Excuse me if I sound a little agitated. I'm still trying to figure out why a "respected real estate expert" would encourage a seller to create their own GFE. What possible good could even come from it? Is the buyer going to show up at the closing table and say, "all these numbers on the HUD1 are wrong - here is what the seller gave me and this is what I made an offer on"? And now the post ...

We all understand the feeling of being out of control or not being satisfied with how an industry operates. Sometimes we are even afraid to do things the right way and occasionally - just every so infrequently - we are a mover and a shaker. Whatever the case let's look at this subject with a little attention to detail and then find a solution.

The reason this particular seller wants to do their own GFE is unknown so let's assume the reason is "just because". What things would a seller know to put on the GFE? First let's make sure we are looking at the same form so go to this link and download a blank Good Faith Estimate - GFE form.

Almost any loan officer will send you a generic GFE. We generally do not do so without an application because without an application most of the numbers are completely meaningless. However, if you explain what you're doing and why you want one most loan officers will send you one.

The first thing the average seller (or buyer) is going to think is - there are a lot of lines to fill in. And they would be correct. Also, as indicated earlier, some of those lines are not used on some loans and other blank lines are filled in. The very top paragraph, in fact, states the same:

"The information provided below reflects estimates of the charges which you are likely to incur at the settlement of your loan. The fees listed are estimates-actual charges may be more or less. Your transaction may not involve a fee for every item listed. The numbers listed beside the estimates generally correspond to the numbered lines contained in the HUD-1 settlement statement which you will be receiving at settlement. The HUD-1 settlement statement will show you the actual cost for items paid at settlement."

Emphasis is mine. Far too many complaints about this being an ESTIMATE. Of course in an era when the home buying public expects to actually get the rate advertised on TV and to get it with no closing costs and no down payment I can only blame my own industry which created and perpetuated these false misconceptions. You would think the buying public would eventually say, "man that mortgage industry sure is quick to publish interest rates and shout about no-closing costs. Is there anything they could be hiding? Any sleight of hand going on there?" (The FTC took care of the no-closing cost thing finally.)

The next section (the 800's) labeled as "800 ITEMS PAYABLE IN CONNECTION WITH LOAN:" really need to be filled out by the lender. Anything ANYONE else puts in is a total guess - which kind of defeats the purpose of the document. Real estate commissions are generally fixed regardless of the buyer's credit, the condition of the property, the terms of the loan, etc. Mortgage fees differ from borrower to borrower (based on credit, income, assets, etc. [risk]) and from property to property. So if we (lenders) just said - okay 7% regardless of any other factors there would be a giant uproar from people who took years to build up their credit, are making a bigger down payment, and buying well within their means.

The next section labeled "1100 TITLE CHARGES:" can often be completed by contacting the title agency and asking for their fees. They generally are fixed to a flat fee or percentage of the loan amount/purchase price depending on which line. Title insurance is tied to the value where attorney fees are tied to how much the attorney needs to make.

The next section labeled "1200 GOVERNMENT RECORDING & TRANSFER CHARGES:" can be gathered from almost any loan officer or closing attorney (in Georgia we close at an attorney generally).

The next section labeled "1300 ADDITIONAL SETTLEMENT CHARGES:" is a variable. Does it need a termite letter? Does it need an additional property inspection? Chances are a seller or buyer would not know this because it is dependent on the type of loan being applied for.

The next section labeled "900 ITEMS REQUIRED BY LENDER TO BE PAID IN ADVANCE:" is again, highly variable. Something to watch for and a way I have noticed applicants being bamboozled especially by big national lenders is to completely omit line 901 "Interest for days @ $ per day $" - I always put at least one day so the buyer will know what one day's interest costs. Obviously if the closing is on the last day of the month there is no "Interest days" fee but add one day's worth for everyday before the end of the month. If 1 day's interest is $100 and the closing is on the 21st of a 31 day month the interest days fee is $1000 and so forth. Mortgage insurance is HIGHLY variable and based on risk of the borrower and the property. This is a big number a person can't just guess.

The final section on the form before the totals labeled "1000 RESERVES DEPOSITED WITH LENDER:" are what most of the nation refer to as escrows or escrow reserves. States that do not "close in escrow" make no distinction. Effecting 2/1/10 HUD has made some changes which which actually require escrow deposits on these items on certain loans. Just another compliance headache perhaps.

The section at the bottom of the page has two (2) columns and they are very different. The column on the left is labeled "TOTAL ESTIMATED FUNDS NEEDED TO CLOSE:" and the bottom line in that column is labeled "Total Est. Funds needed to close". This will either be a positive number indicating how much the buyer is required to bring to the table in certified funds, a null amount (zero) or a negative number indicating how much the borrower will get at the closing - as in a refinance.

The second column to the right is labeled "TOTAL ESTIMATED MONTHLY PAYMENT:" and the bottom line "Total Monthly Payment"

At the risk of alienating many people and ticking off the rest I will say these two bottom line numbers (from above) are what allowed the general public to be persuaded by their greed and ignorance to sign up for mortgages that made no sense, jeopardized their financial future and propelled America to where it is today. I have literally sat at the closing table with borrowers who didn't care anything about anything else except, "how much to I bring and what are the monthly payments?" They mean next month and don't even care about 3 years from now.

THOSE NUMBERS in section 1000 are permanent and recurring and can change. Nobody ever seems to care about insurance and taxes or have concern they will increase almost every year. Nope, they'll pay through the nose two years down the road on an interest buy-down so long as they don't have to pay origination fees. ARGH. Origination fees should be the least of your worries when purchasing a home. All in all they are generally less than 1% of the LOAN amount. Other commissions are based on the SALES PRICE. We in the finance industry don't attack those fees. Here are the main things you should worry about in your loan:

Are you going to be able to afford this loan, and new towels, and new curtains, and the insurance, and the taxes, and the utilities, and the new furniture and appliances?

Are you comparing apples to apples with your mortgage costs? In other words is super-mega.com quoting you on a 30 year fixed with 20% down on a primary residence purchase at the same address as little-guy-on-the-corner?

If one lender is charging $5000 in origination but the other one charging $1200 did you compare the interest rate and terms of the loan? Is one lender able to allow the seller to pay the origination fee and the other not?

When super-mega.com who called you on their country wide phone blitz offering you a 4.5% interest rate did they tell you it was only for the first year and it was going to cost you 3% of the loan amount to get it and that it was going up to 7.5% the very next year? (These are called rate-buydowns and are an old "trick" used to ease folks into a more expensive home with a seemingly lower monthly payment.)

Do you know what isn't on the GFE that is on the HUD? Right, real estate commission. Now I don't care that it's on there and I don't care how much the seller agrees to pay but it is in the sales price of the home that the buyer agrees to when they sign the sales agreement but it is not on the GFE.

I do agree with Ms. Real Estate Expert on one thing: lenders are not held to the numbers on the GFE. Partly that is because they are estimates but I have seen so many Good Faith Estimates over the years with fees completely omitted or understated that it really irks me. Moreover you should NEVER get a Good Faith Estimate without a Truth-In-Lending.

Who can you trust? Me! You can trust me because I tell the truth and demonstrate the truth and deliver the truth. You can trust some other people, too.

You voted I see. God bless America.

Ken Cook - Twitter - Facebook

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