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National Media Claims Lenders Skirting New RESPA Good Faith Estimate Through Loan "Worksheets" And "Fee Estimates"

(As a lender/buyer closing attorney--file this under "Don't Shoot The Messenger! And Blame HUD, Not Me!")

The Los Angeles Times and other media outlets are claiming that lenders' use of loan cost worksheets and estimates are a "sidestep" of the new RESPA mandated Good Faith Estimate which went into effect on January 1. HUD officials say they plan to conduct a review of the growing use of “worksheets” and “fee estimate” forms by mortgage lenders providing quotes to home buyers and refinancers.

The new closing cost rules under the Real Estate Settlement Practices Act (RESPA) significantly changed the manner in which lenders are required to estimate loan and closing costs. Many charges cannot deviate at all, or at most by a 10%, from the Good Faith Estimate to the closing. That’s in stark contrast to earlier rules, which essentially allowed some lenders to quote low estimates of total costs, with no responsibility for the final dollar charges at closing, HUD contended.

Lenders -- many of whom feel the new GFE is the single worst form the government has ever dumped on the mortgage industry -- respond that since the new GFE has a number of major deficiencies, such as not providing a total monthly cost payment, seller paid items and most importantly, total cash-to-close, it justifies the worksheets/estimates.

Lenders, what are your complaints with the new GFE and do think providing these worksheets will ultimately help consumers? Do you use them? Are the criticisms about the worksheets unfair? Did HUD get it wrong with the new GFE? (I think I know the answer to that!). What can HUD do to improve it?

There is nothing explicit in the new RESPA rules prohibiting the use of these cost worksheets/estimate. However, since this is on HUD's radar, if lenders insist on using a worksheet, my recommendation to them is explain clearly to the customer, preferably with a written disclosure right on the estimate, that this is not binding and not a substitute for the new GFE. That way, if HUD comes knocking on the door, you've covered yourself.

My goal with this post is to get the conversation going on the new GFE, not to rail against the mortgage industry. I'm on your side! As Jerry Maguire said, "Help me, help you...help me, help you!"

On a related note, as buyer's counsel I now insert a rider provision into the P&S providing that the seller agrees to an extension (up to 7 days) of the closing date due to any RESPA/GFE related delays.

For more RESPA information, please visit my main blog, The Massachusetts Real Estate Law Blog.

Posted by Richard Vetstein on 01/22/2010 07:35 AM

Comments (156)

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156 Comments on National Media Claims Lenders Skirting New RESPA Good Faith Estimate Through Loan "Worksheets" And "Fee Estimates"

JAN

2010

Interesting.

Roy, you're incorrect about the effect of the new GFE. Once issued, it is a guarantee subject to the tolerance provisions. Re-read the rules.

Zero tolerance on any fee increases from the lender and guaranteed to not change while the client thinks about it for up to 10 business days...

Jason, you are correct, except that title services (closing attorney) and title insurance, among other costs, are subject to 10% tolerance so long as provider is from lender's list.

JAN

2010

Since the New GFE is causing confusion and does not satisfy borrowers, it is only common sense and good business practice to provide additional information to help explain. The Initial Fees Worksheet, or Excel spreadsheets do not substitute for the binding GFE - they add clarity.

I read about this the other day. No matter what the rules, regs and laws are, companies will ALWAYS find a way to circumvent the system. And the consumer is the one that always suffers.

I can say that every "experienced" client I have met with in the last 3 weeks hates it...experienced meaning the client has had a previous mortgage and has gone through the process. First time homebuyers have nothing to compare. Let me explain why they hate it. There is nothing in there that provides the client with cash-to-close expectations. The new GFE does not deliver what the total housing payment will be. What?? AND the new GFE does not allow for the listing of seller paid closing costs. What are 3 of the most important things a buyer wants to know? Total housing payment, cash-to-close and how does the seller's contributions affect cash out of pocket!

So, rather than jump from doc to doc trying to put everything into a concise, clear manner for the consumer, we have to rely on the worksheet. However, it must ACCOMPANY the new GFE, not be a substitute for, as your post eludes to. This new GFE ABSOLUTELY has contributed to consumer confusion.

The new Good Faith Estimate is lacking for a multitude of reasons:

There is no cash to close listed, only total settlement charges
There is no monthly payment amount listed which includes taxes and insurance, just the principal, interest and mortgage insurance as applicable
The is no signature line for the client to sign and HUD has stated you are NOT allowed to add one
There is no tax pro-ration for credit back to the seller
There is no place to list sales concessions

What benefits the borrower? They know exactly without fail how much the bank/mortgage broker is charging to originate the mortgage. This could have been accomplished by adding one packaged line to the old Good Faith Estimate.

Lastly, if the lender or mortgage broker choses to issue a Good Faith Estimate without a property address they are bound to the fees listed therein. HUD specifically states that it is not a "changed circumstance". So yes it is every lenders policy that I know of, not to issue these without the property address. As Rick says the finance worksheets or spreadsheets that have been created by the various lenders in the industry provide much needed answers and clarity.

The new GF estimate doesn't reflect cash required to close, for one thing. It would be irresponsible for a lender to not figure out a way to communicate this hard reality to a borrower.

I just had a CE class on this subject this week and the new GFE is great for the consumer but does not give the consumer information they want. One thing it doesn't provide is what the total monthly payment will be for the consumer. It does provide what the principal payment will be, but that is all. It also doesn't provide them with a bottom line of how much they are going to need at closing time either. Because of that each lender or mortgage broker is going to have to make up another worksheet to explain to the consumer. I guess HUD should have thought of that when they created this form...it would not have been that hard to do. Then at least there would be a standardized worksheet that the buyer can understand.

Nice summary, Jacques.

Richard, Unfortunately the new GFE does little to make the mortgage process easier for the consumer to understand. In addition, the guaranteed cost offered by lenders are now often higher than what they were prior to HUD "helping" the American consumer understand the mortgage process. I am afraid this is just the beginning of more regulation that will increase cost while doing little to nothing to benefit the consumer. But than again that sounds like government.

Honest Lender, you just made a very good point. What will be borne out of this mess is that lenders will OVER disclose fees, just to cover their tushies. Now how does that benefit the consumer???

I think we will be seeing less ability to go shopping for lenders because of the sheer amount of work and liability involved.

If the borrowers could just call and get a rate, that would be great. However, since the rate will vary dependent on the buyer's eligibility, then the lender has to do a full blown application before the buyer can shop. What a pain.

I used to refer my buyers to several lenders and let them pick among them. This really isn't fair. It's like having someone encourage buyers to call listing agents off of signs rather than working with one agent. No one wishes that on their colleagues in the mortgage financing industry.

We should therefore be recommending that our buyers work with one lender only from the git go. I don't like this idea, but I think it will only be fair to the lenders. That may, however, verge on unfair trade practices somehow. What do you think?

If you have a buyer who is just getting prequalified and an idea of what they can afford and ballpark closing costs, who plan to start looking in a month or so, what's the harm in one of these "rough estimates"? A GFE under these new rules would be pointless at that early stage. Plus, these extra worksheets are going to continue to be necessary since the new GFE lack so many necessary figures (total PITI, cash to close).

Thanks for the great article. I must admit it does not change much for me, I have never been subject to lenders that have had more than a 10% variance from the GFE. I am thankful for the high level of ethics and education that our Real Estate community has. Will have to find a new way to work it in. No biggie, SELL SELL SELL! Caitlin

The old HUD was confusing to many customers and had to be explained. So align yourself with a lender and title company who actually takes the time to walk through the paperwork with the customer. The purpose of these new guidelines is to level the playing field so some lenders can't dupe the consumer anymore. (You know who you are.) Many lenders were not playing fair and hence the need for new regulation. Things will settle down and these changes will help all those associated with a real estate transaction and afford little or no surprises at the closing table. People don't like change, even when it's for the better. I hope the governing bodies look at the insurance companies next. Wading through their quotes to compare is a minefield. Only when you make a claim do you know what you paid for and by then it's too late.

Richard,

This is a classic case of people in government missing the mark. It's really sad that HUD and Stevens with all their experience can't do things more elegantly.

The old GFE was perfect, all HUD needed to do was implement the zero tolerance rule on the old form. Our problem wasn't the form, it was the false quotes. The old form explained all costs in detail unlike this new GFE which makes the consumer incredibly confused.

As usual, the government reinvented a new problem.

Gil Kerbashian

Illinois Home Loans

www.realestateloans.com

The new GFE is a very flawed document. Sherri and Jacques are 100% correct on their comments. With the current loan documents, only page 2 of the 1003 shows the total monthly payment. Only page 3 of the 1003 shows the total estimated cash to close. Since this information is now only on the 1003, we have nothing to provide to an agent to let them see either of those numbers. You can'y exactly give a realtor a buyer's 1003.

Without a credit score, we have no way of knowing of any potential loan level price adjustments that might come with a particular scenario. For some time now, Fannie Mae has had many different levels of adjustments for credit score. Without knowing a borrower's score, there is no way for us to accurately quote them an interest rate. It's fact vs fiction.

Great Post! I'll be reblogging it.

Change is inevitable (except from vending machines).

Hopefully there will be modifications to the new GFE from the voices of NAR. In the meantime, worksheets and the like will be a necessary evil in order to educate the consumer on the items that are important, such as their payment and total closing cost needed. Joy

Richard, you ask what's so confusing about the new GFE? Jacques above does a great job of outlining some of the many faults of the document, but let's look at it from the borrowers point of view.

I deal with many first time buyers and in a purchase transaction I can tell you the two things they NEED and want to know unequivocally- what is my TOTAL monthly payment and what is my TOTAL cash to close. The new GFE provides neither and indeed forces lenders to list fees and charges that will be paid by other parties, causing nothing but confusion in an already confusing process.

In an effort to hamstring lenders and try to prevent the bad apples from taking advantage of customers, HUD has made the process MUCH more difficult for the borrower to comprehend. That was seld defeating and I personally hope HUD sees the error in it's ways and modifies or retracts the form.

I had written a post about it a while back that sums this up well. I'm not trying to hijack your post but the premise is right along this line of discussion. http://activerain.com/blogsview/1396186/the-road-to-hell-and-the-new-mortgage-disclosures

Gerry Suarez, Jr.

Your FHA Loan Pro!

Coral:

I like your argument. I think the rough estimate, or worksheet would be extremely helpful at the beginning of the property search.

I don't put people in my car unless they are pre-approved, and so a worksheet would certainly be helpful to know whether the customers are worth chasing and turning into clients.

We need to be able to figure out early in the process whether people are true buyers who are committed to the process.

Remember: Buyers who buy, buy. Buyers who don't buy, don't buy.

Personally, I am not afraid of the 10% variance at all. Being accurate with fees from start to finish only help me in my referral business stream. However, because the GFE lacks so many things, the worksheet has helped in helping the consumer to understand some basic need-to-know information. But again, the worksheet MUST accompany the GFE.

If you do your homework you will find that lenders are expected to guarantee closing costs on the spot for 10 days. This includes your closing costs as the closing agent. Are you going to make yourself available 24/7 to quote all of your charges on a specific sales price and mortgage amount? If you have followed this GFE controversy with HUD for the past 10 years, you would know that the BIG BANKS have lobbied for "bundled services". So if they get their way as it appears they are, the BIG BANKS will be dictating your charges for the closing in the very near future.

I would ask you as an attorney to do a mock loan application or present a good faith to a customer. As a lender it is frustrating to assist someone without all the answers and be required to be exact. Isnt that the premise of the new GFE? Also any good lender would have the social to make sure the customer is qualified for the loan. Little thing called credit is part of the qualifing process.

If you are a realestate agent it doesnt hurt to get familiar with our new requirements. Also doesnt hurt to talk with your customers lender about some of Richards concerns. The new GFE has weeded our some of the shifty lenders already. More will fall to the wayside. I would as you are patient with lenders as they are having a tough time understanding and communicating this new rule.

Putting his best foot forward.

