New mortgage lending rules that require loan originators to disclose key loan terms and closing costs offer needed consumer protection, but also have slowed down the loan-approval process, some lenders here say.

The rules that went into effect this year under the federal Real Estate Settlement Procedures Act (RESPA) require lenders to supply written good-faith estimates that spell out loan terms and closing costs in a consistent form that consumers can use to compare with terms and costs offered by other lenders.

"The intent is good," says Jackie Cardle, real estate lending manager for Spokane-based Global Credit Union. "We need some protection in place."

The rules implemented by the U.S. Department of Housing and Urban Development prohibit changes in loan terms and closing costs without prior disclosure to the borrower.

"The rules are intended to provide transparency," says Katie Marcus, residential sales manager at Coeur d'Alene-based Mountain West Bank. "Everyone has to use the same form, which standardizes how loan fees are disclosed."

Before the current RESPA rules, it was all too common for some lenders to change fees or even the type of a loan without first informing borrowers, Marcus says.

"Closing costs can't be $1,000 or $2,000 more than the estimate, and that's what was happening with some lenders," she says. "Now, in the worst case, the estimate can't be off by more than a couple hundredbucks."

Cardle says borrowers felt compelled to pay the "surprise" fees to such lenders because they didn't want to lose the chance to buy homes they had become emotionally attached to during the loan-approval process.

"That's all but gone these days."

In today's market, closing costs generally are about 2 percent to 2.5 percent of the total loan amount, although that percentage can be slightly higher for refinanced mortgages, she says.

Marco Begovich, vice president and regional manager here of Denver-based Cherry Creek Mortgage Co., says the intent of providing added disclosure is a good idea.

"Consumers have a right to the information, and we have a responsibility to provide it," he says, "but the government certainly didn't make it easy to implement."

Cherry Creek sells mortgages to a number of investors, some of whom had different interpretations of the disclosure rules initially, and that wasn't the lenders' fault, Begovich says. "Regulators admittedly didn't have answers to all of the questions lenders were asking before the rules went into effect."

HUD's interpretation of the rules has continued to evolve, he says. The agency updated its interpretation of them in April by adding another five pages of information to its list of frequently asked questions, bringing the document to 62 pages.

"As with most things that happen with new government regulations, one set of people writes them, another interprets them, and another executes them," Begovich says. "They weren't on the same page when it first rolled out."

Under the rules, the good-faith estimate must be honored for 10 days, and HUD encourages applicants to use the information to compare the fees with those charged by other lenders. Any changes in loan terms or closing costs must be disclosed to the borrower, which can add a minimum of four to seven days to the loan process, Cardle says.

For the most part, changes in terms and fees can only occur as a result of changes in the borrower's circumstances that arise after the good-faith estimate is provided.

"A change of circumstances can't be anything the lender has done," Marcus says. "It has to be the borrower."

Such circumstances might include changes in the loan applicant's credit rating, the loan amount, the estimated value of the property, boundary disputes, and unforeseen environmental problems.

A three-page, HUD-approved good-faith estimate includes one page dedicated to calculating closing costs.

Even if the seller agrees to pay closing fees on behalf of the buyer, the good-faith estimate must include the closing fees as a buyer's cost.

"We used to never track the seller's costs," Cardle says. "Now, we have to put that on the buyer's good-faith estimate."

She says the form has led to some confusion on the part of consumers because it doesn't show the applicant's total monthly payment or how much money the applicant needs to bring to the table at closing.

"It doesn't calculate insurance and property taxes," Cardle says. "It also doesn't include the down payment."

Most lenders have developed their own monthly payment and down-payment work sheets they use in addition to the good-faith estimate, she says.

Marcus says loans take longer to approve under the disclosure rules.

"Loans that used to take two weeks to process now typically take five weeks or longer," she says.

Even under the best circumstances, disclosure requirements mandate that applicants have a minimum number of days to review certain documents during the loan process, and lenders can't close a loan in fewer than 10 days after receiving a mortgage application, Cardle says.

Consumers can't expedite the process by waiving the good-faith estimate requirements, she says.

"A borrower can't walk in the door and say, 'I've got to close in five days because the moving truck is on the way,'" Cardle says.

The new rules fix application requirements that had gotten lax over the past several years, she says.

"From early 2005 to mid-2009, some lenders went from compiling a fully processed file to nothing but reliance on a credit score," Cardle says.

The new rules, though, require more information and verification than ever.

"It has created more work, and that slows the process up," she says. "But it keeps (lenders) all doing the same thing, only allowing for certain tolerances."

Although Begovich, too, says it's now a mathematical impossibility to complete a loan in fewer than 10 days, he's confident that the new good-faith estimates will become a routine part of doing business.

"The majority of lenders are on the same page today," Begovich says.