Opinion: Borrowers See Increased Scrutiny and Protection with New Mortgage Rules

Homesellers in today’s market are well aware of the . Until this inventory is sold, the housing market is likely to remain under stress. Although buyers and sellers should be mainly concerned with local conditions, national statistics still influence the general attitude and fears of the public. 

Home values in the Seattle area have declined 6.5 percent from the second quarter of 2010, according to figures from the National Association of Realtors. Washington state existing home prices have declined 9.4 percent during the same time. Northwest Multiple Listing Service statistics show inventory is up from July and pending sales have decreased slightly. Considering that the housing credits were available around this time last year, this is to be expected and shows some stability. But, tight credit is eliminating many buyers from purchasing.

Matthew Gardner, principal of Gardner, Johnson noted in his quarterly report for Windermere (Gardner Economics Quarterly Report) that: “Most housing markets in Western Washington appear to be slowly improving and, fundamentally, values appear to be stabilizing. We are not out of the woods yet though, as financing remains very tight causing a larger than normal number of home sales to fall through.”

Problems in the economy have primarily been attributed to deceptive lending practices. This has led the Federal Reserve to issue new credit rules that are designed to protect consumers. However, these rules have created layers of accountability making it difficult for even well-qualified borrowers to be approved for a mortgage. 

There are, however, some positives in the new lending rules that ensure that the buyer is not charged excessively. Mortgage brokers and loan officers for lenders are now not able to receive compensation based on interest rates or other loan terms. This eliminates the ability to steer borrowers to accept higher interest rates than required by the lender which have resulted in higher commissions. Brokers are now required to direct a borrower to a loan that is in his or her best interest.

Brokers must abide by the new rules, but there may be instances where the borrower is assessed additional fees. Tracey Cruise, a Washington Federal Branch Manager, believes that: “It is possible that as a result of the Reserve’s involvement, some fees may be added for the borrower to pay that make up for some lost income that they were previously approved to be able to make. Washington Federal  is not one of those types of lenders, however. Our fees are simple, straight forward -  1 percent of the loan amount for origination, $150 underwriting, $24 credit report, $15 flood determination.”

Although most lenders now have similar costs, it is up to the buyer to check the Good Faith Estimate to determine if unusual fees are being assessed.

Lenders must provide borrowers with information that includes the maximum interest rate and payment that could occur as the result of variable rates for the first five years and during the life of the loan. 

Two other features require borrowers to be notified 30 days before a loan is sold or transferred and borrowers now have three days to review their loan disclosures before they are obligated to pay any fee.

There are many more features in the Dodd-Frank Act that should add a little more stability to the housing market and bring more confidence to borrowers that they are being protected. Because the Federal Reserve has made these rules mandatory with consequences, borrowers should be confident that the new guidelines are being followed by all lenders. It is still wise to understand your rights, compare costs and ask questions.

Joan Probala is the managing broker for Issaquah Windermere (Windermere Real Estate/East Inc.). She has 30 years of experience in real estate, construction and sales.