July 17, 1998
WASHINGTON –A new government report on mortgage industry practices could be a driver for new consumer protections to be enacted into law next year, according to Consumers Union which has been advocating reform.
“This report could be the driver we’ve been waiting for to help energize the debate over reforming laws on mortgage lending to make the process more consumer friendly,” said Frank Torres, a legislative counsel at Consumers Union, publisher of Consumer Reports magazine. “Reforms with teeth could take the uncertainty out of buying home by guaranteeing interest rates and closing costs up front. Additional reforms could curb predatory lending practices that put enormous financial strains on family budgets, often placing homes saddled with sky high fees and interest rates in danger of foreclosure. We hope Congress is ready to provide consumers the benefit of these guarantees and start protecting consumers from shady characters that are operating in the mortgage industry.”
Consumers Union is encouraged by several recommendations in the report, “Reform to the Truth in Lending Act and the Real Estate Settlement Procedures Act”, that consumers be given firm loan information and protections from abusive lending practices. The report, issued jointly by HUD and the Federal Reserve Board, proposes Congress enact several reforms including civil fines and penalties for bad actors, new legal remedies for victims, tough restrictions balloon payments and limits on credit insurance sales. In addition, the agencies recommend giving homeowners new protections to avoid unwarranted foreclosures.
Firm disclosure of the interest rate and closing costs early in the home buying process, before a substantial application fee is paid, is needed so the consumer can shop for the best loan available, according to Consumers Union. A firm note rate and guaranteed settlement service cost should be good to closing, according to the consumer group.
Current rules don’t require full information until the consumer is at closing creating great uncertainty in the marketplace because the terms still can be changed after a loan application is made, too late to shop for better rates.