Kyle

If a first time homebuyer comes in to get a rate quote and cost breakdown, the two biggest things they want to know are (a) how much they have to bring to closing and (b) what their monthly payment will be including taxes, insurance and mortgage insurance. The new Good Faith Estimate doesn't give them these figures! If they don't have a property selected, and we don't know their credit score, and we don't know which title company will be closing it, there is a huge door for errors to be made in disclosing on the GFE. If they tell us that they have good credit and we assume it's a 720 and it really is a 660, there are differences for the rate due to the loan level pricing adjustments; if they actually have a 600 and we have to broker the loan, the investor that we broker it to has their own fee structure which is usually substantially larger than ours is (suppose we gave them a GFE disclosing $700 in lender fees and the only investor that will take their loan for a reason we didn't know actually charges $1,700 in fees, who do you think gets to pay the difference?) I have had many clients that don't understand the new GFE since it doesn't show them the only 2 figures they are really interested in, and Realtors that I work with hate it, as well, for the exact reason. The new guidelines have made the Good Faith Estimate a Good Faith CONTRACT. Once I have a clients' information and the property address from the contract, I still won't disclose on the GFE until I have the title company do a mock HUD so that I know I am disclosing correctly. On the summaries that I am doing, I am really overdisclosing but I am telling the client that I am overdisclosing and it is just an estimate based on information that we don't have; once we have all of the actual information, we disclose the actual numbers. What most people don't realize is that the "bad apples" in the mortgage business are mostly gone - there are so many checks and verifications being done these days that it has allowed those of us who are ethical to be able to compete against other loan officers that are ethical. I have always had the clients call the title companies to get their fees at the beginning of the process once they are at contract. And if a loan officer is underdisclosing, how long can they really stay in business? I value my business and my integrity and have always taken the high-moral road and disclosed appropriate and as close to accurate figures as the information I had on hand would allow. The new GFE is a binding commitment for those 10 days and if the client makes application and chooses to continue and the credit score we used to disclose is wrong, we are left paying it. I already know of one Loan Officer that had to pay $1,000 in title insurance charges because of a legitimate typo (they have since had their keyboard replaced; it turns out the "1" key wasn't working!). How many of those do you suppose we would be able to afford? Once we have the appropriate information it is easy to disclose correctly, but I can't tell you how many buyers I have had who said, "I have an 800 credit score" who actually had a 600 and we had to broker out. Is it the loan officer's fault that the client's credit was where it was and the loan officer's responsibility to pay an investor's higher fees because the deal had to be brokered if the client didn't want their credit pulled but wanted an estimate?? It's a tough world out there in the mortgage business right now but those of us that remain will have to disclose as accurately as possible but to hold us to the fire if the information we are given is erroneous is not the correct way to fix the problem.

I know what they are trying to accomplish with this new good faith estimate, but my closing on Thursday was cancelled because the lender forgot to include transfer tax. My buyer already knew about the cost from his attorney but closing was delayed until Monday....my buyer was in a hotel ready to close, furniture ready to be delivered and we have a 5 day delay due to the weekend. Very expensive mistake for the lender and everyone involved. Seller wants money for the delay. It's ugly. So that's what I think the new rule will do for a lot of people.

The form itself has the issues stated above by the other commenters. But for me the issue is those who wrote the forms didn't really think about the practical aspects of the transaction. I have buyers who won't sell their condo until some time this spring, but in order to make good decisions this far in advance they need to understand how lending works and how they might compare lenders. Basic qualifying for them is important so they know how far their money will go and learn about debt ratios. No GFE is going to do that for them.

By the time a property is identified we are now facing a 10 day home inspection, a 21 day appraisal and a financing contingency, all of which have time sensitive clocks. And as we know the new appraisal rules are not making it easy to make those deadlines. Why would anyone want a buyer to be shopping for a lender based on this GFE at such a critical time?

The worksheets are not the dirty word you made them out to be but the reality of the need to explain to consumers how much money they need to close and what their payments will be.

If they wanted to show the conusmers the whole transaction fine, but break it down so each side also sees their part. Seems so simple.

I agree with Jacques Laubert that the new Good Faith Estimate is lacking very important information that the buyers need. The first 2 are questions we as agents are always asked what those numbers will be,

There is no cash to close listed, only total settlement charges
There is no monthly payment amount listed which includes taxes and insurance, just the principal, interest and mortgage insurance as applicable
The is no signature line for the client to sign and HUD has stated you are NOT allowed to add one
There is no tax pro-ration for credit back to the seller
There is no place to list sales concessions

Thanks for postiing this Richard. A Loan Originator told me last week "GFE's are no longer required".

Unbelievable! I will direct her to your blog.

Joe Metzler! A local, very well respected colleague...very well put. The other day, I blogged on your very issue, including the line, "Compliments of the government and THEIR IVORY TOWER". They don't have a clue...

Richard,

I appreciate your thoughts; but, ball park estimates are asked for constantly when I am showing homes. The simple fee sheet does this fairly well. Maybe we should include a more wordy statement regarding the figures that states they are not to be construed as final and the client will need to get a GFE when he or she settles on the house they plan to buy.

I hate making more work for people then needs to be done.

WOW,

This is a HUGE piece of misinformation and more importantly, accusation without knowing the facts! I am a lender. Most of us lenders are using additional worksheets so that we may disclose the payment and cash to close to our borrowers.

What many folks don't know unless you are familiar with the disclosure and work in this industry is this.The two most important things to a borrower in pre-qualifying for a Mortgage or in getting their mortgage disclosure is the bottom line; what is my payment? what is my cash to close?

Guess what? The new Good Faith Estimate does NEITHER!...

Spoken well from an attorney. Get the facts and work in the industry before you throw out accusations of the additional documentation provided by us lenders considered "skirting" The "worksheets" as you state we utilize is so that our customers have an additional piece of material that tells them what their payment is and their cash to close is, in CLEAR, SIMPLE terms.

I look forward to your response!

License mtg brokers and make them fiduciary to the borrower. Then watch how quickly the problem fixes itself.

Very interesting to see every ones take on this topic. You have inspired me to work on a post from the lenders point of view. It's truly amazing just how much people think they understand and how much they don't understand!

I think that we are moving in the right direction to make the GFE more transparent, that has been done but i agree has left out the most important numbers that borrowers need. I believe that since the Lender has NO Fiduciary responsiblity to client, That it is the realtors JOB to completely explain the estimates to there client and to make sure it is correct. The Realtor is the "TRANSACTION COUNSELOR" and an EXPERT in the transaction and is there job to work in the best interest of there client all the way thru.

Realtors need more "VALUE", and this is an opportunity to add that, I have been doing this for years for my clients, i use an automated system called THE INTERPRETER, " Real Estate Counseling Program", this system works backwards from buyers cash to close and monthly piti to generate offer price, using daily rates, fees and loan programs its pretty slick and every realtor should use it. www.e-linq.com

I knew January and Febuary would be interest as everyone get through the learning curve.

There are many things I like about the new GFE. However it is lacking and a good loan officer has to fill in the blanks.

I imagine a document that provides a client with a complete breakdown of each cost, gives a complete breakdown of their monthly payment, and did so on ONE simple to understand page (for the average client)...wait that was the old form.

Once again our masters, who have no practical knowledge of industry, believe that they can mandate or legislate ethics. Honoring your good faith estimate takes integrity and a personal committment to be a true professional. If one is a true professional loan originator the guarantee issue makes little impact. I used to stamp my good faith estimates with a statement that said that all fees were guaranteed by the lender.

This new GFE has done a few things:

1) took away a marketing niche (for me)

2) allows ethically challenged people to continue their raping of their victims. (clients) I think the new form really creates more of an opportunity for fees to be changed. no signature..not even an initial just sign the page that doesn't give any details and insert whatever GFE you want to later..

3) caused ridiculous confusion amongst our industry. (although I am not sure why) now think about a consumer looking at the form..think they shut off their brain...doesn't the complexity of this new form cause customers to ask where do I sign...

oh yeah..how does anyone know that the fees haven't changed? Is each page signed or initialed with a date...can I simply toss the one form out and insert a new one... Once again, I hope that you can see that ETHICS is and always be a willing and conscious decision to do the right thing that no exterior force can mandate or insure.

Do the folks that are making these forms up bother to get any input from industry professionals? And who is signing off on these forms?

More evidence that the more government claims to "help", the more convuluted and confusing for everyone involved... borrower, lender, loan officer, escrow. The greatest individual benefit in all this goes to attorney's who are hired to sort out the mess this creates.. and to use technicalities to bludgeon lenders and other participants into submission in efforts to extract money.

This effort will in fact do very little towards making a complex transaction more understandable, convenient, less costly, or quicker. It does, in fact, do quite the opposite in practice.

It always comes down to doing business with reputable practitioners... shysters will always ignore rules/laws if it doesn't suit them. Put the true bad apples out of business. But burdening the huge majority of good practicitioners with this bureacratic burden is NOT benefiting the consumer, lowering costs, making them better informed, nor making the process faster. It's a complete wreck, in my opinion.

I have my clients inital and date the bottom left corner on each page of the new GFE. Also, our compliance officer has made it so that Encompass shows the date you gave the cient a GFE and if you do a new one, you CANNOT change the date. So I know that our company is compliant as far as the dates. And the clients, because they initialed it, know that the GFE is the one they saw. I also make sure that they take a copy and keep it in their files. I would imagine that Realtors will also tell them to make sure they keep a copy since they are binding. But as a loan officer, I am not going to do it until such time as I have to and I have all the pertinent information to do it CORRECTLY based on true and correct information, such as property address, title charges from the title company that will e closing it, and a borrower's credit score.

The question now becomes under the new regulations, how do you prequalify a buyer when you must have a specific property address in order to do the entire process. I find a few responses very interesting especially the ones from the lenders. I have talked to the lenders in my area and almost every one has told not only myself but the others who bother to ask that they can't do anything more under the new RESPA requirements without an address and a contract other than pull a credit report and tell the client what it says. Well I guess that would be what we call a prequal wouldn't it? Yet the client wants to know what are my closing costs going to be? Do you really want the liability as a realtor of guessing and being wrong when the GFE is given after the fact?

I have had buyers who qulaify for a loan given their current FICO score who when applied for a mortgage after finding a property were then told by the same lending instatution even though thier FICO score was ok they couldn't be financed.

I know that lenders are still wresteling with the new regulations but doesn't one have to ask the question "Who is responsible for the regulations being imposed in the first place?"

In the end we all suffer for the few who take advantage.

Richard,

I can only speak for myself on this matter. I am a lender in Texas and do not see "worksheets" as circumventing the system by any means.

An "application" is defined by RESPA, and just like many rules and regulations out there, when it gets passed along to each lender (much like guidelines), a lender can add an overlay to it and request additional info.

Point and case is FHA loans. While HUD JUST implemented a minimum credit score of 580, NO reputable lender would do anything under a 620 (overlay). Even before that while HUD didn't have a minimum, banks weren't touching anything under the 620 mark.

If a lender deems it necessary to have a subject property as part of the application, I completely agree with it 100%, as well as other pertinent pieces of information. Remember, we are the ones that are lending you the money.

I mean you can't really disagree that ANY law is open to interpretation, and HUD has successfully passed many new laws that are open to such.

As for the SSN, I'm not really sure what you are referring to. That is PART of the application, but does not mean it constitutes as a complete application in order to send a GFE. If lenders are purposely leaving it out, then yes, that's a big NO NO.

What are you views on loan officers not being able to ask borrowers for income documents prior to issuing a Pre-Approval? Realtors, feel free to chime in on this one.

You have to understand that ONCE a lender issues a GFE, the terms are basically ironclad and will not change by more than 10% for the most part, depending on service providers. I mean that's pretty damn accurate and a HUGE step in terms of diffusing surprises, but also a tremendous liability on whoever is disclosing this information- especially when the information is given by third party sources (title, contractors, inspectors, etc). Even though lenders are only subject to these if the consumer uses the same provider that is provided to them on the service provider list, we are being held FINANCIALLY accountable for things that aren't in our realm. If we are off, out comes our checkbooks.

