Housing market crash leads to big changes in mortgage industry
The crash of the housing market in 2008 led to a big change in the mortgage industry. It deals with Good Faith Estimates. Before, they were just that - estimates of things like closing costs and monthly payments. But as of this month, they're binding agreements. In this segment, WFAE Morning Edition host Scott Graf discusses the changes with Charlotte mortgage consultant Bill McConnell of the firm Cunningham and Company. Bill McConnell: The good faith estimate was designed to allow borrowers to shop alone effectively but it never really served this purpose for a couple of reasons - number 1, it was as the name implies, it was an estimate. The new good faith estimate is a legally binding document, so the days of getting to the closing table and then discovering that your rate or closing costs have changed - those days are over. Scott Graf: Bill, what would happen before, when someone would get to closing and the costs would ultimately be different than what was on that good faith estimate? Bill: What happened a lot of times in those cases was the homebuyer already had their belongings packed up on a moving truck. They are ready to move into their new home. They get to the closing table and they find that the closing costs have changed. At that point, they're really are over a barrel. There's not a whole lot they could do other than pay the higher amount. Scott: So what happens now under the new rules if those costs go up? Bill: Under the new rules, unless you've had a change in circumstance, unless the borrower has decided to go outside of what has been recommended; for example, let's say they have decided to use an attorney that costs more than the one you've gotthey certainly have the prerogative to do that, but in those cases, if the loan has just gone up and you have not redisclosed those higher costs, then the loan officer is going to be pulling a check out of his own pocket and writing a check to the borrower for the difference. Scott: So you certainly have to think about your job now a little bit differently? Bill: It has raised the bar for all of us in the mortgage profession. I think it is going to really make us think. We're not going to be just the middlemen between the consumer and a bunch of mortgage products, we're really going to be looked at more now like the licensed professionals that we are. Scott: It sounds like it is going to make your job a little bit more difficult, at least here or a while. Do you actually welcome the change or would you rather have the old rules still in place? Bill: I welcome the changes in the sense that it is going to force the mortgage profession to become more professional - and we've done several things in addition to the new good faith estimate, we've also got a new national mortgage licensing system, we've got a zero tolerance policy on mortgage brokers who make material misstatements like for example overstating a borrower's income. We had about 15% of loan officers in the state of North Carolina who chose not to renew their licenses this year, and I think as we cull the ranks, we going to get down to people who want to do mortgages for the right reasons. Scott: Now this doesn't necessarily force us as the public to understand more about our mortgages. Do you feel like there's a responsibility here on a homebuyer's part to know more about mortgages than we actually do? Bill: Here's what I think about that. As mortgage professionals, we can't prevent people from making poor financial decisions, but it is absolutely our duty to advise the homebuyer about the risks as well as the benefits of their decisions, and I think all of these changes we're making are going to help us do that better.