Will the new good faith estimate help or confuse the client?

Mortgage and Lending with Fairway Independent Mortgage Corporation NMLS #2289 Individual NMLS #74935

As of January 1st in 2010, a new Good Faith Estimate  form will be required.  It is intended to help the consumer better shop for a loan.   The new form will be three pages vs the one page form currently in use.

It will require loan originators to bundle "origination costs" in one figure, credit any rebate to the borrower, and guarantee the charges for no less than 10 days.

On the surface, it sounds good.  Testing by Hud has shown otherwise.  It will take a well educated originator to accurately explain the new 3 page good faith estimate so that the client can make an educated decision.

One of my biggest concerns with the new 2010 good faith estimate is that there is no place to count seller paid closing costs in a purchase transactions.  Furthermore, it requires us to quote the owner's title insurance policy as a buyer's cost.  In most cases, the seller pays this title insurance.  Finally, there is no "cash required to close" line on the 2010 good faith estimate.  That's a pretty important item and I don't think most buyers will be satisfied with a simple "the sellers going to pay these costs.

In the next year, we will also be looking at a new Truth in Lending Statement.   If the Consumer Finance Protection Agency gets voted into law, then expect them to put their own disclousres together and scrap the 2010 good faith estimate and 2010 truth in lending statement.  This is going to cause even more confusion and possible expensive mistakes for borrowers.

Once again, the key to avoiding the confusion and possibly making an expensive mistake is to choose an experienced and educated loan officer.

That nice young person in the bank might be conveniently located in your bank, but does he/she have the experience and education to properly explain the new regulations?

For those that say the Mortgage Brokers days are numbered,  I strongly disagree.  We will be needed  more than ever.

Comments (23)

Joan Zappa
Eagles Wings Realty - Montrose, CO
Professional treatment of our clients, brings awes

We just had a class with one of our Title Companies and the new hud appears to muk things up and seems to put the burden on the lender and closer. Us Realtors are really going to need to know our roles in this as we try to clear up the questions we will be getting.

Dec 10, 2009 12:18 AM
Loreena and Michael Yeo
3:16 team REALTY ~ Locally-owned Prosper TX Real Estate Co. - Prosper, TX
Real Estate Agents

Personally, my short answer is No. It shouldnt confuse the borrowers.

Here's how I think the "best" will rise up to the occasion. More client communication to make them understand it.

I'll be watching responses from this post.

Dec 10, 2009 12:22 AM
Joetta Fort
The DiGiorgio Group - Arvada, CO
Independent Broker, Homes Denver to Boulder

I took a class on this from the head of HUD in Denver. The room was packed mostly with agents, but also lenders and a couple of title people. All the agents liked it, the lenders and title people just looked nervous. We were told it was written at a 7th grade level, and it did seem simple to me. The GFE is about settlement charges, I suppose that's why the monthly payment isn't on it? Maybe whether or not people like it will be determined by whether or not the person teaching their class likes it?

One thing I really like, is lenders can't charge a fee to prospective borrowers until they've received all this information and had a chance to digest it. I'm constantly warning people not to give hundreds of dollars to a lender up front, because then if they receive bad service they're locked in. Once this goes into effect, that practice should stop.


Dec 10, 2009 01:16 AM
Mark Cohen
Eyemark Realty, Inc. - Gainesville, FL

The big problem is resisting change, even when it is beneficial.  I am a proponent of small unintrusive government, but sometimes the government actually does some good and this is one of those rare times.

As I commented yesterday in a different post, I think this new Good Faith Estimate and new HUD-1 will actually help buyer-borrowers.  It will be easier to compare different loans from the same and different lenders.  I have always helped my clients with this type of information arrangement when they couldn't make sense of the existing GFE or HUD-1.

Also this system will reduce the "surprises" that appear just before or at closings.  Almost all payment and fee discrepancies will have to be dealt with well before the closing.

It is a matter of education for lenders, closing agents, realtors, and borrowers.

Mark Cohen, Broker, Eyemark Realty, Gainesville, Florida USA

Dec 10, 2009 01:18 AM
Rick Schwartz
William Raveis Real Estate - Danbury, CT

Remember, most buyers aren't going to see it a new GFE, unless they have purchased something else very recently. They're just going to see the GFE - unless someone tells them it's new and different and more confusing.  

Well - here's this new GFE. It used be different but now it's this way. If you bought last year, this would have been one page and had certain info on it but now they have this new one which is longer. Here's some of things they've changed. We just got this new stuff and some people think it's better than the old one but some think it's more confusing"

It is, in my opinion, up to the loan officer to learn the ins and outs of this so well that they can answer any questions. If their industry professional acts confused and doesn't put forth an air of understanding and confidence, then the client will undoubtedly be confused.



