It’s easy to complain about government paperwork, but sometimes something as seemingly simple as a new form can be worth much more than the paper it’s printed on. Such is the new standardized and borrower-friendly Good Faith Estimate that has been proposed by the U.S. Department of Housing and Urban Development.

The new form is long overdue, especially in comparison with the forms currently in use, which have created a state of confusion that could be cited as a contributor, if perhaps not a chief cause, of the nation’s subprime mortgage crisis.

The new form is four pages long, but contains many significant improvements over the forms borrowers have received in recent years. The two-column, four-color design is both attractive and easy to read, which should make the form more likely to be read, especially if it’s reproduced as designed.

The form discloses basic loan terms in plain English that’s free from unnecessary jargon. Six of the most important disclosures are stated on the first page in simple yes-or-no questions that aren’t likely to be overlooked or misunderstood. A separate section outlines the costs of the loan along with helpful descriptions that explain the purpose of each cost, and again, are written in plain language.

HUD’s announcement made much of the new form as a helpful tool for borrowers to comparison shop and save money on this major financial decision. Those would be benefits indeed, but even comparison shopping and hundreds of dollars in savings may pale beside the advantages of a better opportunity for borrowers to understand the terms of their loan. The form might rightly be considered a success even if that were all it achieved.

Another excellent improvement is the ban or limitation on some cost increases, which should rein in a market that’s notorious for added and wildly inflated costs at closing. In the best of all possible worlds, it would be ideal to have a required GFE that wasn’t an estimate, but rather a fixed commitment of all the terms of the loan and the closing costs. Since that may be impossible, given the time lag of the transaction and fluctuations in interest rates and interest rate-related costs, the division of costs into three categories that (1) may not change, (2) may not change by more than 10 percent and (3) may change prior to closing is a significant and helpful step forward.

Marcie Geffner is a freelance real estate reporter in Los Angeles.

Copyright 2008 Marcie Geffner. All rights reserved. No part of this article may be used or reproduced in any manner whatsoever without written permission of the author.

***

What’s your opinion? Leave your comments below or send a letter to the editor. To contact the writer, click the byline at the top of the story.

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