It took six years and major controversies with Capitol Hill, but last Thursday HUD published final regulations mandating uniform disclosures for all new home mortgages -- plus tougher rules requiring "good faith estimates" from lenders that accurately reflect the line items on consumers' settlement sheets at the end of a home purchase or refinancing.

The regulation gives the real estate and lending industries a full year to revise their systems and documents to comply with the new disclosure forms under RESPA -- the Real Estate Settlement Procedures Act.

If industry groups have serious complaints about the final rules or forms, they'll be able to argue their case with the incoming Obama administration. A new HUD secretary, expected to be named by the president-elect before January, could pull the rule, amend it, or start the whole RESPA reform process again.

Outgoing HUD secretary Steve Preston said the department wanted to publish a final regulation before leaving office because "consumers need and deserve to know what they're getting into" when they sign for a mortgage. Too many consumers "did not understand" the loans they took out during the recent boom period, he said, and that has greatly contributed to the current housing foreclosure crisis.

Among the key changes to the rules since HUD proposed its most recent draft regulation last March, are elimination of a controversial 45 minute "closing script" that settlement or title or escrow officials would need to follow at closings.

The final "good faith estimate" (GFE) disclosure was cut from four pages to two pages with an instructions page. The new GFE requires disclosure of all lender payments to mortgage brokers -- so-called yield spread premiums. Brokers have heatedly denounced that requirement, which they say confuses consumers or biases them against brokers.

But FHA commissioner Brian Montgomery said the disclosure form was extensively tested with consumer focus groups and produced the "correct" choice -- the best financing option -- 92 percent of the time.

The revised GFE walks consumers through the loan mechanics, key terms and fees, plus provides a "shopping chart" that allows for comparisons of up to three different loan package quotes provided by competing lenders or brokers.

It also requires that the final fees on the settlement sheet match up closely -- or exactly -- with the costs provided in the good faith estimates.

Initial reaction to the revised disclosures from industry groups was mixed. The Mortgage Bankers Association's chairman, David Kittle, said "the rule's new estimate and settlement forms are an important step" toward empowering consumers, but he also looks forward to working with the Obama administration to improve them further.

Published: November 17, 2008

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Kenneth R. Harney writes an award-winning, nationally-syndicated column on housing and real estate from Washington, D.C. He is also managing director of the National Real Estate Development Center, a professional education company. He is a past member of the Federal Reserve Board's Consumer Advisory Council, a committee that by federal statute reviews all Fed actions on home mortgage, consmer credit and banking industry regulation. He served as a member of the U.S. Department of Housing and Urban Development's Working Group on Computerized Loan Origination (CLO) systems, and is a member of the Editorial Board of the Fannie Mae Foundation's journal, Housing Policy Debate. He is the author of two books on mortgage finance and real estate.