Chico CA Real Estate Market: Out of the Darkness

Out of the Darkness, by Mike Wiegert

I don’t think that anyone that follows
Chico, statewide and national real estate news can deny that our Federal legislators are taking huge strides to contain the faltering real estate market conditions. Once again last week, our government stepped forward in an effort to help American homebuyers understand the complex and confusing terms of real estate mortgages, thereby enabling these homebuyers to more effectively shop for the most important investment of their lives.

Department of Housing and Urban Development (HUD) Secretary, Alphonso Jackson has announced a proposal that will reform the 30 year old Real Estate Settlement Procedures Act (RESPA), thereby improving disclosure of loan terms and closing costs borrowers pay when buying or refinancing their homes. The primary target is the standardizing of Good Faith Estimates provided by mortgage lenders. These estimates give consumers comprehensive costs associated with loan acquisition. By standardizing these estimates, borrowers can more easily shop and compare mortgages offered by a number of lenders. HUD’s economic analysis finds that by offering consumers clearer, more certain cost estimates, the average borrower will save nearly $700.

“A lot of the mortgage problems we see today are directly related to the fact that few people fully understand this process,” said Jackson.
“Buying a home can be very intimidating. Consumers have had no assurance that the loan terms and closing costs they are offered will reflect what they confront at the settlement table, and that’s been one of the factors driving the current housing downturn. Our proposal fixes that. We owe it to the American homebuyer to give them the information they need to make smart choices.”

Brian Montgomery, HUD’s Assistant Secretary for Housing, added, “It’s not right that millions of consumers go to the settlement table without fully understanding the mountain of paperwork they’re asked to sign and, on top of that, expected to pay thousands of dollars in closing costs for services they’ve never heard of.”

“This new Good Faith Estimate will give families the tools they need to understand what they’re getting into before they sign on the dotted line.”

The proposed rule changes to RESPA, effectuates President Bush’s promise last August to replace existing mortgage rules with new ones that offer more clarity and prevent mortgage difficulties experienced in the past. Key elements of the newly proposed Good Faith Estimate include the interest rate and monthly payment and whether or not the interest rate can increase and by how much. Prepayment penalties and balloon payment (early payoff requirements) will also be disclosed.

The proposed Good Faith Estimate would categorize closing costs, prevent “junk fees” and prominently display total estimated settlement charges enabling the consumer to easily compare loan offers. HUD’s new regulations would specify and limit what charges can be modified up until the time of closing. In addition to Good Faith Estimate changes, HUD would also change and standarize estimated and final closing statements so that borrowers can more easily compare these closing statements to the Good Faith Estimate.

The RESPA changes to Good Faith Estimates cover a number of key costs important to a borrower and in strict consumer tests found the new regulations to be effective 90 percent of the time. As an additional benefit, the newly proposed rules will assist real estate professionals and escrow officers and assistants to better understand Good Faith Estimates and closings statements when asked to explain concerns by the customers they work with. Closing costs have always been an enigma to most buyers, but this new legislation offer new light on a dark and perplexing real estate issue.

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