The reason for the Worksheet is for a few reasons:

Because many people WANT to see payment, cash to close, etc (i.e. the OLD GFE) since the new one only provides ALL costs associated with the loan, and basically nothing else
Because it is virtually impossible to issue a GFE early in the process due to so many variables and inaccuracies that are out of our scope. There are SO MANY VARIABLES in an estimate, but the average consumer doesn't realize that. If I get shoppers that want fees and rate, I simply tell them my lender fees and going rate and tell them to plug away with the next lender. If they are not willing to take the time and start an application and give me what I need to give them an ACCURATE breakdown, then see ya later homie!

I personally have spent over 30 or so hours calling a million title companies, breaking down the endorsements and what not just so that I could get the WORKSHEET as accurate as I could. In addition, I had to spend an additional 3 or so hours (still counting) to call home inspectors, structural engineers, pest inspection companies, etc to get THEIR fees.

I mean seriously... give me a break! This is not a lenders job. The time I spent calling Billy Bob's Termite inspection, I could have been prospecting for more business. This is the BORROWERS responsibility to shop, not the lenders. Do you want me to focus on understanding MORTGAGE GUIDELINES so your loan can close, or finding out the cost of roof shingles from 15 different roofing companies?

The main reason why lenders use the worksheet and don’t issue a GFE is because they don’t have enough info to constitute as an application that is defined by HUD,and further defined by the lender- that’s it. Again, if the lender has all the needed information, then they are required by LAW to disclose the GFE.

Anyways, I could go on basically forever on this only because I have spent a lot of time understanding the mechanics of RESPA and how to apply it correctly.

Bottom line - Over disclosing relieves the lender of most financial responsibility, but I do not think it’s fair to post something on AR making lenders look bad by saying we are finding "loopholes" when, as an individual that represents the law such as yourself, you know very well that each and every law is open to interpretation in each unique situation.

Bill - you hit it on the head - find the reputable people in your area, and deal with them.

Richard -

I hope to see you come back and answer some of these concerns. Because the new GFE doesn't answer the basic questions a buyer wants, they are confused. The worksheets answer their questions but the new form confuses them further and makes them think someone is trying to pull a bait and switch.

I am thoroughly convinved the author of the form has never purchased a home with a mortgage!

I have not read all the comments on here, but there seems to be a disconnect between the opinions of realtors and those of loan officers. I think that unless a realtor is ALSO a loan officer, they have no grounds to judge a loan officer's use of a "worksheet" or some other document that provides clarity to a borrower. The new good faith estimate is abslutely misleading and ridiculous for all the reasons that have already been mentioned. With a worksheet, a borrower would have no idea what his payment would be, how much cash he had to bring to closing, and what his/her TRUE closing costs were. Every loan officer I know just wants to make sure their client has this information. But for whatever reason, the new good faith estimate does not provide anything close.

I have had a lender in the Northern Virginia area suggest the use of a worksheet as well. Makes you stop and think about who you are working with and referring your clients to.

I can understand to an extent why they are also giving them "estimate sheets".... The new worksheets that they are required to give the buyers is a little difficult to understand - it lumps everything together -- I think they should be able to provide both. Provide the worksheet to the buyer that is required so that buyer's can compare apples to apples when comparing lenders and so that lenders can't do the ol' bait and switch...but it's also helpful to show them what those costs actually are in the form of an estimate. Look above at Tommy Xintaris post - he explains how basically there are 3 buckets of information for the buyer -- however, buyer's and their agents still want to know things like cash to bring to closing, payment, etc.

Let me also add this: Are the Realtors that are responding to this sending their clients to 3 different lenders? I would suggest that you get that lenders' fees and keep them with you at all times. After all, what fees are the only ones that will change depending on which lender you go to?? That's what the government fails to understand. If Joe Buyer buys the house at 123 Main Street from Suzy Realtor and it is going to close with XYZ Title Company, are the taxes going to change depending on the Lender? Are the title charges going to change depending on the Lender? Will the transfer taxes vary from Lender A to Lender B? What the government NEEDED to do was to have us be binding only on OUR fees on the GFE. Why not require the title company that is actually going to close it to give them a BINDING document stating what their total fees will be and let the lender give one based on what our total fees are going to be and only bind the appropriate organization for THEIR portion of the fees? Mr. Attorney who wrote this: If you have a client who's case looks easy and you quote a price, and you then find that you will have to go to mediation and to court, should you be bound by a price you may have quoted before you knew all the facts or are you allowed to say, "Well, if we go to mediation and settle it will be $x but if it happens that we have to go to court, it will be $y?" Or suppose you are a doctor and your client asks, "What will my charge be today" and you say $150 because they're getting a physical and during that exam you find that the patient has cancer....should the treatment still be only $150 and you have to be bound by it because you didn't know all of the facts? It's no different. But we, the "evil lenders" have to be bound by the cost we quote. I wish it was that way for all businesses - I have seen many misprints in sale ads that I would love to be able to purchase at the reduced price and the retailer have to be bound because it was in writing! I digressed a bit, but really, the only fees that we should be bound to are our own and only when we have ALL of the facts should we bound to the ones we give at that time!

There have been many comments I agree wtih above. The old GFE was transparent, itemized all fees so a customer could truely compare lenders to one another, and as an added bonus - actually told them what they needed/wanted to know! The new GFE is one of the worst things to happen to the consumer in a long time. Rather than implement the tollerance laws of the new GFE to the old form they try to reinvent the wheel with out consulting anyone in the industry.

Many have moaned and groaned about HVCC but it doesn't bother me too much other than the fact that it is a rip off for the borrower. Now when someone wants to refinance their home they have to actually spend the money for an appraisal whereas before their lender could contact an appraiser, do a look up and see if it was worth pursuing. Now they have to spend money to maybe find out it will or won't work with the added bonus of the fees going up because now a management company has to get their cut.

The new GFE is really, really, horrible for the consumer. HVCC is only sort of horrible for the consumer. What will the government come up with next? Stay tuned.

I've dumped several lenders and don't do business with them. I've yanked my clients out of deal over bad practices from

lenders before the new rules went into effect...I'm worst than Gov. You mess with my clients...I mess with you. I only deal with only one lender...An international bank...Or cash basis only...and I am doing fine in all my jobs. Real estate, investigations and the others...don't let lenders control our industry...there's more than one way to skin these cats...lol

The new GFE is far more confusing and convaluted. None of my clients, so far, have been able to understand it. We print out a 2009 GFE to compare side by side. They all undersatnd the 2009 GFE and comment at how inefficient the gov't is. The 2010 version has really missed the mark! As a broker, though, it is a benefit from one angle. The YSP is shown as a "credit" to the borrower. This is the true use of YSP, and it is the only thing my clients have understood woth out further explanation.

-Sean

As a Texas Real Estate Broker and a Banker, I can tell you that while the new GFE was a good idea. However, it was poorly executed (sounds like HVCC again) and lacks some of the details that buyers need to know. Many buyers would really like to know how much they will need to close the transaction and that number is not on the new GFE. Most lenders have had to add a new form so that the borrowers get all the data they need.

What is on the GFE is every single cost in the transaction and they are all lumped on the buyer's side regardless of who is paying the cost. This falsely drives up the APR. My guess is the form will be revised somewhere down the line.

A loan that lacks a properly completed GFE and TIL was not be marketable as conforming. While we are an FDIC bank, I've heard of some wholesale lenders that are declining loans for non-complaint GFEs and sending them back to the brokers.

This is a new process that will take some time for everyone to get used to. Try not to jump to conclusions as the vast majority of lenders are simply trying to help buyers understand the costs and funds needed rather than trying to go around the rule.

Hello everyone, don't shoot the messenger! I was simply reporting what HUD and consumer activists are alleging against lenders. It's just something to be aware of. I'm not railing against the industry--I work for lenders and buyers. I simply wanted to get a discussion going on the issue--I seemed to have struck a major chord! Let's have a honest and non-inflammatory conversation about it--that's what ActiveRain is all about.

Believe me, if I were a loan officer, I would ensure that the consumer gets every piece of information available to make an informed decision, including the total monthly payment which is increduously is omitted from the new GFE. That's a major, major omission that I agree with every commenter on.

I've updated my post to include some of your comments. I wasn't necessarily taking a stance on either side of the issue.

On the whole, I would have to agree that worksheets/estimates are OK as long as it's clearly explained to borrowers, preferably in writing, that it's non-binding and not a true GFE.

Your "fury" is much better directed at the genuises at HUD, not me.

Hear, here! I must compliment my mortgage brethern. You have done me and our industry proud with all of your eloquent and Lucid explanations and clarifications regarding the new GFE. (Really not an "Estimate" anymore... and it's not a Contract either, because there is no place to sign. It's a "Guarantee". So we should start calling it a GFG. IMHO).

As has been stated above, the worksheet or cost analysis that we are using is just a supplement to the GFG. It is a detailed explanation and breakdown of the actual transaction that includes what each party in the transaction is going to be responsible for. There is no "skirting" going on. Just more information to help our clients clearly understand the process. Since when is more information a bad thing when it involves the single largest purchase most consumers will ever make?

Might as well get used to it. It's here to stay. All loan officers are using "fee worksheets" now. I inplore all Realtors to go to classes and learn everything they can about the new system. When we get to closing and the GFI doesn't match the HUD 1 plus your buyers/sellers stuff is in a moving van, they will go after your commission to make the deal close. Realtors must be more involved than ever before or we are going to get burned.

PS: Still can't figure out why our photo doesn't come up on the postings???

Richard, Nice post. I can't figure out if I 100% agree or disagree with you.

I 100% agree with your position against the homemade comparison charts. I saw a mock excel worksheet yesterday from one of the two big bailout recipient banks yesterday. It had costs that did not pass through on the =sum() function and the rates were .5% higher than market. It was deceptive at best.

I am not going to contend that the new rules are not without fault. I agree that, if it was issued, the new GFE would be a fantastic apples-to-apples comparison. As a lawyer, if XYZ Bank was your client, would you advise them to issue a GFE when they don't have to and can't reasonably measure their exposure?

Personally, I think they missed an opportunity to create a standardized preliminary document. I think the best part of the GFE is that it won't vary in form or function between lenders. Yet the preliminary estimate sheets will vary infinitely and that defeats the entire spirit of the changes.

As for the complaints about cash-to-close and monthly payment, that is simply not the purpose of the document. I'd argue that information should not be on the GFE. It is a GFE "of settlement costs" not "of everything you'd want estimated all rolled up onto one page."

An overpriced lender can no longer redirect the consumer's attention by talking about the monthly payment or cash-to-close. I don't see how that is bad.

New GFE=same junk as HVCC. The loser holding the bag always seems to be the consumer with gov't over-regulations. Banks are not in the business of losing money and the mortgage business has always had a rudementary element of bait and switch in that, when the buyer gets down to the end of the escrow period and has no other choice, the lender seems to push as far as possible whenever they are allowed to. They have done it before and will always continue to do it, mark my words.

Sky Minor

This is the problem with every law on the books - just like every coin...it has 2 sides and it seems as if there walways be those who will successfully (at least for a while) skirt the intent of the law/rule.

Just my opinion...

Sue Botelho's comment #56 was right on. Her suggestion would really make it clear for everyone involved.

Folks, stop and read Chris Richter's comment, some real thought and analysis rather than a knee jerk reaction and Massachusetts bashing (which I have to laugh at--how do any of you presume what my political affiliation is?).

Richard, you've created a firestorm of sorts, but the fact is the new GFE estimate is flawed and WE'RE GOING TO HAVE TO LIVE WITH IT.

So how do we do that and still meet the needs of our clients (y'all remember them?). Here's a real life example from Mortgage News Daily, and it certainly sounds like he was trying to answer customer questions rather than circumvent the new form.

Originators are still grappling with the GFE and RESPA changes. One wrote and said, "This week we sat down with a borrower that is doing an FHA loan. The seller is paying all of the closing costs and as usual the borrower is financing the upfront MIP.