Dec 10, 2009 01:24 AM
Jennifer Hamilton
Keller Williams Seattle Metro West - Seattle, WA
Jennifer Hamilton

I think it's clear as mud.

I swear, all of these changes that are supposed to be helping the Buyer (HVCC, etc.) are really adding to the stress and confusion of a normal transaction. I do think that page 3 is nice, and it's important for the Buyer to know what it is they are legally agreeing to--versus, just sign here and pray--but they way they've lumped and changed other figures is really going to lead to more confusion.

Our office has requested another class to go over those lumped figures.

Good luck to us all!

Dec 10, 2009 01:34 AM
Dan Hartman
Province Mortgage Associates - NMLS #2861 - Providence, RI


I agree there is a substantial amount of information not included on the new GFE that is valuable. I intend to present the GFE in conjunction with the application to fill in some of those holes.


Dec 10, 2009 01:54 AM
Gene Riemenschneider
Home Point Real Estate - Brentwood, CA
Turning Houses into Homes

Nothing like government to make your job more important.  Can you prepare a separate disclosure (form) showing the things they leave off; or would that violate some rule?

Dec 10, 2009 02:35 AM
David Cook

This may be off the subject a little bit, but brokers are required to show YSP, but mortgage bankers aren't .  For the life of me I can't understand this.

If a broker wants to make an extra $1000 via the interest rate he/she must increase their origination fee by this amount and then credit the buyer for the lender paid YSP.

If a mortgage banker want to make an extra $1000 via the interest rate they don't have to do anything, but charge the higher rate.

This isn't going to drive brokers out of business, they'll simply change the way they do business by setting up net branches under a mortgage banker.  Yes, they will not be brokers, but they'll make the same money without having to look like crooks because of the un-level playing field being put on brokers.

In the end, all of this is going to make for an increase in retail mortgage originations which ultimatley will cost the borrower more money.  That's why they called it wholesale versus retail to begin with.

If you didn't know it before, as a general rule of thumb, retail loans always carried higher interest rates than brokers.

All of these changes to help the consumer are only going to end up costing the borrower.

Thank you Congress for putting up more smoke & mirrors to make the consumer think your looking out for their best interest.






Dec 10, 2009 04:42 AM
Gary Woltal
Keller Williams Realty - Flower Mound, TX
Assoc. Broker Realtor SFR Dallas Ft. Worth
Roger, I agree someone experienced with GFE and TIL and HUD-1 is what is needed.
Dec 10, 2009 05:48 AM
Lyn Sims
Schaumburg, IL
Real Estate Broker Retired

If it's government mandated it will be screwed up.  So much for making it easier for buyers or sellers to understand their closing costs.  Makes you want to just give up.

Dec 10, 2009 07:00 AM
Mark Warner
RealEspace - Plano, TX

Unfortunately a loan officer can load all the fees into one number and the buyer still is blind as to the costs breakdown of the loan.

Dec 10, 2009 07:59 AM
Bruce Bills
RateWindow (Powered by RealEspace) - Plano, TX

     It seems that everyone just assumes that it's the governments job to make sure the consumer is aware of what sort of business transaction they are getting themselves into when it comes to home refinance or home purchasing.   When did that become an assumption that we are all willing to make, and then base our comments around that assumption?   I don't want the government telling me whether or not I'm making a good or bad deal on a home, television, car, or blender.   I can find out for myself, or do some research, or something else where I can get trustworthy information.   Just because the government puts out a statement that the new GFE will simplify lending transactions for the borrower or protect the borrower from unsavory lending characters doesn't make it true.   How many things has the government told us that were nothing close to what they intended for us to believe.   Borrowers should take more personal responsibility for the commitments they make and the paperwork to which they commit their signature.   If it's so important that a borrower understand what they are being charged on a loan transaction, seems like the borrower should make the effort to find out.   If they don't wish to make the effort, or care about what the numbers mean, why is it automatically the governments job to step in and "help" out?   If Charly Rangel and Tim Gietner are authorized by the government to rewrite the tax code (they are both tax cheats in case you didn't know), who knows what intentions are brewing with those in government who have oversight of the mortgage sector?   I will wager that the private sector, fueled by capitalism and the profit and loss motive, will always create the best ways to deal with issues of major public concern.   Somehow, somwhere, the government got the idea that they must prevent even one person from getting a loan they don't understand.   What kind of logic is that?   Some people will get taken, but that's no reason to pass a law or create a position intended just to protect that one person or single situation.  But, you say, it wasn't just one person that got hurt by these confusing GFE's or exotic loans, and you're right.   It still doesn't justify the automatic assumption that the government, by default, is responsible for the solution.   After all, wasn't it the government that forced lenders to make low to moderate income loans to people who we all knew couldn't pay them back?

