The two leading mortgage giants in the industry are teaming up to propose a new way to conduct mortgage contracts through less paperwork, which could ultimately save consumers over $1 billion.
Obviously, this savings will be spread out over millions of borrowers, so the question becomes whether the proposal will benefit or setback the mortgage industry because after all, you can't just get something for nothing.
Mortgage lenders may soon gripe about the shorter paperwork because it will phase out many conforming loans that lenders often consider their jewel because it results in multiple contracts.
The article, ?New Mortgage Form Could Save Consumers $1 Billion or More,? written February 27, 2007 by Peter G. Miller and submitted to Realty Times, breaks down the semantics of the mortgage settlement cutbacks.
?Essentially, what Freddie Mac and Fannie Mae have done is to offer a short mortgage form, something that runs three pages and can replace a 16-page document. At first this may hardly seem either revolutionary or exciting, but if you follow the dollars this gets interesting.?
Every mortgage settlement includes paperwork, which is designed to ensure all legal precedents are met. You may think that by now most of a mortgage settlement would be electronic and thus paperless but that is actually very uncommon. Instead paperwork is still used to formulate the most important parts of a mortgage such as settlement tables, certificates and stipulating documents.
?Such forms are not just paper, they're legal agreements which spell out standardized terms and conditions. Use forms from Freddie and Fannie and you'll create a ?conforming? loan, one that can easily be sold to those who buy mortgages in the ?secondary? market such as pensions, insurance companies and hedge funds.?
Even lenders that do not plan on selling loans still benefit from the option to do so from conforming loans. Conforming loans are not possible without paper.
?But there's a money problem: We're not just talking about one or two pages of legalisms, we're talking about 16 pages of small type and in many jurisdictions the charge for recording loan agreements is made by the page.?
?Fannie Mae and Freddie Mac say that in Ohio a buyer might expect to pay $148 for the long mortgage contract -- but only $36 for the new, three-page, short form.?
So, the shorter mortgage form will save paper to help the environment (?green? awareness is very in nowadays) and it will save the average borrower over $100 in settlement costs.
?Fannie Mae and Freddie Mac are on the right track with their short form. It's a simple, elegant and smart way to reduce closing costs. No doubt over time it will be used more widely and with good results for buyers and sellers.?
And as their short form gains in use and popularity there is little doubt that other industries will be forced to adopt shorter forms, which will ultimately help consumers save more money while at the same time hinder lenders.
