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New Federal Rules Aim To Protect Homeowners By Changing Mortgage Application


Getting a home loan is about to get easier and safer for millions of Americans, at least that's the goal. As part of the post-financial crisis reform process, new federal rules go into effect this weekend. They change both the mortgage application and closing process across the entire country. NPR's Chris Arnold reports.

CHRIS ARNOLD, BYLINE: OK. You're buying your first house. You're nervous. You've given notice on the place that you're renting. Movers are coming. You have to leave and move into your new place, but when you sit down at the closing for your home loan, you realize that the rate is higher than your mortgage broker told you it would be. He says, look, there's nothing you can do, just sign the documents.

RICHARD CORDRAY: One of the problems that this definitely is fixing is bait and switch at the closing table.

ARNOLD: Richard Cordray is the director of the Consumer Financial Protection Bureau which crafted the new mortgage rules. His agency sees tens of thousands of cases of these bait and switch tactics.

CORDRAY: People would get to the closing table. They may feel they're a little bit over a barrel, and suddenly the interest rate has gone up some amount or it's changed from a fixed-rate mortgage that they thought they were getting to an adjustable-rate mortgage. There were a lot of unfair surprises at the closing table, and this change and this rule is meant to protect consumers against that.

ARNOLD: So now lenders will have to give you what's called a loan estimate soon after you apply for a home loan that clearly spells out all the terms. People get something like that now, but it's not binding.

CORDRAY: Then three days before you close, you will get a closing disclosure which confirms that this is the deal you're getting.

ARNOLD: And the lender cannot change the key terms on you or slip in a bunch of extra fees. So, OK, that sounds simple enough, but those in the industry say to overhaul all the systems involved to make these changes - that's been a huge undertaking.

DAVID STEVENS: In magnitude, it's the biggest massive change to the United States mortgage finance system that I have ever seen in my three decades in the business.

ARNOLD: That's David Stevens. He's the president of the Mortgage Bankers Association.

STEVENS: Every real estate agent - which is over a million of them - every title company, settlement service provider, every mortgage broker, banker, lender, depository, credit union - you name it - every single entity that touches a real estate transaction has to be compliant with this new rule.

ARNOLD: Stevens says these companies have spent billions of dollars and more than a year preparing for these changes, and the industry's about to throw the switch this weekend to go over to the new system. Some people are concerned that there might be delays and that those could cause people to blow their rate lock deadlines or create other problems. But Stevens thinks that overall, the transition will be pretty smooth

STEVENS: I am optimistic that this will be implemented in a way that allows transactions to occur. It's not going to be a train wreck, and it ultimately is good for the consumer.

ARNOLD: We'll find out soon enough when the new rules go into effect. Chris Arnold, NPR News. Transcript provided by NPR, Copyright NPR.

NPR correspondent Chris Arnold is based in Boston. His reports are heard regularly on NPR's award-winning newsmagazines Morning Edition, All Things Considered, and Weekend Edition. He joined NPR in 1996 and was based in San Francisco before moving to Boston in 2001.