Dec 10, 2009 08:41 AM
Dana Devine
Charles Rutenberg Realty - Apollo Beach, FL

the buyer can't read the GFE we use now...and neither can most agents( but the sure can find the line with their commission on it) and loan officers...courpt loan officers will lie to the buyer even with the new GFE...the new rules hurt the good and honest people beacuse the bad agent and loan officers still keep ripping off the consumer

Dec 10, 2009 10:53 PM
Mark Watterson
Salt Lake City, UT
Utah Real Estate

Most buyer are confused by the current GFE.  

I agree with more transparency but if the borrower doesn't do their own due diligence and blindly believes what they are told and many do.  There is no way to 100% guarantee they won't be riped off.

I believe the new licensing requirements will do more to help protect consumers.  However, they still need to question things that don't make sense.  Never hurts to get a second option.

Dec 10, 2009 11:13 PM
Patricia Beck
RE/MAX Properties, Inc., ABR, GRI, SRES - Colorado Springs, CO
Colorado Springs Realty

Many lenders I have spoken to are not excited about the HUD changes.  It will be interesting to see how the changes impact everyone.

Dec 11, 2009 03:16 AM
Chris Duncan

So. as a loan officer, here is how we "should be explaining" to the consumer.  Here is your "accurate" good faith estimate to help you understand what you are getting into.  Ok, if you look on here, it does not tell you that you are applying for an FHA loan.  How you can figure this out is on page 2 section three, there is the UFMIP.   Then here is your monthly payment, well part of it because the other part of it is explained on page two for your total escrow and we add 1/12 of that to your payment monthly of which will be shown on your payment sheet at closing.  Second, your initial loan amount is $X, how we reach this loan amount is explained on another form other than the GFE so you can see it.  Well, your contract price is on your contract so it has no use here to define how we determine your base loan amount, any UFMIP/VA funding fee etc...Well, your total funds to close are not deteremined by the "Total Estimated Settlement Charges" because what we "estimate" we will throw in your UFMIP but we will show you at closing that you don't have to pay that as cash and that it is financed into your base loan amount shown on seperate piece of paper not included on GFE.  Well i am sure you have some questions and have some confusion but this is the law so we have to follow it.


This is just an absolute nightmare waiting to happen.  Is this any benefit to the borrower?  This is just an example of how rediculous this form is.  I am glad that our "elected officials" spent 2 years investing in making this change and consulting with industry leaders and experts.  What a load of BS.  The HUD officials that designed this are quoted on HUD's website on the prepared statement on how they developed this back in 2008.  Which industry leaders and experts were they getting this from?  Any 25/30+ year veterans of mortgage lending feel you would have conjured this up? I don't think so.  Sorry to rant but this is absotuley worthless to a homebuyer.

Jan 07, 2010 06:15 AM
Roger Howell
Fairway Independent Mortgage Corporation NMLS #2289 - Boise, ID
We do business the Fair way!

Hi Everyone,

I had the time over the Holidays to reflect and work up the explanations on the new GFE.  I'm in strong agreement with Rick's comment about presenting it with confidence.  Since my residential practice is primarily first time home buyers, they probably haven't seen the old Good Faith Estimate and therefore have no reference to it.

What is of primary importance is the "how much is my payment and how much will I need to close" questions.  Since the new Good Faith Estimate doesn't show this, I have to use a "worksheet" to present to my clients and their agents.

All in all, its just another change we have to deal with.  Put your best explantion forward in a positve manner, make sure your costs are accurate, and you won't have any problems.

Jan 08, 2010 12:43 AM
Wayne B. Pruner
Oregon First - Tigard, OR
Tigard Oregon Homes for Sale, Realtor, GRI

It's probably going to be a positive change for the better after everyone gets more comfortable. It should only help the good mortgage people by cutting down on "bait and switch" tactics.

Jan 11, 2010 02:24 PM
Vanessa Calhoun
PalmerHouse Properties & Associates, LLC - Atlanta, GA
Your Greater Atlanta Marketing Guru!!

I agree with comment #23. I don't even have a problem with the fact that it doesn't show property taxes and insurance costs. These are variables that have the ability to fact the overall monthly payment on a varying basis. IMHO, the fact that the monthly payment could vary based upon insurance and property taxes SHOULD be explained to the buyer by the lender and reiterated by the Realtor. This document prevents slimy low ballers from underestimating charges and costs in order to secure business. I like it and akin it to Agency disclosures that Realtors make. It helps to make a better informed consumer.

Jan 12, 2010 03:33 AM