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The road to hell and the new mortgage disclosures

By
Mortgage and Lending with New American Funding NMLS 6606 310298

doc signing

Beginning January 1stthe new and improved Good Faith Estimate (GFE) will be required for all mortgages. What does this mean to you the consumer? It means you will be confused like never before.

That's not the intent behind the new disclosure. Indeed our government spent upwards of 7 years researching and perfecting a form that would make shopping for a mortgage as transparent as possible. As they say the road to hell is paved with good intentions; and although this new disclosure is intended on improving consumer's understanding of the loan they are applying for, it falls woefully short.

So why is this new GFE so bad? Let's start with the fact you are never disclosed your total monthly payment. Worse yet, you are never disclosed how much cash you will need to complete the transaction. The form simply addresses information pertaining to the mortgage loan, and does NOT even provide for discussion of your taxes, insurance or other costs.

The new form also requires lenders to commit up front to the total they will charge you. A great idea you say? Yes, except the requirement is so draconian that lenders are now forced to disclose the worst case scenario, before they may know all the particulars of your loan. Would you like to guess how many lenders will drop their fees once your scenario doesn't play out as bad as expected? This will certainly result in borrowers actually paying more costs for loans, regardless of how hard they shop.

Let's look at an example. Say you are refinancing and are unsure what your home is worth (does anyone know what their home is worth anymore?) and when the appraisal comes in it's a bit short of the value you needed. The lender will be charged "loan level price adjustments" accordingly but unless he disclosed these costs he can't pass them on to you.  This requires the lender to price that adjustment on any loan he MIGHT have to pay it on, which in turn means you will have to hope he is honest enough to drop the cost if it doesn't apply. Most lenders will be honest enough to do the right thing, but you don't need protection from them. An unscrupulous lender will have every chance to overcharge you for a loan, and that's what these disclosures should prevent.

The bottom line is you can't legislate morality. Know who your lender is and get references from past customers and industry professionals. An ethical, knowledgeable lender working with you to accomplish your goals can make all the difference between a good deal and a rip off. Shop for your loan, but shop for your lender just as hard!

 

Comments(66)

Gerry Suarez Jr.
New American Funding NMLS 6606 - Orlando, FL
FL Mortgage Guru

Bev and Bob- Consumers won't know about it and hopefully won't be truly affected because we in the industry will take the necessary steps to make sure they get the info they truly need.

Damon- AMEN-you preach to the choir!

Lynn- Exactly!:)

Gwendolyn- I guess there must always be a dissenter in every group, but gal I hate to say you are not familiar with the document, or the process if you think it's a good thing. The folks at HUD are hard pressed to admit it's a good thing.

I don't understand where in the comments above you think that no total monthly payment, no total cash to close and confusing fees that aren't even paid by the borrower result in better disclosure. If you were working with lenders that bad, then I guess this might actually be an improvement. Do know, however, that banks are still not reporting how much they make on a loan and brokers always have (It's the YSP & SRP on the HUD when you close).

Merry Christmas Eve everyone and thanks to you all agian for the comments!

Dec 24, 2009 12:56 AM
Stephen Kappre
KW Hometown - Mantua, NJ
Helping You Home

This will be my Christmas "break" ... studying GFE's, PA guidelines for the state test ... and somehow getting a business plan in place for 1/1/10. Oh and the new GFE is a complete joke. I've met with people from HUD, atty's, title company owners . . . well, hey, its sorta like the healthcare plan - just throw something together and cram it through in the name of "public benefit"

Dec 24, 2009 01:10 AM
Tom Burris
NMLS# 335055 - Baton Rouge, LA
Texas/Louisiana Mortgage Pro - 13 YRS Experience

You said it Steve.....

This will be more confucing to the borrower. The old gfe was fine for disclosing fees. Enforcing the proper use of that document would be far better than this.

 

Dec 24, 2009 01:43 AM
Gary Miljour
American Financial Network, Inc. NMLS#207208 - Southern Pines, NC
Mortgage Originator NMLS Licensed in AZ and NC

Gerry,

Jason Sardi summed it up perfectly.  "Gerry - "The bottom line is you can't legislate morality."  Oh so true.  I'm a firm believer that the bulk of the laws to properly regulate are already in place, they just need to be enforced better."

The biggest problems with the new GFE, TILA, LO Licensing, HVCC and the thousand of other changes the loan industry have gone through in the last 12 months is that no one will be enforcing the rules.  Bottom line, the dirty players will still play dirty.  Without enforcement, all these new guidelines just confuse the consumer.  in AZ they do not even have enough staff to process the LO license packages for next year.  I am getting mine in early and will pray that I will have my license back before 7/1/2010.  Enforcement has been the biggest problem and will continue. 

