If you plan to take out a mortgage or refinance any time soon, you might want to hear this blunt message from federal officials: Don't fly blind. When you're shopping among competing lenders for the best loan terms and fees, make sure you know which quotes come with a guarantee and which do not.

Depending upon how loan officers provide their quotes upfront -- on an informal "work sheet" that carries no federal consumer protections or on a new, three-page "good-faith estimate" mortgage shopping tool that comes with rock-hard guarantees -- there could be a world of difference.

A loan officer might quote you fees that are low-balled by hundreds of dollars on an informal work sheet to get your business. But if the quotes are made on a good-faith estimate, they've got to be accurate because, under federal rules that took effect Jan. 1, any significant excesses must come out of the lender's own wallet at closing.

This month the Department of Housing and Urban Development brought together representatives of the highest-volume mortgage lenders in the country -- who originate a combined 80%-plus of all new home loans -- to review the agency's reformed good-faith-estimate and closing documents.

Among the issues discussed: the widespread use of informal work-sheet estimates to quote loan shoppers mortgage rates and closing fees. HUD does not object to lenders using work sheets to give casual shoppers a rough idea of what they'll pay. But the agency says it wants lenders and loan officers to make clear to customers that work sheets are not good-faith estimates, and they are not guaranteed.

At the meeting with major lenders, HUD Deputy Assistant Secretary Vicki Bott warned that under no circumstances can work-sheet quotes be issued to a mortgage applicant "in lieu of a GFE." Once a consumer supplies the essential application information -- Social Security number, property address and estimated value, among other data -- lenders must issue a binding-cost good-faith estimate.

Also, loan officers cannot refuse to provide a good-faith estimate to an applicant who requests one, nor can they tell applicants that they can receive a GFE only if they commit to moving forward with their company to obtain the mortgage.

"By no means can they say you are bound to me as your lender" following issuance of a cost-guaranteed good-faith estimate, Bott said. Why? Because the whole concept of the revised GFE is to enable home buyers and refinancers to shop intelligently, with confidence in lenders' estimates. 

You can now get cost-guaranteed quotes on a good-faith estimate from one lender, then take them and compare them with GFE quotes from competitors. The new form contains itemized boxes allowing comparison of up to four lenders' quotes -- including interest rates, loan fees, prepayment penalties and total settlement expenses.

The good-faith estimate also ties upfront estimates to later charges at closing, and encourages borrowers to check line by line for any discrepancies. The form explains which fees come with zero tolerance for changes between upfront estimates and closing -- generally the lender's own loan fees and local transfer taxes -- and which fees allow a 10% tolerance for changes higher than the estimate, such as certain title and closing-related services.

Written by Kenneth R. Harney - LA Times

California Association of Realtors: Making Sense of the Story for Consumers

Shopping for a loan? A good faith estimate will protect you --- Beginning Jan. 1, the Dept. of Housing and Urban Development (HUD) required lenders to issue Good Faith Estimates to protect consumers applying for mortgage loans.  Some loan officers, however, sidestep the new requirement by giving their initial quotes on informal worksheets that carry no federal consumer protections.  It is important that consumers understand the differences between the federally mandated good faith estimate form and a lender's informal worksheet

• Last month, HUD told lenders and loan officers that under no circumstances can worksheet quotes be issued to a mortgage applicant in lieu of a good-faith-estimate form.
  
  
• Under the new law, once a mortgage applicant supplies the essential application information, including Social Security number, property address, and estimated value, among other data, lenders must issue a binding-cost good-faith estimate.  Once this information is provided, lenders are required to issue the good faith estimate within three days of the application.
  
  
• Loan officers cannot refuse to provide a good faith estimate to an applicant who requests one, nor can they tell applicants that they must commit to moving forward with their mortgage company to obtain a mortgage prior to receiving a good faith estimate.
  
  
• Once an applicant has received a good faith estimate, they can take the form with them to comparison shop.  The new form includes itemized boxes allowing mortgage applicants to compare quotes from up to four lenders, such as interest rates, loan fees, prepayment penalties, and total settlement expenses.
  
  
• The good faith estimate also ties upfront estimates to later charges at closing, and encourages borrowers to check line by line for any discrepancies.  The form explains which fees come with zero tolerance for changes between upfront estimates and closing-generally the lender's own fees and local transfer taxes-and which fees allow a 10 percent fluctuation for changes higher than the estimate, such as certain title and closing-related services.
  
  
• Some worksheets resemble good-faith estimates, but have titles such as "estimated settlement costs" at the top of the page.  Others indicate on the bottom of the form that the worksheet is not a good faith estimate, so consumers should carefully review documents before making any decisions.
  

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