Essentially the borrower is coming in with their 3.5% down payment. Our GFE was filled out correctly and yet it showed that the borrower needed $13,850 for closing. Unfortunately the new form does not take into account the fact that the borrower is financing the MIP or the seller credit of $10,000. When we arrived at the bottom line on the GFE form, the client saw they needed $13,850 to close; they were shocked to say the least.

They looked us right in the eye and said, 'You want us to sign this official looking form, and you're telling us to trust you that what is written here is not correct?'

We were speechless and must have looked equally as shocked as the borrower seeing a number that was not part of the discussion. All we could think about was HUD put us in this very uncomfortable position. Ultimately we had to show the borrower a version of the old GFE that shows the seller credit and the upfront MIP being offset by the loan amount.

The only benefit for the consumer on this new form is the information on the lock expiration; otherwise we have taken about two steps backward with respect to making the closing process more understandable.

To those of you who implied lenders that used a substitute form as not reputable, I think this illustrates the dilemna that even the "good guys" are faced with everyday.

In our last mastermind meeting, I asked the Realtors present if they were familiar with the form and the potential "land mines" and the response was: "Oh yeah, I heard something about that".

Initial disclosure is only a small part of the problem, the real problems will arise when you get to closing.

Hurrah for all of the writers on this blog who have stood up and told the truth. The new GFE is stupid, incredibly invasive, and does nothing to help consumers.

Remember, the housing meltdown was caused in large part by govenment requirements for "Community Reinvestment". No investor in their right mind would buy these loans unless they were camoflaged, so greedy people used deceptive practices to sell them. The problem was STARTED by government intervention and interference with the market.

So what did the government do? They REWARDED THE PEOPLE WHO CAUSED THE PROBLEMS BY BAILING THEM OUT!!!

Einstein aptly pointed out, we cannot solve the significant problems of our day using the same level of thinking we used when we created them. And sadly the elected officials in this country don't have a clue. For heavens sake, PLEASE e-mail and call your Senators, Congressman, and state representatives and tell them that more regulation doesn't help. REMOVE THE CAUSE, punish the guilty, reward the kind of behavior that generates good business, let natural consequences cleanse the market, and enforce the laws we already have.

Please tell your legislators, "Don't point the finger away from your stupid selves by coming up with more regulation. Enforce the laws we already have to protect people!!! Repeal the regulations that got us into this mess in the first place!!!" And if lawmakers aren't obeying the law, let's prosecute them and get them out of there!!! More goverment rarely helps anything. And right now we are up to our ears in regulation being imposed from so many different governmental bodiesn that we can hardly keep up.

It's time for some common sense, PLEASE!

Greg, great comment!

It's amazing how fired up folks are getting about this, huh?

Great post. The new GFE is going to be very simple for borrowers to understand. However, it is worthless as a document as far as describing a loan scenario to the borrower. HUD needs to revise the GFE. The stupid big banks are most likely to blame. They might be able to do things cheaper, but is it really worth paying higher rates or having to wait and close after 60 days. I think there should be a supplement form that goes with the GFE. There will always be those lenders that try to hind fees. They will eventually get what they deserve. I just want the borrower to feel absolutely comfortable in knowing exactly what their lender is providing them. Afterall, to most borrowers, getting a mortgage is confusing as hell!

I love MA and am there at least once a month - just not a fan of B. Frank who excels in pie eating contests.

I hear ya Tommy! Believe me I'm not crying in my beer that Scott Brown won!

The problem remains, as always, with HUD and it's disconnect with the industry.

If Barney had his way, Fannie and Freddie would be gone yesterday and he doesn't have a backup plan!

I think this post was like taking a big bite of an overloaded hamburger...we chewed, chewed, the gulp hurt, but its down...

My fiance's sister lives in Framingham, Richard. Maybe I'll swing by and we can grab some beers.

Let's do that Tommy. First round's on me. Sam Adams of course! Haha

Sam's all I drink. I'll give you a holler. Enjoy your weekend!

Wow, lots of action on this hot topic! I agree with Dave - Joe, Sue, Scott, and Wanda kind of sum it all up for us.

As for me, I do miss the old GFE document. I remember when we had to TYPE THEM ON A TYPEWRITER for goodness sake!! I have taped one of the old relics to my wall just so I can see it and remember the good old days of providing a very well laid out illustration of the entire transaction including the cash required and a breadkdown of the total monthly payment. So many fond memories...

A few years ago a borrower said to me at the closing table "that Good Faith Estimate you gave me was off by almost $500 from what this HUD1 form says!" I replied, "only $500? Wow, I think that's a new record!" Point is, good originators and lenders will always provide as accurate an estimate as possible. The new GFE however, complicates our ability to deliver outstanding customer service and respond to our borrowers' immediate requests for numbers and constantly changing needs during the homebuying process.

The lender for whom I originate has not authorized us to provide any supplemental worksheets with our GFEs. I am giving each borrower a notebook and they may write things down during my origination presentation since the info they want to walk away with, the total funds for the transaction and a detailed breakdown of the monthly payment will not be on the GFE! I also provide them with a copy of the 1003 highlighting these numbers for their reference.

I would like to continue this discussion and would love to blog about it in my spare time but here's my more pressing issue:

I must produce an accurate GFE on a transaction that is a $340,000 workforce housing new construction FHA condo purchase with a $60k subsidy, a $30k grant, a $26,000 downpayment, a contract that only states $280,000 with no mention of the $60k subsidy being on top of that, and a borrower who wants to apply for a $224,000 mortgage! The buyers attorney tells me that he is "pretty sure" the mortgage and transfer tax are exempt on the subsidy and grant portions which, by the way, will be recorded as subordinate liens. The grant people do not see why I don't "understand" that the purchase price is really $340,000. How am I supposed to issue a GFE, be held accountable for numbers with little or no tolerance when I cannot even get the answers I need? Welcome to my world!!!

Have fun out there people:)

HUD and FHA's philosophy is simple:

Reduce everything to it's lowest common denominator and keep it honest.

Eliminate the Bull S%$@.

Richard, My cut-to-the-chase comments are focused at the spirit of the new (or old) GFE and RSPA.

While it is a noble goal to provide more consumer protection. It assumes that consumers actually review all the information and labor to understand what they are committing to at the signing table. Consumers come to the signing table with a high level of TRUST.
Each layer of complexity that is added to the transaction process is actually distancing the consumer from making an "understandable" decision. Until an effective mandate to change human nature comes along consumers will continue to place a high degree of TRUST in those who provide real estate transaction services on their behalf.
I'm not suggesting the previous status quo should remain. I've had my share of last minute disappointments that didn't show up until the signing of docs to believe that. Transaction transparency is a great goal. I do believe the burden of fiduciary responsibility will continue to rest with the real estate practitioners and buyers and sellers will continue to place their trust in them.

Steve

Richard,

I think you 've just experienced some of those "unexpected consequences" with your post here, much like our friends in gov't who make laws and decisions without thinking about the impact. Thanks for getting it started.

I heard a lender that was waiting for the HUD1 from the attorney before providing the GFE simply because so much can change in a transaction.

What needs to be revealed to buyers are the fees the service providers charge and then the worst case for pre-paids to qualify the amount needed to close.

Many times HOA fees are overlooked on a GFE and you wouldnt want the whole thing throw out because of a small omission.

IT's been three weeks and we are MISERABLE.....The new RESPA ruling has left me discouraged and confused. My clients are also lost. In my opinion, if the borrower deals with a reputable lender, then there should be no issues with fees changing from the start until closing. We don't live in a perfect world, and there are several variables beyond anyone's control that can change the bottom line. I'm spending a lot more time on each loan that my productivity has suffered drastically. The Initial Fee Worksheet is not a way to get around the new ruling.....it's simply a way to show the big picture to the borrower. It has important information like monthly payment, cash needed at closing, who pays for what, etc.

I just completed my first GFE2010. Not fun! It took me all day just to get it right, and I have been doing GFE's for over 25 years. There is some benefit to the consumer, but mostly I think it provides more confusion. As others have said, it does not disclose what the buyer really wants to know. However, many lenders are suggesting we make a new form which disclosures what costs the buyer is responsible for and what costs the seller absorbs. As far as finding away around giving good estimates, I don't think that is possible except for over estimating. However, if you over estimate, you can shoot yourself in the foot because of your competition. Because of the new GFE, I only except contracts that have a 45 day closing to avoid having to get an extension.

TIME!!! That will work out all the little hiccups create by ANY new GOVERNMENT form! Think of how many times we've had major upsets and then it's cast aside for some new issue!

I am very happy to see that the GFE and the HUD were the villians in the real estate bubble and that these changes will fix all of the problems.

"I am from the government and I'm here to help" is a joke, not a benefit.

Many of these comments from lenders make me feel more worried about the lending industry than before. The lender I work with the most has told me she has twice as much work to do to provide this new GFE and I'm sorry for that, because she always did an excellent job, buyers closing costs always came in lower than she quoted. So people like her are being punished for problems caused by others.

But ... why the complaint above about not being able to provide accurate numbers without knowing the credit score? I'm surprised to hear you'd give a GFE without knowing the credit score. Do you write pre-approval letters without knowing the credit score too?

And one person quoted an article saying they were asking the borrower to sign the GFE and another post said they don't have to sign it. Which is it? I they're not required to, and you make them, and then they feel confused, it seems silly to cause the problem.

I wasn't aware lenders had to provide such fees as inspections. They're not a part of closing around here, maybe that's different in other places. But why should lenders spend hours trying to figure out those fees - get the real estate agent to provide them. True, the lender is the one being held to them, but an agent should want to help their client have good, reliable info.

But back to the question at hand - lenders should provide additonal info that buyers need. Period. But they shouldn't try to circumvent the current law by pre-approving them without even knowing their credit score.

Am I right in thinking there's some disagreement what constitutes an application now? Depends on what the definition of 'is' is?

I am current doing real estate but have done loans in the past! I went to a class of the new GFE offered by one of lenders. There are six requirement needed to "qualify for the GFE being issued" one of the biggest problems in the fee garentee is that the bank are taking too long to close. If a lender does a GFE and for some reason they cant lock and close in a short time they are still obligated to keep those rates and fees. What happens over 60 days is that Rates change alot over 60 days and the Guy making the quote is at the mercy of the market. and believe me there is nothing in the world worse than working for free when you did not opt too. Then suddenly you quote high and your deal walks. So istead iof being more competitive as loan originators find they lost or made nothing they are going to start quoting higher prices to ensure they still make money. I do not see this new gfe the way it is doing the public the benefit the governmnet wishes to impose with these new guidelines

Bad habits are hard to break. It will be interesting to see how many GFEs have to be redone (and closings delayed) when the transaction crosses over the new HUD UFMIP rules.

What a post. It and the comments have been quite enlightening to a new agent. I can do without the politics. Thanks

Richard,

First off, I am not using worksheets or other forms with my customers. The new GFE is usable, even though it requires more education for the borrower.

Ultimately, the new GFE does not benefit the borrower; it actually limits the options for a borrower. As can be seen by the "workaround forms" that some are using; it is impossible to issue legislation that eliminates unethical behavior. I do want to point out, however, that not everyone who is issuing cost estimates is doing this to circumvent the new GFE.

Professionals who have done financing for any length of time understand that for any given loan there are two important financial pieces to that borrowers must be aware of; closing costs and interest rate. The importance of each is mainly determined by how long a borrower plans to be paying on the loan. The shorter the time period, the more important that closing costs are; the longer the time period, the interest rate becomes of primary concern. Professionals will educate borrowers on how to determine the break even point, or the time frame in which the monthly payment savings from taking a lower rate will equal the additional up front cost that is needed to obtain this lower rate.

In the past, we were able to issue a GFE for the set of closing costs/interest rate combination that we felt best suited the borrower, but we were also able to speak to them about other combinations that they may feel were a better fit for them. Now, since we are essentially bound for 2 weeks (10 business days) to not raising the closing costs that we disclose; we either have to disclose the higher cost/lower rate option or eliminate the lower rate option for 2 weeks until the GFE expires and we are able to re-disclose. As everyone is well aware, the rate environment 2 weeks from now could be considerable different than it is today.

