The Department of Housing and Urban Development (HUD) rolled out proposed changes to RESPA including changes to Good Faith Estimates (see the proposed changes). HUD claims that the proposed changes will make it easier for borrowers to see the true costs associated with getting a loan and will allow them to do a better job “shopping around.” HUD estimates that “shopping around” will save each buyer an average of $668 at settlement.

But they don’t address some key points. Currently, there is no law that protects consumers from lenders that “bait and switch” by showing “X” dollar amount on the Good Faith Estimate, but end up charging “Y” (aka higher) amount come settlement, much to the dismay of the borrower.

Since the financing contingency has typically been removed well before settlement date, the buyer has the choice of either paying the higher amount or not settling. If the buyer doesn’t want to move forward with settlement, they will most likely be in default and lose their earnest money deposit, etc. Therefore, they really don’t have a choice and just end up paying the higher fees.

Personally, I don’t understand how mechanics are required to contact people when the repairs deviate from the initial estimate by more than 10 percent, but there is no such rule for lenders. Saving consumers $668 is a drop in the bucket compared to the amount that some lenders increase their closing costs by at the last minute.

HUD has also proposed changes to the HUD-1 Settlement Statement (see proposed changes). But the HUD-1 Settlement Statement repeats much of the same information listed on the Good Faith Estimate. They should worry about changing the laws surrounding holding lenders accountable to their Good Faith Estimates rather than spending time changing the HUD-1.

Plus, the HUD-1 Settlement Statement is not ready until the day before or the day of settlement. By that time, there’s very little a buyer/borrower can do to make changes to their loan or “shop around” for better terms or a new lender.

Though consumers surely appreciate what HUD is trying to do, they will not be protected much, if any more than they are today. Personally, I’d rather pay the $668 and have a guarantee that the loan will close on time and that the lender fees will be the same as listed on the Good Faith Estimate.