The X Factor: A New Tool for Home Loan Shopping
Comparing mortgage interest rates doesn’t have to make your hair stand on end (or fall out!). Starting January 1, 2010, it should be much easier to understand the terms of loans presented to you and make comparisons between mortgage products.
Regulation X Means No Baiting, No Switching
Changes to Regulation X mean what you see on your disclosures is what you get when you close your home loan–no additional fees, no increased interest rates, no low-balled third-party charges. It creates a standard format that all lenders have to adhere to, so you can make meaningful comparisons when evaluating mortgage options.
Good Faith Estimate and Settlement Forms Must Agree
You get a good faith estimate (GFE) when you start your loan process and settlement forms (a HUD-1) when you close. Changes to these forms in 2010 include:
- All lenders must disclose fees exactly the same way.
- Loan feature information, such as pre-payment penalties or adjustable interest rates, is included on the forms.
- Total lender fees are combined and shown as a single amount so you can go straight to the bottom line.
- The GFE and the HUD-1 must be reconciled at closing and they must agree (within certain tolerances).
Shopping for Settlement Service Providers
Lenders have to offer a list of service providers (escrow and title companies) and you may select one you like (from the list or not). If your provider is on the list, the fees are guaranteed to fall within 10% of the estimate. If you choose a provider not on the list, the lender doesn’t make that guarantee. However, the providers on the list may not be the lowest-priced, and there is no warranty by the lender to the quality of the service provider. One large American bank lists only a single provider–their own title/escrow company (what a coincidence!). So shop around for title and escrow services, or you could end up paying more by going with those listed.
Required Re-Disclosure of Mortgage Rates and Fees
If you get a GFE and your loan parameters have not changed, the lender must charge what has been disclosed–even if the charges were mistakenly underestimated. The lender must re-disclose its fees and terms within three business days if your circumstances change. What is a “changed circumstance?”
- An act of God, war, or disaster
- New information provided by you (for example your credit score or income dropped)
- Loan amount changes or property value decreases
- Your interest rate locks or a rate lock or your rate lock expires
- A change in the deal structure at your request (for example, a different loan product)
Lender and Third-Party Fee Tolerances
Some charges, like origination fees, discount points, and transfer taxes, cannot be changed at all. Others, if the service provider came from the lender’s list, can increase but by no more than 10% . Increases beyond 10% must be sucked up by the lender. Thanks to Regulation X, new forms should make shopping for a new home loan or refinancing your mortgage a snap.