I am aware that there is a trade off table on the GFE. While this table is good in theory, in practice it doesn't work. Just because I disclose the lower rate/higher cost option on the trade off table, none of my lender will accept that loan as the costs have increased from what was initially disclosed.

How about interpretation of this new law? Are you aware of just how vast the differences in interpretation are from one lender to the next? If lenders can't agree on how the form is supposed to be filled out and each discloses the fees differently, the consumer will no longer be able to compare loans to each other accurately. Is this not the intent of the new GFE?

Finally, what about human error? Even the most seasoned professionals will make mistakes. How does this impact the borrower? Lenders will now have to mitigate that risk by raising the cost on each loan to cover losses for mistakes that cannot be corrected by re-disclosure.

Insightful and right on the mark. I understand why the lenders are doing this, but I like your approach better.

As a consumer I'm totally confused, thank you government for your involvement...

There is a lot of confusion surrounding the new GFE here. I think everyone that is complaining about it is missing the point: this is designed to protect the consumer. I don't know about you but people usually appreciate knowing the true cost of something, especially when it's the largest purchase most people make in a lifetime. If you really must blame someone for these changes, blame the small percentage of horrible, horrible lenders that robbed so many people. I can't tell you the number of times I have seen someone walk from a signing because they were told one thing and given another. Even worse are the buyers that sign anyway because of fear of loss. We will adjust to this new system and the consumer we will be better for it because we are all consumers at some point.

So, I did contact HUD; I sent Secretary Donovan the following email:

Secretary.Donovan@hud.gov RE: New "improved" GFE

Why doesn't it say how much the total payment is?

Why doesn't it have a signature line on the page with the information, or at least initial lines?

Why doesn't it say how much money a buyer needs to bring to closing?

Why is there no credit for seller paid costs? Doesn't this affect the APR?

Please tell me how this form is helping. It seems it really doesn't give answers to what buyers want to know.

I will let you know if I get anything back.

Awesome Debbie!

OK, what ever happened to the "good old days" of a loan guarantee or commitment? It used to be you went to a lender, provided all (and I mean ALL) your documentation (tax returns, bank statements, pay stubs, references, etc.). The lender investigated your background, credit, verified your bank accounts / employment, and even called your references to ensure they where real. Then the lender gave you a loan commitment up to a given purchase price with the requirement of a given down payment. You knew EXACTLY what was required and what your loan terms were from the gun.

Since the internet, buyers started to "SHOP" loans, go to 5, 10, 20 different brokers... Due to this fact the brokers had to change the way they did business and low ball the loans to hook ya in. Then things would change, hence the new GFE. But lenders brought this on themselves to by changing the loan rules on the fly. How many times have your clients been just days or hours from loan docs and SURPRISE, you have some need for additional paperwork or POOF, the loan you had was just flat gone and the only way to close the loan was to agree to a different package all together and of course it cost the buyer more.

I say that HUD has the right idea, but the wrong rules. We need to go back to a simple loan commitment. Do all the work up front. The buyer should come to a lender, supply ALL documentations, the lender should do all the back end work, and then issue a commitment to loan that they have to stick to for say 90 days regardless of any changes. Then the buyer can find the home, do the contract, put down the money, do the inspections, sign the docs, and CLOSE THE LOAN...

SIMPLE...

But it will take the basic rules to change from in favor of the lender to the consumer. But alas, this will not happen because the lenders have all the power. We lose our homes due to decreased income and the COE's buy a new $10,000,000 house because the government spent billions to ensure they made a profit and got their bonuses.

Just my 2 cents, and that is just about all I have to my name.

Hi Richard,

Timely and important post. Thank you!

We are a company that does provide a worksheet/ summary of the costs but that is before the triggers take effect (Quoting stage). Our worksheet is actually based off all the costs that we input into the file and we are in compliance to the new rules. Once the triggers are set we immediately send them the new GFE.

The problem with the new GFE is that it doesn't provide any uniformity to the quoting stage of the conversation between lender and client. This causes almost all lenders to create their own idea of what constitutes a quote or a GFE. I have seen a bunch of them and I can say that many of them are deceitful as they do not come close to disclosing the actual costs that the client, ultimately, will have to pay.

I had a client the other day telling me that I was $3,500 higher than another lender. I asked him how much his closing costs were with the other lender and he told me $1,900 which basically equated to 1% origination of the loan amount ($190,000). He actually believed the other lender and the conversation was over. What a sucker! Amazing what this new GFE has done.

In effect, it is a GFE but actually much more clear than the previous and the new GFE. Go figure!

I am not a mortgage broker, but this is a very interesting and informative conversation. I have to agree with comment #101.

these new forms do nothing to protect the buyers ... they are the same old government knee jerk reaction using no common sense...

the good fatih has to have an address.. how do you let buyers go in and qualify before they look at homes.... the lender is on the hook to provide specific numbers for specific property and there are 3 sections of toloerance semis tolorance and ZERO toloerance...

the new forms hurt the consumer... they do not help... we cant work with folks and write a contract on homes if they are not qualified to buy them and they cant get qualified until they have a specific property... on the new good faith forms...

anyone who thinks these new forms help consumers.. are just not aware of what is sdaly lacking in them... the government has always thought you should use 20 words instead of one and now 3 pages instead of 1 but dont use any common sense and and make sure whoever wrote these forms has never closed a loan or probably even bought a home...

How can you think these are good when

it doesn't say how much the total payment is...

it doesn't have a signature line on the page with the information, or at least initial lines...

it doesn't say how much money a buyer needs to bring to closing...

there is no credit for seller paid costs? Doesn't this affect the APR?

It is specific to an address for a home they have not found yet HELLO???????

What ever happened to thinking clearly and providing a simple process. It would seem the powers that be are intent on clogging the pipeline.....

www.marksnyderhomes.com

Not much more to add to that hasn't already been said. I read an article on this and it amazes me how companies will always find a way around the system!

This is an excellent topic for discussion. Good for to see how it is being handled and addressed by my peers. I particularly liked what Sue Botelho #28 commented. I'll be book marking this post.

I see all the commenting about inability to handle the NEW GFE, pree-approval,

Basically it is change

Guys (and Gals) we knew this was coming. You can thank all those loan people in the past who quoted one thing, and then at the table switched it to something completely different -- You can also thank all those people who concentrated on RATES rather than Value/Benefits

As I have said in my past comments, I have been using the new GFE and am having NO problems with it

My clients all know that I start the rate at the highest. I take the time to explain to them what I have control over (section 800) and what I dont (everything else on the GFE) -- Along with that, I tell clients that the 800 section is how I partially get paid. The client has some control, if they want bottom rate, the get more/higher costs; If they want lowest out of pocket, then they get maximum rate. My clients all know that I charge minimum 3% or I wont do the loan

Stop the Pre Approvals

Get Full Approvals Only. Take the extra time to have a borrower submit all income docs, send the file to the underwriting dept --then you know what will happen; No more guessing whether or not the loan will close; What the conditions are

If your current loan person wont do that, switch loan originators / banks

www.homefinancingninja.com

Brad, I wasn't the one using the word "skirting" -- that was Vickie Bott from HUD and consumer activists! Again, don't shoot the messenger. And my post is clear that others were accusing lenders of doing a work around.

If I were advising you as an attorney, I would damn well be sure that you were aware that HUD was all over this practice and to be careful.

So please spare me the lecture on word choice.

Seems to me asking a lender to provide full disclosure of interest rates and fees without all the facts is like asking a builder how much it will cost to build a house without telling him what type of siding, floors and fixtures are going to be used?

Not sure if my first comment went through. The previews we went through suggested that the new GFE was usable and even beneficial to buyers. However it would take tine because change is always difficult to implement smoothly. Also suggested that everything be in place 7 days before closing or you won't meet the closing date. We know that this is not likely so it will be best to educate our buyers that the closing date will very likely be extended. Margaret C.

I'm curious how many of the complaints are from brokers and how many are from bankers. Some of the complaints are not about HUD/RESPA, but just the pains of brokering in 2010's mortgage world.   If a broker doesn't control the lender cost, should that be the consumer's problem?

Once it is a real GFE, it is a big box with the letter "A" that says "adjusted origination charges." My letter "A" is never over $1,000 (barring discount points or if I for some reason get stuck brokering). If yours is more/less, why wouldn't we want that disclosed to the consumer as early as possible and as binding as possible?

Big separate letter "B" that says "charges for all other settlement services" is also straightforward. If you are organized, it does not take twice as long. Title, recording, etc. are just tables of data. We do 50 states, my list is just 50 times longer.

APR is Reg Z, that's not HUD. Too many government entities? Different topic. Still, APR and GFE have absolutely zero direct relationship.

There is a misunderstanding of Finance 101 in some of these comments. A corporation needs to look at three items to know what is happening: Income Statement, Cash Flow Statement, and Balance Sheet. Households have the same.

The old GFE, while familiar, was completely wrong. The GFE should be an expense statement, it's basically the bottom half of the "Income Statement" related to the purchase of the home. Cash to close is irrelevant on a GFE. The expense of UFMIP does not vary if you finance or pay it at closing. Seller Credits don't lower expenses, they lower cash to close.   Those are two fundamentally different financial questions and they shouldn't be confused. That is one spot where HUD has it right and a lot of the comments are dead wrong.

Seems to me that mortgage brokers/lenders HAVE to use worksheets to get all the information that consumers want and need to them.

I don't like seeing the practice of putting high fees on paper, saying "trust me, it will come in lower." Unless a better practice is put in place, consumers will be more confused and distrustful than ever.

The new GFE has many shortcomings (not being signed or dated by the client, not splitting out the lender's fees, still throwing so many numbers at a neophyte that they tune out, etc.) and therefore is a disservice to the client. The new GFE lets banks hide the fact that they make money on the interest rate. This is yet another time where the government wants to rush and do something, anything, without actually setting a goal and thinking through how to achieve it. Those lenders who were overcharging clients will find loopholes in it; those of us who charge a fair fee for our service will continue to do so.

Interesting post, but it does not surprise me.

Folks, Ive been a real estate broker for 30 years and mortgage broker for 26 years. The new disclosure system is the most convoluted, confusing piece of work to ever be forced on this industry by a collection of govvy types who do not understand anything. Im put off by the sensationalist and possibly inaccurate headline of this thread.

I am involved in many mortgage industry groups and websites. There is NO CONSENSUS in any of them on how to interpret and handle this new MESS. The old system was not perfect but better than this, but still hard to get any group of lenders together to agree on handling it regardless of their experience. TYo read the Reg manuals was to see 20% rules and 80% ATTORNY OPINIONS on how to handle them!!

If our government were to take any ten experienced mortgage brokers from the trenches and have US put together a system, it would shine. Look at A.P.R. !! Again Ive never been in a group of brokers who all agreed on what charges are included in A.P.R.

We are serioulsy handicapped now by this GARBAGE. Thats what it is---GARBAGE. Someone above mentioned over charging to stay within the rules but my understanding is one cant do that either. I didnt read all above to see if others answered that.

Many brokers are trying to put together their own supplimental forms to help borrowers understand the new GARBAGE and to try and stay totally legal. For example, the borrower has NO PLACE TO SIGN the gfe! One of the rules states that 'should a borrower refuse to take the form, you cant refuse to give it to them'. WTH does that mean? Is a joke!

What about preferred service providers? Instead of a borrower choosing a pest company, title company, etc the lender has to provide a list of providers to the borrower?? So if Im a donut shop I have to provide buyers with a list of places to get coffee to use for dunking? Good God.

Do you real estate only folks know that your mortgage brokers are a dying breed? Our numbers are a fraction of last year. New federal licensing is now taking out many of the ones left because it has CREDIT SCORE REQUIREMENTS. In Calif they say one must show personal financial responsibility to be qualified to help people into mortgages. What total BS. RETAIL BANKS want us out. They have for years. With the advent of the internet and mortgage brokers who brought in a majority of business that filled the banks pockets with profit, they NO LONGER NEED US. We are back to mid seventies where people had to walk into a few banks or S&Ls to get a loan.

