Government update of the Real Estate Settlement Procedures Act takes effect 1/1/2010, mandates a standard, 3 page Good Faith Estimate that urges consumers to comparison shop for the best loan and helps them compare lenders’ fees.

HOW THIS EFFECTS CONSUMERS

1. Although the Good Faith Estimate has been in use for many years, it has never been standardized. Under the new rules, lenders and mortgage brokers are required to give consumers the new standard estimate forms within 3 days of receiving a loan application.

2. The New Good Faith Estimate form requires lenders to combine all of the bank’s fees into one “origination charge,” enabling consumers to compare lender’s fees. Lenders are forbidden from increasing the origination fee from the estimate. Some of the other fees, including title services and recording fees, can increase by as much as a combined 10 percent. Estimates for other fees, such as homeowner’s insurance and other services provided by third parties selected by the borrower, are not subject to such limits.

3. A finance professor emeritus at the University of Pennsylvania’s Wharton School advises that borrowers focus on two items as they comparison shop: the interest rate and the “adjusted origination charge,” which includes any points paid to lower the rate.

4. Another modification includes the HUD-1 form used by settlement firms in closing escrow. The new HUD-1 includes a comparison of the estimated and final costs, as well as a summary of the loan terms.