LIANE HANSEN, host:
If you plan to by a house this year, you can expect to have a better sense of what your closing costs will be. The Department of Housing and Urban Development has made significant changes to the Good Faith Estimate. The document used to be a tool lenders gave to borrowers early in the home buying process so they'd know how much house they could afford. But as of this month it's now a legally binding agreement.
From member station WFAE in Charlotte, North Carolina, Scott Graf explains.
SCOTT GRAF: Lisa Satterfield is one of Charlotte's most successful realtors. In last year's depressed market, she still did over $7 million in business. Her specialty, she says, is taking care of her customers' every need.
Ms. LISA SATTERFIELD (Realtor): Hey, good. I got your call and I got your fax. I did. But there's one thing I do need to get you to initial on it. The...
GRAF: That's right. It used to be frustrating when an otherwise smooth deal would get all jumbled at closing. Sometimes, she says, a buyer would be asked to pay higher closing costs than what lenders had listed on the Good Faith Estimate.
Ms. SATTERFIELD: And the people got there and, you know, they were expecting perhaps a one percent origination. They get there and it's one-and-a-half percent. Something has changed with either their out-of-pocket expenses or their rate. And at that point, their feet are kind of tied.
GRAF: Satterfield says borrowers had two choices: Either pay the extra money or walk away from the deal. Charlotte mortgage lender Bill McConnell says it really wasn't much of a choice at all.
Mr. BILL MCCONNELL (Mortgage Lender): The homebuyer already had their belongings packed up on a moving truck. They are ready to move into their new home. At that point, they're really over a barrel. There's not a whole lot they could do other than pay the higher amount.
GRAF: But under the new rules, that shouldn't happen. What's offered to a borrower on the Good Faith Estimate is not supposed to change. And if costs do go up, the lender has to pay the difference. McConnell says it's another step in weeding out shady brokers.
Mr. MCCONNELL: It's raised the bar for all of us in the mortgage profession. I think it's 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 as the licensed professionals that we are.
GRAF: But sudden jumps in closing costs had been happening for years. What really provided the impetus for change was the housing crisis. By the time HUD announced the new and binding Good Faith Estimate in the fall of 2008, it was clear many homeowners had signed up for mortgages they didn't fully understand, or that turned out too good to be true. Millions were behind on their payments or facing foreclosure.
Vicki Bott is a deputy assistant secretary with HUD. She says the new document is meant to be more clear.
Ms. VICKI BOTT (Deputy Assistant Secretary, HUD): It is up to the industry to provide consumers with the ability to have documents that are understandable to a layman versus just an industry expert.
GRAF: But the new rules are not perfect. For instance, now a lender will only issue a Good Faith Estimate after a buyer has zeroed in on a specific house. But before buyers can get that far, they need to know things like an interest rate, down payment and monthly payments things the old Good Faith Estimate used to provide sooner. So lenders are now issuing worksheets with that information.
Again, realtor Lisa Satterfield.
Ms. SATTERFIELD: I have to be able to have somebody sit down with my client and say, okay, in reality this is what we're looking at. We can't call it a Good Faith Estimate anymore. But they have to be able to disclose and work with a client as they make decisions.
GRAF: Satterfield agrees with the intent to protect and inform homebuyers, but thinks more improvements still need to be made.
For NPR News, I'm Scott Graf in Charlotte.