Whats this mean bottom line? Borrowers will ultimately pay more. Transactions will take longer to close. Wells Fargo is a total mess in every division. I worked for them as a part time underwriter in the re-sub dept last year. They couldnt handle their business. Have any of you tried to do a short sale thru them? Any of you have deals where a buyer is getting a loan thru them? What does a buyer do when they are being delayed and/or receiving high fees? Yep, run down the street to BofA where the same thing is taking place. I used to have 140 outlets for mortgages. Thats down to 5. Any broker who tells you they have dozens of sources or hundreds of programs is a liar, unless they are counting every specialty lender they know such as private seconds, hard money construction, USDA, etc.

My LONG WINDED point is we have been delt a SOWS EAR and we cant make a SILK PURSE with it. The loan industry is in a state of confusion so large that many have left the business just because they are afraid of not correctly complying with disclosure rules

Marvin Von Renchler

EX mortgage broker as of next month, back to full time real estate.

I have been reading all the comments on the blog and said,WOW! What have banks been trying to do for years, trying to get in the RE business? Is HUD working with the Banking industry or for the comsumer? In NC REALTORS are held accountable for the HUD, ( Settlement Satement, not the closing agent/attorney). I have had to argue on behalf of my clients about the originial GFE at closing because of fees that were not on the GFE or they changed in the process of the transaction many a time. It is going to take some time but let's give it a chance! Like anything new , if it don't work; we can get it fixed! You go Terry!

I forgot to address something in the thread authors first page of this blog. He mentioned an agreement and disclosure to extend escrow depending on what future loan figure changes do to the process.

BRAVO. Doing this was one of my first thoughts whn the rules came out and you real estate only folk should know about the possible delays this new system can cause. Its VITAL for you and your buyers/sellers to realize what can happen, especially in circumstances where you must complete a transaction by a certain date or suffer loss in some way.

Marvin Von Renchler

Wow, great commentary everyone. As a reputable lender and loan officer, this whole process has been very frustrating indeed. I so understand the reason behind the new GFE/REspa rules, but it is just not happening. If the goal was to provide better information to the buyer, this is further from the truth. Yes, we want to provide "good estimates" to buyers, I have always been able to come very close on my figures for cash to close/closing costs as an estimate in the beginning versus the final good faith/TIL and HUD 1. Generally when I counsel a buyer, I made certain that they are aware that there are certain costs everyone is presently not aware of: home warranty, escrow coordinator fee, HOA prorations. If I have done my job properly, then the buyer is not suprised at the end of the day when we get the final HUD from title to determine the amount to bring in to title. Lenders who have drafted new forms so they can at least give the buyer something, are not trying to circumvent anything. We just want to provide our buyers with cash to close estimates and loan payments so the buyers don't feel in the dark. I am so okay with providing a good faith estimate once I have a fully exectued contract and/or all the item which constitute and application. Many times, as everyone knows, we don't even know who the title company is, so now we have to use our designated service provider for title, escrow who frankly some times are way off in fees in comparison to the title company designated for the transaction. Other fees we are now required to provide estimates for are the Home Warranty, Pest inspection, Roof Inspection, Termite Report and Clearance amongst others. Since when do I know the cost of these reports as they vary from provider? Again, I get the concept behind the new GFE/RESPA guidelines, but come on, think these things through before putting us through the hoops. And don't even get me started on combining the new GFE/REspa with HERA. OMG! I spend most of my days checking APR's, fees, and Disclosure dates!

I'm a real estate attorney as well. I've told lenders that unless the borrower gives you all 7 items as required to issue a good faith estimate, then DONT! The issue is that this new rule makes lenders on the hook for the transfer taxes and the seller paid owner's policy. Why? Who cares? Seller is to pay it.

The reason why is that our government wants it in writing. In Illinois we don't know the costs of the seller side insurance. Even if we get a quote from our "preferred title company," the seller's attorney may have an agency relationship and jack the fees way beyond what is normal. Real estate attorneys do that all the time.

The client does need accurate information. The lender needs to provide it. But if the borrower doesn't provide the information to create the necessary requirements to issue a GFE, the lender, shouldn't.

The new GFE without a doubt is a nightmare. It was designed to better help the consumer however nowhere on it will a consumer be able to see what their full monthly payment is? In addition the way fees are to be broken down is very hard to understand even for a seasoned veteran. If that isn't bad enough each and ever Lender had a different place that they would like the fees to be shown.

The good news is that it will keep Lenders honest which means I will never loose a loan to the competition because I was honesnt upfront about the fees.

Hi Richard,

All great information to learn and live by, I do appreciate it.

First, Richard, you may want to add MDIA/TILA/HVCC to the alphabet soup of related delays on your contracts :)

We drew docs this week on four loans originated in 2010 under the new RESPA rules and new GFE. Each one was a nightmare and guess who ended up preparing the HUD-1's on these? Yours truly, the Lender. My first problem with this is that it's not my job. The bigger problem is that it removes my 'checks and balances' in the system. The Escrow Companies had a really difficult time trying to figure out which fees went on which lines and then which 'tolerance bucket' applied. They were riddled with mistakes but you can't see them because fees are 'lumped' together. When finished, I asked each of them "What can I, the Lender, provide to you (other than a HUD) to make your job easier?" No suggestions yet, only sighs. I have some ideas and have submitted to our document sofware company but it will take time to implement IF they agree to make the changes. Patience is key until we all 'get it'!

How did we fare? Block 2 fees were right on - zero discrepancy. Block 3 fees were within 10%. Blocks 4 and 5 were WAY off, but that's because they were using Escrow Companies from down in the Los Angeles area. Escrow Companies that were selected by the Seller and/or RE Agent. These companies are not on my SSP List, and never will be. (The fees they charge are criminal.) Which brings me to my next complaint...

Choosing a Title/Escrow Company for my SSP List in a little Two-Title Company town did ruffle some feathers. I didn't want to choose one but HUD is forcing me to do so. I cannot list both companies because they would be forced to charge identical fees, which they don't. They were still upset until I pointed out it doesn't matter who is on my SSP List. We all know that by the time a contract is signed an SSP has already been chosen by the Seller/Agent. Another misunderstanding by HUD that the Lender selects the SSP - we don't.

The last point I want to make is regarding the use of a worksheet which, oh yeah!, is the topic of discussion. The worksheet IMO will always be required in order for Lenders to do their job, not only because it paints the whole picture as many have commented above, but because it provides details essential for processing a loan. My underwriters must be able to determine final cash required to close taking into account which fees are being paid by the seller, which ones are considered sales concessions (Owners TP and Transfer Taxes don't count), and even more importantly, which ones are included in the APR. Even though a revised GFE won't be issued for use of an out-of-town escrow company, I still have to comply with TILA and MDIA rules under Reg Z which require re-disclosure of the APR. Where do I find which fees are included in the APR? You guessed it! The Worksheet! Can you imagine how confused borrowers will be when they receive a revised TIL in the mail with no supporting documentation. APRs just got tougher to explain. Without a worksheet I have no way to determine how all the numbers were calculated and that is why we use a worksheet. Please tell HUD, we are skirting nothing.

Thank you for the discussion!

A response from one of my lenders..Thanks Linda

I feel the need to respond to this in an effort to educate people on what's really going on. As with any business, there are good loan officers and bad loan officers! I don't think anyone has done enough to police and shut down the bad loan officers. Instead, the Government keeps changing the rules and disclosures which just makes everything more confusing, more costly and more time consuming for the consumer.

Have you taken a good, close look at the new Good Faith Estimate??? It is now 3 pages long, makes us quote some seller fees (even though the buyer isn't responsible for them), doesn't show the monthly PITI payment obligation, and doesn't require customer signatures. Now, how is that better for the customer?!?!

There are 3 "blocks" of information on the new Good Faith Estimate. Block one contains discount points, origination fees, yield spread premiums, and underwriting fees. There is a zero tolerance rule for the fees in this block. These fees CAN NOT differ from the initial Good Faith Estimate to the closing HUD statement. Block two contains third party fees like the appraisal and credit report. These fees can differ by 10%. Block three contains title company fees, escrows - these fees have an unlimited tolerance and can change by any amount from quoting to closing. Sounds pretty simple - NOT! I've been doing this for eight years and I'm struggling to understand it all, much less, trying to explain it in a clear, concise manner that makes sense to the "average Joe".

So, I'm using both an "Initial Cost Worksheet" (that the Government is supposedly going to crack down on - based on the article below) AND the actual Good Faith Estimate, at the same time. I'm using the initial cost worksheet to explain exactly how much the loan will cost, and disclose the monthly payment, in a simple one page form. Then, I show the customer those same numbers, plus additional costs that are not the customers (but I'm still required to show them) on the more difficult 3 page form. I'm not trying to skirt the new rules or hide anything. I'm simply trying to make the process and fees as easy to understand as possible!

I pride myself in being accurate with my numbers, and true to my customers. In my 7 years of lending - I don't believe I've ever been more than 10% off from my initial quote to closing. I tell my customers, I'll be within $150 from what I quoted you, or I'll take the difference out of my commission!! I didn't need some new, confusing form and regulations to make me do that.

In the past, too many unscrupulous loan officers would have fee difference of $500 or more, from initial quote to closing! Those are the people who should be fined or lose their license. There's no excuse for that!

As a real estate agent, before I write an offer, I like to give the buyer an "ESTIMATE" of his closing costs. Right now, until I figure out the new charges, I'm unable to do that. I've worked with a title company to understand the charges. The lender shouldn't have any charges that were different than any other charges in the past.

This is an interesting post. I'm still reading to see how it plays out.

I will be following his entry. Above and beyond the items already said by Jacques, the biggest problem I have is the fact that HUD suggest borrowers use the Total of A & B for comparison. IF they stated that "the TOTAL ORIGINATION FEES" is the best number for comparison purposes because Most if not all of the amounts included in the "B" total are controlled by third parties or things beyond the lenders control like:

1)   The contract
2)   Govenmental Charges
3)   Title Company Charges.
4)   Prorations

All beyond the lenders control. The only exception would be when the Lender suggest or recommends the use a a paricular provider. Think for a minute if the Realtor suggests a Title Company and the buyer uses them, is the Realtor responsible for the Quote like a lender would be. Even if the Title Company (or Attorney) gave estimates to the borrower would they be held accountable for the estimate like a lender would be?

Here in Ohio, HUD and a number of the bank REO deptartments require the use of the settlement services providers and also call for all title company charges to be paid by the BUYER. They provide no estimates to the buyers of the charges to expect. Also, HUD had problems with "REQUIRED USE" within contract when they were employing it in there contracts.

One last thing, if a lender chooses to provide a list of Settlement Services providers thereby responsibe for guaranteeing the estimates, some would interpurit this as price fixing or steering.

The new Good Faith Estimate is lacking for a multitude of reasons:

There is no cash to close listed, only total settlement charges
There is no monthly payment amount listed which includes taxes and insurance, just the principal, interest and mortgage insurance as applicable
The is no signature line for the client to sign and HUD has stated you are NOT allowed to add one
There is no tax pro-ration for credit back to the seller
There is no place to list sales concessions

This is from a comment above.....

This information is actually listed on the loan application so why would it matter if it isn't shown on the good faith estimate??

The forum for banking compliance officers is full of wailing souls.

Hi David #133,

In my LOS, the only way for accurate numbers to be listed on the loan application is if you prepare the GFE first. But I can't prepare a GFE until I have an application... the chicken and the egg syndrome. Do you then provide a copy of the 4 or 5 page 1003 to your borrowers to provide these bits of information? A total of 9 pieces of paper! I still prefer the old GFE that showed the total "Expense Statement" as someone stated above, along with the Details of Transaction - all in one concise and easy to read piece of paper. I see nothing 'wrong' with the old form. But then... I'm an old school girl.

The transfer taxes are zero tolerant. For 25 years I have been programmed to work with the sales price or appraised value whichever is less. Just discover this week that the deed transfer taxes is calulated off of the assessed value or sales price whichever is HIGHER. My loan orgination software - Calyx Point - does not have anywhere in its programming for me to enter the assessed value. Therefore I have to manually calulate the transfer taxes for the deed. With alot of homes selling for less than the assessed value this little fact could get expensive for me.

