Q: I have been told that under the new rules the loan originator must issue the good faith estimate (GFE)when the borrower makes application and that they do not need to deliver the GFE until they have a complete application. Is this correct?
A: Partially. The loan originator is required to issue the new GFE form no later than 3 business days after the loan originator receives an application or information sufficient to complete an application. The term "loan originator" means a lender or mortgage broker.
Under the new RESPA rule, the term "application" means the submission of a borrower's financial information in anticipation of a credit decision relating to a federally related mortgage loan, which must include all of the following:
· The borrower's name,
· The borrower's monthly income,
· The borrower's social security number to obtain a credit report,
· The property address,
· An estimate of the value of the property,
· The mortgage loan amount sought, and any other information deemed necessary by the loan originator.
Q: What are "tolerance limitations?
A: HUD has created limitations which restrict the amount that settlement charges to borrowers can change between the Good Faith Estimate and the actual fees charged at settlement. These tolerance limitations are designed to help borrowers receive a more accurate GFE and to enable the borrower to easily compare the fees noted on the GFE with those on the HUD-1.
The tolerance limitations are divided into three categories:
1. 0 % Tolerance: Settlement charges that cannot increase: origination charges (including broker fees),
borrower's credit or charge for specific interest rate chosen (after locking in the rate), and transfer taxes.
2. Up to 10% Tolerance: Settlement charges that can increase up to 10%: required services selected by the originator, title services and lender's title insurance (if selected by loan originator or borrower uses
companies identified by loan originator), owner's title insurance (if borrower uses companies identified by
loan originator), required services that the borrower shops for (if borrower uses companies identified by the
loan originator), and government recording charges.
3. No Tolerance: Settlement charges that can increase without restriction: required services that borrower
shops for, title services and lender's title insurance, and owner's title insurance (where the borrower does
not use companies identified by the loan originator); initial deposit for escrow deposit, daily interest charges,
and homeowner's insurance.
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