New rules on home loans

Lenders and mortgage brokers will be required to provide U.S. home buyers clearer information about loan terms and closing costs under rules issued Wednesday by the U.S. Department of Housing and Urban Development.

Banks will have to provide consumers a standardized “good-faith estimate” of closing costs beginning in 2010, HUD Secretary Steven Preston said. Banks now have different forms making it difficult to compare offers.

“Millions of Americans go to the closing table each year, and many of them have no idea what is expected of them,” Preston said. “I firmly believe that this is a big step forward in restoring trust and transparency.”

The rules, which the department said are the first changes of their kind in 30 years, are aimed at addressing record foreclosure rates brought on in part by easy credit and a flood of adjustable-rate mortgages that homeowners have been unable to pay. Delinquencies on subprime adjustable-rate mortgages jumped to 21% in June from 9.9% in December 2004, according to the Mortgage Bankers Assn. in Washington.

HUD estimates that the changes will save home buyers as much as $700 at closing, based in part on a requirement limiting the increase between the good-faith closing-cost estimate and actual fees to 10%. Consumers are supposed to save additional money by using the estimates to shop around.

The rules don’t contain penalties for banks that fail to follow HUD’s mandates, because the agency lacks enforcement power, Preston said.

It will be up to consumers to sue lenders that don’t comply or for regulators such as the Office of Thrift Supervision, the Federal Deposit Insurance Corp. and the Federal Reserve to pursue violators, Preston said.