Hopefully I am the only person in the mortgage industry that didn't know how the transfer taxes are calulated.

Some good stuff here.

Couple of things to note - items like pro-rates are not listed because they aren't items that customers should be using as a basis for comparison. Of course, things like title insurance and pro-rated taxes are also of this variety and shouldn't be used for shopping purposes either. The new GFE is a mish mash of ideas and thoughts but not a comprehensive and well thought out document.

Stop thinking of the GFE as a preview of a closing statement - it's not. Whatever the GFE was in the past it no longer is in its current incarnation. It's a shopping tool designed to promote greater uniformity and accuracy. I'm not saying it's a success but it is pretty clear it's a departure from what we had in the past.

For the most part, the form is a dumbed down version for consumers that lumps fees together in an attempt to make shopping easier. It does not itemize fees nor is it intended to do so. As soon as you start providing worksheets or estimates that are similar to the old GFE and provide an itemiziation of costs, look out. As others have noted, the problem with the estimate is that we can't really give it out until the consumer has a property address and at the point someone has a property picked out, that's not the point at which to be shopping. If you give out an old GFE but just call it something different, plan on getting into trouble.

One of the sad truths of the matter is that previous laws through RESPA and through TILA were sufficient - they just weren't enforced. In addition, it's frustrating to have one set of rules Reg X - set by HUD and the other - Reg Z - set by the Federal Reserve. Each conflicts with the other and neither is sufficient in and of itself. It's also incredibly ironic that HUD itself is being sued for a RESPA violation for forcing consumers to use the title company that HUD picks on REO properties.

There are some really good things about the new GFE and it does force Brokers to quote actual compensation. I do like the fact that ARM terms and things like prepayment penalties are much more clearly stated. As for SRP it does get a little more complicated when the lender is a correspondent or a bank since SRP doesn't need to be disclosed to the consumer in any shape or form. It will be interesting to see what happens to the industry if more banks take the approach that B of A is taking. Banks can't seem to decide if they are in the mortgage business for the long haul and whatever trend is fashionable is likely to be adopted by each of them. In the long run, it's not healthy for anyone to not have some level of competition and we have seen in the past that what is trendy, shiny and pretty today is discarded for something completely different in the future. I am sure that two years from now things will look entirely different yet again.

It does no one any good to just gripe about the new form. It's here in it's present form and the best policy is to do what we can to live with it and to understand what it is and what it isn't all about.

Good luck to everyone in 2010. Educate your clients and let them know how the new process works. Communication will always be the most inportant component of any transaction. Just make sure you truly understand the new RESPA guidelines yourself and help your Realtor partners as well. The new GFE isn't perfect but it's what we have to work with.

What would you get if you put 100 people in politics in a room who had no real understanding of how the industry works and tasked them with creating the perfect GFE.

You would get the new GFE!

One of the real goals of the new form is to make it harder for YSP to be earned by the mortgage broker.

The new form requires the broker to show the YSP (that term is not used) as a credit to the borrower.

Then the MB must have the borrower sign a broker agreement giving the credit to the broker.

How many cars would be sold if every auto dealer had to show a buyer their markup from their real wholesale cost as a credit to the buyer and then have the buyer sign a document giving the difference to the dealer.

JAN

2010

Hmmm... sounds like the government is at it again - going full steam ahead with a new rule without thinking.Sometimes I think they put "stupid juice" in the water these folks drink.

They should have consulted with Realtors who know what would have benefitted buyers the most instead of assuming that they knew best.

I have been a loan officer for over 15 years and I agree with the other loan officers here that the new Good Faith Estimate, while having good intentions, is a joke. The intention to not allow bad lenders and brokers to change fees at the last minute to pad their pockets and to the detriment of the client is admirable. It is also admirable to try to give consumers a little more knowledge up front about their loan than a lot were getting from disreputable companies under the old format. However, the good lenders and brokers that have always educated their customers are getting hurt and the bad lenders and brokers will continue their deceptive practices and now have extra ways to do it, as have been made evident in previous posts. And consumers cannot find the information they primarily want: what will their payments be and how much cash is needed to close.

And to all the real estate agents that are weighing in on this, let me put it back on you. How many of you provide your clients with a written estimate of closing costs, cash to close and payment. Why not? You should know them all. And surely there are many fees in the transaction in your control. So now imagine being held to the same standard we now are Imagine you not only have to guarantee costs for commission, home warranty, property inspection, transfer tax, etc. but also lender fees, appraisal, escrow and title fees, notary, recording, etc. Not just estimate but GUARANTEE or it will be taken out of your commission! Oh, also imagine that you are also responsible for guaranteeing the price of all repairs and termite work to be done to the property. I will allow you to view the inspection report before making this guarantee, but based on the inspection, please now guarantee all costs. And anything above your estimate will come out of your commission.

Now do you see why mortgage professionals are distraught with this new law? I am happy to be held accountable for my costs and compensation. But I am now also being asked to guarantee every other party in the transaction, many of which are out of my control.

P.S. - kudos to those that have exposed big banks' role in all this. They are the ones pushing for both this and HVCC to try to drive brokers out of business.

The new GFE is another swinging too far of the lending pendulum. Those who created this potential disaster should have tried a piecemeal approach...................chris

Mark #138 Thank you for raising the Subject of Required Use and that challenges are being made agains HUD for what some would see as HUD violation of RESPA Rules. I did a web searcch and found this "HUD Challenged Over Alleged RESPA Violations " HousingWire ... As a practical matter, HUD is directing title services and is therefore violating RESPA..."

Some will say that HUD has "Required Use" to be more effecient, There may be some truth to that statement, however the profitablity of Title Insurance (and directing of Title and Escrow Contract) might raise some eyebrows. On this page http://en.wikipedia.org/wiki/Title_insurance#Industry_profitability it says "the industry paid out about $662 million in claims, about 4.3% percent of the $15.7 billion taken in as premiums."

Can I interject a little humor here. I want to give a big thank you to the Bank of America loan officer for his assurance and commitment that we can be assured if we work with them we will get the best product available.

Never waste a good discussion or miss an oppertunity to advertise. There is a lesson there somewhere.

GOOD! this is a classic example of good intentions gone wrong. every time the govt. tries to "fix" something the result is a fustercluck of confusing and expensive rules that do little to solve the problem that gave rise to it. one recent example is the HVCC...sounds good on paper but we are all well aware of the result. it is driving the most skilled appraisers from the trade and adding expense to the deal.

now i have lender friends who will be forced from their longtime trade/career as this thing spreads to all corners.

that lenders would read the rules and develop an easier and more responsive pleases me greatly. the new rules were clearly drawn by some bureaucrat jerkoff that never originated a loan in their life.

the nanny state overlords have done it agin...a law that is so ridiculous and burdensome that it could ONLY have come from washington. with "help" like this who needs a proctologist.

Thanks for your post. I have done alot of training on the new RESPA reforms and it became apparent early on that the new GFE fell short in a number of areas, providing less clarity and less transparency. As you indicate, the new promulgated document does not provide a total payment (PITI), nor does it indicate how much the borrower must bring to closing. Furthermore, in our area, the seller typically pays for owner's title, yet a lender has to disclose this as a buyer cost on the new GFE.

We use the closing cost worksheet, not as a substitute for the new GFE, but as a complement. We feel this is the best way to provide complete transparency and give a true estimate of the funds needed to close. Becuase we cna no longer issue a GFE for pre-qulaification, this is effectively the only way for a potential borrower to get an idea of the costs involved in the transaction.

I feel confident I can make a compelling argument for the use of these tools. Nevertheless, if a bad lender wants to use bait and switch tactics, one form is not going to prevent them from doing it. Guns don't kill people, people do. If HUD sees problems, go after the criminals.

The new GFE by itself is a terrible document. No monthly payment, no cash to close, no earnest money, no seller contribution...it was obviously done with zero imput from mortgage professionals. If you don't use a closing cost worksheet how will the borrower know what the payment is and how much he/she needs to bring to closing? A fine example of the government getting involved and messing things up. Get used to it if your in the mortgage business.

Richard, help me out here. Put on your powdered lawyer wig (I'm from the Midwest and can only guess how New England attorneys dress) and walk me through this. You essentially need to 'go after someone.'

Group 1: Title companies, have $15billion in cash flow and can fight you indefinitely.
Group 2: Real estate companies, highly distributed, little liquid cash, easy to beat and impossible to collect from.
Group 3: Banks, suffering a liquidity crunch, deleveraging like crazy, have assets, but can't sustain a prolonged fight.

Who do you squeeze?

Politically, I could care less. I can't believe I'm saying this, but HUD did the "smart" thing. Squeeze Group 3 that can't fight and have the enforcement arm be the people with the most cash, Group 1. Realtors, you're next.

(I'm not in Congress, that's not a threat. It's the logical next step.)

the price you pay for those that were dishonest.

As for comment #151, all these changes come about when people lose money. Not oridinary, boring citizens but large corporations, governements etc. No one complained one bit as long as there was a healthy profit being generated at every step along the way. And for a good number of years there was no complaining just everyone trying to think of ways to expand homeownership and make program guidelines more liberal.

Every time someons comes up with a simplistic answer to what caused this crisis and what has brought on increased regulation I wince. The lack of shared risk is certainly a big part of what went wrong. In other words, no one was truly assuming responsbility for their own actions. There was always someone a level above be it the lender, the investor, the hedge fund manager etc that had all the answers and had everything figured out. When everything was said and done, it was like The Wizard of Oz when we all discovered the man behind the current didn't really know much more than the person in front of them in the process.

Every person that was involved in the process shares blame - Borrowers, Loan Officers, Realtors, Investors, Financial Planners, Media etc - none of us are completely innocent and none of us are to blame for the entire mess.

Enforcement (or lack thereof) played a huge role as well. Had the existing laws that governed Reg Z and Reg X been enforced in the first place we would have seen something different. I'm not saying it would have completely solved everything but it sure would have helped.

Someone shared a chart with me the other day that showed the correlation between income and house prices. Around the time of the bubble there was a huge surge in house prices without an accompanying surge in income. Something had to happen and it did. If you were to look at where we are now on that same chart, you would see a large decline in both income and house prices. The market is trying to find a balance and it will whether we like it or not.

Yes, we are all playing a price for dishonesty but more than dishonesty we are playing a price for greed.

I'd love to hear someone's take on the role of speculation in this whole mess. Speculators is an example of a group that contributed to the housing bubble that were not necessarily dishonest. Lucky in some cases, unlucky in others, speculators bought under the premise that house prices would continue to go up.

There were other factors beside dishonesty that led up to this mess. Even without fraud there still would have been a bubble - the idea that prices only go up and never come down is completely ridiculous. And yet, a lot of us drank the kool aid.

I have been to 3 presentations regarding the new GFE by 3 different lenders. They are all claiming to use their worksheets. Each of these lenders discloses much more in depth information on their worksheet than is provided on the GFE. Ironically, the so called "improved" GFE is a huge step backward for the consumer. As a REALTOR I'm all for the use of as much information to allow homeowners to make fully disclosed decisions. The GFE needs to be revamped!

Unfortunately, some bad apples brought this on the entire mortgage and real estate community and we all get to pay for it. Sounds like grade school!

GFE not required until 'application' is what I understand. And there isn't an application woithout a property.

I don't think the use of a fee sheet is skirting the rules.... it is merely following the convoluted rules mess presented to us.

JAN

2010

After 25 years of originating mortgages, I concur that it is a step backwards for the consumer.

- Since the good faith is not given out until the lender gets the necessary borrower information and the borrower has a property, there is no mechanism for giving the buyer an idea of what they are getting into before they make an offer. That is why a fee sheet of some kind is being provided.

- The good faith combines a lot of costs into two lines - the lender charges and settlement charges. That probably is a good idea, but doesn't explain to the borrower all of the components that make up those charges.

- Without a payment summary and a transaction summary, it will make it harder for a borrower to understand how the biggest purchase of their life goes together. When they want to know how much they need to close the deal, they will have to get it orally from me - take my word for it. That is not progress.

