Mortgage disclosure rule beefed up

NEW YORK - Lenders and mortgage brokers will be required to provide home buyers clearer information about loan terms and closing costs under guidelines issued yesterday by the Department of Housing and Urban Development.

Banks will have to provide consumers a standardized "good-faith estimate" of closing costs beginning in 2010, HUD Secretary Steven Preston said. Banks now have different forms making it difficult to compare offers.

The rules, which HUD said are the first changes of their kind in 30 years, are aimed at addressing record foreclosure rates brought on in part by easy credit and a flood of adjustable-rate mortgages homeowners have been unable to pay. Delinquencies on subprime adjustable-rate mortgages jumped to 21 percent in June from 9.9 percent in December 2004, according to the Mortgage Bankers Association.

HUD estimates the changes will save buyers as much as $700 at closing, based in part on a requirement limiting the increase between the good-faith closing cost estimate and actual fees to 10 percent. Consumers are supposed to save additional money by using the estimates to shop around.

The guidelines don't contain penalties for banks that fail to follow HUD's mandates since the agency lacks enforcement power, Preston said. It will be up to consumers to sue lenders who don't comply or for regulators such as the Office of Thrift Supervision, the Federal Deposit Insurance Corp., and the Federal Reserve to pursue violators, Preston said.

That may not be enough to protect consumers, said David Berenbaum, executive vice president of the National Community Reinvestment Coalition, which promotes access to credit and banking services for families.

"We have been very critical of the Fed's enforcement under Alan Greenspan," Berenbaum said. "Now they are doing more, but the record has been weak both in terms of consumer protection as well as fair-lending issues."

The OTS will enforce the rules and may punish violators through fines or by referring cases to the Department of Justice, spokeswoman Janet Frank said. A spokesman for the FDIC could not immediately comment because he hadn't reviewed the HUD proposals.

HUD's new forms fail to require lenders to tell consumers the average annual percentage rate over the life of the mortgage, or reveal how much a lender is paying a mortgage broker for arranging the loan, Berenbaum said.