After months of searching for the perfect home and enduring seesaw negotiations, exhausted home buyers are anxious to close the deal. Then — wham — at the closing table they’re hit with dozens of pages of loan documents full of confusing industry jargon.

In many cases during the housing boom, borrowers felt pressured to sign the documents then and there, whether they understood the facts or not. That’s led to much of the mortgage market chaos we find ourselves in today.

But the U.S. Department of Housing and Urban Development is hoping to avoid future catastrophes by making loan disclosure documents easier to read.

A proposed change to the Real Estate Settlement Procedures Act, or RESPA, would require lenders to provide people with a standard Good Faith Estimate. Many lenders currently give these out, but it’s not always easy to pick out a loan’s most important elements.

The revamped form would predominantly display the interest rate and monthly payment, whether the rate and principal balance can increase and by how much, whether the loan has a prepayment penalty or balloon payment and the closing costs.

The goal is to help consumers shop more effectively for low cost loans, according to the department, which issued the proposal March 14.

“Buying a home can be very intimidating,” said HUD Secretary Alphonso Jackson in a statement. “Consumers have had no assurance that the loan terms and closing costs they are offered will reflect what they confront at the settlement table.”

I’ve talked to numerous homeowners who had no idea what type of loans they were about to jump into. In many cases, it was clear the loan officer didn’t fully explain the mortgage details. Some borrowers didn’t find out until the closing table that their payments would be hundreds of dollars more than they had expected.

They aren’t alone.

In 2007, the Federal Trade Commission released a study that asked 819 mortgage customers across the country to identify key loan terms and costs on disclosure documents.

Roughly one-third couldn’t identify the interest rate, and half weren’t able to pick out the loan amount.

HUD’s proposal may help people better understand the loans they choose. But, local industry experts say, it’s also crucial to select a loan officer they can trust.

Read more on understanding mortgages and selecting a loan officer here.

This entry was posted on Tuesday, March 25th, 2008 at 10:39 am and is filed under Uncategorized. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.