- Since the GFE doesn't have a signature space, the lender has the burden of keeping documentation that it was provided to the borrower. A signature from the borrower is a more appropriate way of documenting delivery. If its good enough for the note and deed of trust, it should be good enough for a disclosure.

I could go on, but I think the point is made.

BOB STEENROD

This is a great post. Our industry is flawed in general right now! It seems it gets harder and harder to do our job. We can thank those who chose to do things the WRONG way for making our jobs tougher. For those of us who have managed to survive, Congratulations! More change is coming. The GFE2010 is a perfect example. Our LOS system makes it an even bigger nightmare. Thanks CALYX point who can't seem to answer questions about why things won't carry over from initial fees to the 2010 worksheet so it actually equals the same number and makes sense to your customer. We actually have the old good faith estimate in our system renamed initial fee worksheet that we are showing our customers. It has " cash to close, payment, and seller contributions on there" It actually makes sense to the consumer. This is by choice, its not mandatory. You may want to implement this in your practice to simplify your appointments. If you use Calyx- I would suggest it. It is a bit of a headache getting it to match up with the 2010 though because not everything carries over perfectly especially on government and USDA loans. It is just quirks in the system. They can't seem to answer why. I just have to manually enter them which is frustrating. THese are mainly the 1300 items and on Georgia the 6.50 (I have one lender who says it has to be in block 3 and Calyx automatically has it populating to block 1). Great Post. Well Done.

Sounds like government's good intentions are not working as well as they should. I really like the idea of a disclosure on the worksheet. There is nothing worse than a client getting a $1000 or more surprise right before closing. From talking to reliable, experienced mortgage people that I work with, it seems the worksheets and estimates are necessary--not vehicles for getting around the new govt. form.

I don't have a problem with the fee estimates as long as there is full disclosure. The problem remains wherein the consumer still is left guessing on what rate is best for them.

Gerard, no worries my friend. I don't think anyone thought you were trying to "adverstise" anything. We're all on the same team here and trying to sort through these new changes.

Best of luck,

Rich

Richard

I sincerely hope that you are successful in getting HUD to recognize the flaws in the new form.

I know the intention was there, but this new form really has holes, and jeopardizes a lender in some cases for fees that we would never normally have to quote since they are outside fees. I am not talking about Title, but section 6 items which would include pest, property inspections, roof certs, et al.

I know that the Assistant HUD Secretary has recently joined AR, so maybe you can scroll the past blogs as he introduced himself last week while announcing updated HUD changes to FHA.

I for one will be using a worksheet in addition to any good faith. The current form is a head on collision waiting to happen.

Let's hope that you can help in this area.

Best Regards

I'm not a huge fan of the form, but I was working with a repeat client recently and had a long conversation with him about the new RESPA rules. After reviewing all of the major changes, he said there wasn't anything there that he, as a Borrower, didn't like.

If the result of all of these RESPA changes is that Borrowers are more comfortable, then its worth it. If Borrowers are not satisfied, more change will come.

Richard,

Good job stirring up the bean pot! The daily AR e-mail omitted the words "National Media Claims..." in its link to this blog. No wonder people got unhappy.

Lenders can do preapprovals without a property, no GFE is required until a property is identified.

Realtors, if you want your clients to get thoroughly preapproved (with income and assets documented) then refer them to a reputable lender *before* a property is selected. Then the lender can actually get the documentation from the borrower and run the scenario through automated underwriting if applicable.

The 6 pieces of information are inadequate to do a preapproval because the borrowers *do not* have to provide income or asset documentation, so lenders who will preapprove on on this basis are shooting themselves in both feet.

The new GFE will actually reduce shopping because reputable lenders will not provide a binding contract to just anyone. Or they won't do it quickly enough to blow out the possible competition.

My most recent borrowers told me up front that they were shopping with just one other lender who is a member of a well-known civic organization along with the borrower.

I said "That's great! Bring me their GFE, we'll compare it to ours, and if they're offering a better deal, I'll tell you to take their loan." They never got a GFE from the other lender, even though it was promised for the next day. They made a commitment to work with me because I did whatever I said I would do. And I answered questions and returned their calls and e-mails very promptly.

I frame the additional information I provide to my clients by explaining that the GFE is not enough to make a big decision, and that I owe it to them to provide all facets of the transaction. If that is skirting then I'm guilty by reason of insanity.

To Richard #160 & Gerard #159:

Gerard, Count me as one who does think you were trying to toot your own horn rather than adding to the discussion. "You can be completely confident that working with a B of A loan officer that your client will get a great loan! We have low rates, we never, ever charge origination fees, low lender fees and we can't get overage/rebate at all." Hmm, sounds a bit like advertising to me. (by the way I could beat or match any rate/point structure you care to offer, however you want to call it)

All of the professional mortgage brokers here do their very best to provide their customers with the most accurate information possible. And 9 times out of 10 they will provide a far more accurate Estimate than any bank will. To suggest that B of A is better than mortgage brokers because of their new "clarity committment" is insulting. And putting a fancy name on the same basic form we have been using for years is coming to the party a little late if you asked me.

JAN

2010

I have heard many stories of buyers showing up to closing and needing thousands more than what was originally quoted. I am not talking about a slight varience in title or third party fees that a broker may have no control over, however, a broker raisng fees simply because the buyer has to pay them or become homeless. The GFE SHOULD prevent this. There will alwys be those that will find away around the system and unfortunately, the rules are set up for that to happen.

As far as using a separate worksheet, think of this scenario: You are getting ready to remodel your kitchen and call in 3 contractors that each give you a bid of $25,000, $30,000 and $35,000 with the only break out being total cost of materials and total cost of labor. There is no list of what materials are being used, what is all being replaced, who is doing the labor, or how much time it would take. Would you not want more information to be able to shop intelegently?

Now imagine financing the largest purchase you will make and not being able to have these details. They are broken out on the HUD at close of escrow, why not have them broken out when you have time to shop?

It not a matter of the lenders "skirting the new regs", it a matter of providing the information the client needs and is not being provided by the new regs.

The 2 most important questions asked by a client is "how much is my payment and how much money to I need to bring to closing."

JAN

2010

I am shocked that a gov't form is not complete right from the get go. I thought I hezrd there was going to be a 4 month period to work out the kinks? I do like the rider provision idea.

JAN

2010

Lets not forget about MDIA, folks!!

MDIA requires adherance to strict line by line tolerances on the TIL. The new GFE doesnt allow for the lender to see those. Thats why the lender I work for is REQUIRING the Itemization worksheet upon submission along with the new GFE.

The new GFE is a stunningly bad piece of regulation that will have the unintended consequence of RAISING costs to the borrower. We have already see it in just these last few weeks.

I would guess that any lender still in business understands what information consumers need to have - like their total cash-to-close and their actual monthly mortgage payment - and we will continue to provide this critical information to our clients even though the new RESPA regulations no longer require it.

As I have stated elsewhere, these regulations were clearly written by people who have never actually originated a loan. Even a newbie loan officer would take one look at the new GFE and ask "where is the cash to close?" and "where is the monthly PITI payment?" More experienced folks will also wonder "why are we disclosing the sellers portion of title insurance?" and "what about the property tax prorates?"

Any lender who is not providing additional worksheets and/or estimates is doing their clients a disservice, and I'm certain that was not the intent of these reforms.

JAN

2010

If you were selling a minivan, you'd definitely try and focus the consumer on money down and payment. This is a little more important. No one wants a minivan or a 2/28 ARM, but you'll take the minivan when it is $0 down and only $x a month.

The GFE outlines settlement charges and certain loan terms like that 2 year ARM.

A fee paid by the seller is a settlement charge. Financed UFMIP is still a settlement charge. A seller credit does not change settlement charges. Cash to close and settlement charges are two different numbers. Is there anyone here who actually tells a buyer that a seller credit or financing UFMIP lowers their settlement charges?

Are "Fee Estimates" wrong? YES, if it leads a consumer into being misled because Lender A is showing a cash to close worksheet when Lender B is showing settlement charges. If you don't regulate the 'estimates,' you are precisely where we were before the changes.

Ah - hah! Except Lender A is actually showing BOTH amounts. Total Estimated Settlement Charges IS on the Worksheet along with the Cash to Close and Payment. IMO there is nothing misleading about full disclosure.

In a best case world, there is nothing misleading about full disclosure. Laws are designed for worst case world.

Why not just create a standardized loan summary? It's not a GFE, but it would answer every complaint from people who like to comingle unrelated financial figures AND prevent the worst case broker from printing cash to close in 18pt font and costs in 8pt font.

FEB

2010

If a loan officer was disclosing correctly before than the new GFE is not that big of a deal. Comminicating excpectaions to the client can be donw with a combination of the 1003 and the new GFE. But the consumer does not undersatnd the changes. The consumer is used to getting a GFE which gave the itemized settlement charges, the cast to close and the rate and payment. I believe the new process is cumbersome. HUD should have cleaned up the mess rather than trying to reinvent the wheel.

FEB

2010

I have been doing this same exact job for 25 Years. I have 30,000 clients of which none, not a single one of them has ever filed a complaint against me or my company or ever complained about the funds needed for closing or the interest rate they got at closing. We call our good faith estimates, good faith exacts. Many of my estimates have been within pennies and usually over the amout estimated to close based on the day the client closes.

The Good Faith Estimate is my language. My clients understand that language. They don't understand the piece of garbage that HUD came up with. Government leave us alone. If someone is lying or cheating or misrepersenting them selves, arrest them and presecute them. Other than that, get the hell out of our lives and go prosecute real criminals that I could point out to you in seconds. Leave me and my succdessful business model alone.

I will never bow to the tyranny that has struck our industry. However, I never did sub prime loans and never cheated my clients by giving them bad loans to begin with. My conscience is clear and my books are open. I am going to communicate with my clients and disclose whatever documents are required, but HUD will never stop me from communicating with my clients what is needed or what their monthly payment is. Get Barney Frank and Andrew Coumo out of our lives. What's that?

If we prosecute crooks, friends of Barney and Andrew go to jail. Line them up and go get the crooks. Leave us alone.

FEB

2010

The solution to all this GFE issue: we need is more government. We need MORE people making the forms conform to government issued mandates. We the people are terribly ignorant, and we must be protected by a government class- a class of people far more qualified to know what a consumer should be forced to know.. and what a professional should provide in terms of actionable information. In truth, perhaps the federal government should just take over the lending business. That's a solution that would make access to and distribution of capital "fair". Sure, some might think that would restrict competition, innovation and raise costs... and some think that focusing power like this would naturally lead to potential for entrenched "cronie" powers to take over the segment. If you happen to not agree with a government policy or edict, too bad. You no longer qualify for a loan.. anywhere.

Ah, cronie government-

We are enjoying much better government these days. After all the pay has made it MUCH more attractive to join that club! for example, in the past 24 months, the number of federal employess earning in excess of $150,000/year has increased from only 30,382 to 66,538.. about 119% growth!!

The explosion of federal employees earning six-figure salaries increased the average federal worker’s pay to $71,206 in 2009, which is 76.5 percent higher than the average salary of $40,331 for workers in the private sector. Here's more - learn about how government is being groomed to help us all improve!

Government is GOOD!

The GFE reform certainly justifies the increasing salaries for our loyal Government, don't you think?

MAR

2010

Show me another business where the salesman has to spell out to the customer exactly how much his company is making. When you buy a $80K car, does the goverment insist the car dealer disclose exactly how much they are profitting? Duh.....no!

The new GFE is a total joke!

Our company has been in business 24 years. We have had 5 seminars on filling out the new GFE 2010. We use Calyx Point. What a joke that is. The Work sheet does not properly interface with the GFE 2010.

Why does it take a 1 hour seminar to explain ( to seasoned loan officers ) how to fill this thing out? Let alone explain it to a customer!

It is one huge step backward. Wake up people!!!!!!!!!

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Richard Vetstein

Framingham, MA

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Vetstein Law Group, P.C., TitleHub Closing Services LLC

Address: 945 Concord Street, Framingham, MA , 01701

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