These days, there’s hardly any business like the mortgage business. A cottage industry has evolved around historically low interest rates and easy credit; people who refinanced their residential mortgages two years ago found themselves doing it again a year later, and some have even done it a third time. The enormous savings in lower interest rates usually more than offset the expenses related to refinancing.
Funds that had been invested in the securities markets have been redirected as the markets fell dramatically, and investors sought alternate “safe” investments. They saw the homeowner as a reasonable alternative. It has created a ready-availability of residential mortgage loans which sparked a kind of lenders’ panic, something most of us have never seen before. Each tried to outdo the other, and in the end some of the most prestigious banks were pandering to homeowners, virtually begging them to refinance their homes in a manner that would have been inconceivable a decade ago. These conditions have also sparked an amazing building boom of very large and very expensive houses; and while interest rates have crept up recently, they are still low enough to encourage builders to maintain their frenetic pace.
Apparently all of this activity has brought with it a sufficient number of complaints about some of the lenders’ practices to cause the Department of Housing and Urban Development to take a long look at residential financing. Secretary Mel Martinez recently announced that his department would soon be proposing new regulations whose purpose is to control costs to the borrower and simplify the process. Since mortgage-lending has cooled considerably in the recent months (ah yes, the stock markets are in recovery), it might be akin to calling the doctor after the patient has died; and an enormous groan has been heard from title companies, mortgage brokers, and other service-providers in the field. The large mortgage lenders, however, seem to be supporting the Secretary.
Mr. Martinez estimates that $50 billion is spent annually on closing costs alone; his announced goal is to reduce that by $8 to $10 billion. His new rules would encourage lending institutions to offer “guaranteed mortgage packages” which would specify interest rates and all closing costs at the outset of a loan negotiation. The goal there is to make it easy for a borrower to seek proposals from several lenders and compare.
The initial estimates to potential borrowers from the lenders would include all fees to be paid by the lenders to mortgage brokers as well as a detailed breakdown of all fees to service-providers in a loan transaction. The estimates would also be legally binding, so that a borrower is protected from unexpected charges that might pop up at the loan closing.
Full disclosure in any endeavor is usually wholesome. We have represented many who have done “refi’s” over the past few years and will take a careful look at the new regulations. While the Secretary’s goals are lofty, we are all wary of yet another set of federal regulations; if he is able to simplify a most complex process and reduce needless costs, it will be a moment to rejoice.
— Ken Butera