THE FEDERAL government wants your help in simplifying what for many homebuyers and refinancers is the least pleasant part of obtaining a home mortgage: The eye-blurring paper blizzard of disclosures and forms you get during the loan application and settlement process.
The Federal Reserve Board and the Department of Housing and Urban Development (HUD) are seeking direct input from consumers until June 30 to come up with more effective disclosures on truth-in-lending and home real-estate settlement costs. The agencies plan to ask Congress to make the legislative changes necessary to streamline the process nationwide as soon as possible.
Tops on the list of questions the government would like you to answer: What does a consumer really need to know about a mortgage quote in order to comparison-shop intelligently? And when does a consumer need to know it?
Under the current system, loan applicants often get little more than a rate quote until three business days after signing up for the mortgage. That's when the lender is required by federal law to provide a series of detailed truth-in-lending disclosures on the terms of the loan, including the finance charge, annual percentage rate (APR), total payments and others.
Three business days after your application, the lender is also required by federal law to send you itemized "good faith estimates" of the settlement costs you'll likely pay, such as title insurance, loan brokerage fees, appraisal, credit report and transfer taxes.
The problem with these disclosures is that they typically come too late in the game to be useful for comparing one lender's deal against another's. For example, say one lender quotes you 7 3/4 percent and 2 "points" for your new mortgage. (A point equals 1 percent of the loan amount.) The next best quote you get after vigorous shopping is 8 percent and 2 points. So you go to the first lender's office and fill out an application.
What you don't know at this stage is whether the 7 3/4 percent lender actually offers the better deal. You have no idea whether the lender routinely lards on so-called "junk fees" and other charges that totally erase the quarter-percent rate advantage over the next lowest bidder.
If you're like many borrowers, you may not discover these fees until you get your mortgage settlement documents -- too late in the process to bail out.
