Have you ever looked back on something and thought “Wow, that was really stupid!”? I must admit I’ve done that many times. There was the time I jumped from my 2nd story deck and broke my arm in two places. Or a couple of years ago when I bought a non-running ’86 Toyota pickup and got it running again to give to my wife for our 13th anniversary thinking it was sweet because she and her best friend used to ride around in that very truck during their high school years. (I still think it was romantic but she doesn’t see it!) Or there was the time I showed a State Trooper the ticket I had just received 2 hours earlier and in all seriousness said “You can’t give me two tickets on the same day.” Ok, that was a VERY long time ago!
I bring up those stories to illustrate that we’re not always as intelligent as we think we are. Or perhaps we make stupid decisions despite our extreme intelligence! This applies to us individually and to us collectively.
Last week I sent out a summary of the changes to RESPA enacted by The Department of Housing and Urban Development (HUD) detailing the changes and the presumed benefits of the reform. (You can find all of my newsletters available on our website by clicking the image on the left side of this newsletter.) This week I want to talk about 3 glaring errors the recent RESPA changes have made.
The new Good Faith Estimate (GFE) doesn’t list your total monthly payment, and instead only lists the principal and interest portion of the payment; and an estimate of how much money you’ll need at closing? You won’t find that either! For a disclosure that’s purported to increase consumer awareness, this is a huge problem! “Yes Mr. and Mrs. Smith, your monthly payment is only $996.87 as the GFE says right here.” (Nevermind the additional several hundred dollars in property tax, insurance, and homeowner association dues, we’ll surprise you with that when your first bill comes in the mail!!) And at closing, “Did I forget to tell you that you’d need over $10,000 to close? My bad….”
Oh, and HUD says we’re not allowed to alter the form in any way, including writing on it! So we can’t even make a note in the margin!
Finally, the GFE attempts to encourage people to “shop for the best loan” apparently by using the “shopping chart” which has blanks to be completed with different interest rate offers. There is no mention of “suitability” anywhere. Remember when it was said that mortgage lenders steer people into the loan that makes the most commission? How does “shop for the best loan” avoid that when shopping only means finding the lowest rate? Does the lowest rate on the program that pays the highest commission somehow make it “the best loan” for you?
We’ll provide a “Total Cost Analysis” that takes into consideration not only the loan’s interest rate, but your other asset account’s rate(s) of return, your tax bracket, and your financial goals. Only with this tool can you begin to know what loan is most suitable for you. And that’s what you really want to know isn’t it?
Stand by for GFE revisions to include a total monthly payment, and total funds to close. The real question is whether HUD will bring suitability into the picture. If not we’ll have to change their name to Development of Urban Housing (DUH)…
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