, condo associations, and the county recorder.

Summarizing the costs this way could confuse consumers and make it harder to compare offers because some of these charges vary, depending on the date of closing. One lender could offer a better deal, based on closing the loan on the fifth of the month, and another lender could offer an inferior deal based on closing on the 25th of the month, making the latter deal appear less expensive because less money would be set aside to pay for property taxes and homeowner insurance.

The Department of Housing and Urban Development, or HUD, says the proposed estimate lumps all the third-party fees and taxes together to keep things simple and to "reduce any incentive for loan originators and others to establish a myriad of ?junk fees' and provide them in a long list in order to increase their profits." However, it does not separate recurring expenses from one-time fees and taxes.

Under the proposal, lenders would have to give accurate estimates. Once the rate is locked, the lender would not be allowed to increase its service charge "absent unforeseeable circumstances." Government recording and transfer charges would have to be spot-on, too.

All third-party charges, combined, would not be allowed to rise more than 10 percent from the good faith estimate. For example, if the title insurance, appraisal, credit report and survey total $3,000, that total could not exceed $3,300 at closing.

The accuracy requirement will present a challenge to national lenders that underwrite loans far from their headquarters. The pitfalls are plentiful, says Jeff Jurin, national sales manager for First Title & Escrow, of Rockville, Md. "The broker in Rockville, Md., has no idea there's a city tax in Miami, Fla., so it doesn't get in the calculation," Jurin says.