For those of you who have ever bought a home, you know how daunting a HUD-1 statement is to understand.  The itemized list of services and fees that are charged to the borrower by the lender or broker are divided up into thirteen sections with numerous subsections.  With so many numbers and so little explanation of each charge, consumers may be left confused or uninformed about their home loan.

Consumers have also been faces with predatory lending practices in the past.  Certain lender “Good Faith Estimates” (GFE's) turn into nothing but sales pitches for a consumer to choose a particular loan product.  In the eleventh hour, a GFE with $2,000 of closing costs turns into $3,500.  The current layout of the HUD-1 leaves consumers unprotected from closing cost shocks or intentional low-balling of fees from lenders. 

The transparency between the consumer and lender will become much clearer starting January 1, 2010.  The Department of Housing and Urban Development is adopting new federal legislation that will affect real estate and mortgage transactions nationwide.  The changes will ultimately help consumers compare loan products between lenders, improve disclosure of closing costs, and help consumers truly understand the terms of their mortgage. 

One of the differences will be the use of a standard HUD-1 (settlement statement) nationwide that will include a consumer-friendly version of the good faith estimate.  The GFE will be received within three days of applying for a home mortgage and will outline the charges of the loan into three broad categories:

1.    Fees that cannot increase at settlement.

2.    Fee estimates that can increase up to 10% at settlement.

3.    Fees that can change without limit.  These fees can change because lenders have no control over them or because they are difficult to predict weeks in advance.     

 
The goal of the new HUD-1 settlement statement and good faith estimates are designed to educate the consumer on the loan products they are receiving.  Click on the links below to view examples of the new forms.  You can also visit the Mortgage Daily article or HUD's website addressing the changes.