Excellent Post!

Dec 24, 2009 03:03 AM
Gerry Suarez Jr.
New American Funding NMLS 6606 - Orlando, FL
FL Mortgage Guru

Steve, Tom and Gary- fellow MMB's!

We will be in a front and center role in explaining these documents to the general public real soon. I'm sure we will all be doing like Steve and going over more details in the coming week. Thanks for your comments and camaraderie! Merry Christmas guys!

Dec 24, 2009 03:44 AM
Jerry Gray
Wilkinson ERA Real Estate - Winston-Salem, NC
Serving the Triad Since 1980

Gerry....This is a great heads up on what is to come. The government will be slow to change it.

 

 

Jerry Gray CRB,CRS,GRI / Allen Tate Tealtors / Winston Salem, NC / 336-918-2433

Dec 24, 2009 03:54 AM
Loreena and Michael Yeo
3:16 team REALTY ~ Locally-owned Prosper TX Real Estate Co. - Prosper, TX
Real Estate Agents

Like most things, intentions began good. However, I will choose to say, even with the shortcomings, it is still a good move in the right direction.

Dec 24, 2009 11:17 AM
Dana Devine
Charles Rutenberg Realty - Apollo Beach, FL

what is so sad is it seems to me that the people who make these laws have to idea what so ever to what a TIL an GFE are ....they think they are helping the consumer, but in makes in more confusing and harder for the mortgage people to their jobs

Dec 27, 2009 09:41 AM
Gerry Suarez Jr.
New American Funding NMLS 6606 - Orlando, FL
FL Mortgage Guru

Jerry-We can only hope they will change it. There is little hope they will, especially on the heals of taking FHA into the HVCC route.

Loreena- Sorry to have to disagree with you. The intent was certainly there, but the execution failed. Why would we be needing another document to explain what this one lacks?

Dana-This change was promulgated by HUD, and you would think that would be better than Congress; but even the MDIA (Mortgage Disclosure Information Act of 2008) provided better consumer protection and communication between lenders and borrowers.

Thanks very much for your comments!

Dec 27, 2009 10:35 AM
Bill Ladewig
LoanOfficerSchool.com - Escondido, CA
Experience Is Your Advantage

Gerry, the first line in your last paragraph says it all: "You can't legislate morality!"  That is so absolutely true.

As you say, the new GFE is well intentioned but it is said: "The Road To Hell Is Paved With Good Intentions".

The framers of this GFE were so focused on lender fees they missed the point that borrowers are not that concerned about individual fees as they are the TOTAL COST TO CLOSE.   So while lender fees must be guaranteed, the lenders can still estimate: settlement, title, cost to establish an impound account and prepaid interest.  These are the most understated fees on the old GFE and will continue to be so on the new GFE.

Bottom line, after much time and effort is the consumer has not been helped one iota.  Possibly harmed because it is new consumers may have confidence in the numbers.

Dec 28, 2009 05:43 AM
Benjamin Giessman
Midwest Mortgage Capital - Saint Charles, MO

Thank you for sharing.  That was a great article for educating people on who they deal with.  I think most of it is convenience.  I know there are some people out there that figure everyone is shady so if they do not screwed by one guy, then there will be another coming along.  I always encourage my borrowers to shop around because someone else may have a better product available.   

Dec 28, 2009 06:08 AM
Gerry Suarez Jr.
New American Funding NMLS 6606 - Orlando, FL
FL Mortgage Guru

Bill-And even when it comes to guaranteeing our lender fees, it's almost impossible to do so without recourse before you have all the facts. As per HUD the only time we can change the figure in box 1 (origination charges) is when the change is directly attributable to a change in the loan amount. That means (short of changing loan programs or having the customer request a change) the borrower will have to live with our best initial guess. Not the best way to protect them.

Hopefully HUD will relax that a bit, but I wonder...

Benjamin- Thank you for the kind words. I too recommend my customers shop me so they can feel confident I'm not trying to rip them off.

Dec 28, 2009 09:48 AM
Anonymous
Jenny Harlowe

Good Morning,

You are all right on the fact that these are very hard, confusing times for an industry that must survive. I personally wish you all the best. A few things we have done that we hope will help:

1.  After approving our new GFE the feds came out and said the signature line cannot be on the form. The signature line has been removed from our GFE 2010 by way of a service pack that MUST be downloaded. If you are on Point 7.2 you can go to www.calyxsupport.com to download the new updated GFE. If you are not on Point 7.2 please call 800.362.2599 to get Point 7.2.

2.  We have a free Calyx Support Knowledge Base article available online, http://kb.calyxsupport.com/kb/article.php?id=654 , to help people work through the GFE.

3.  We have a GFE 2010 Class. It's a webinar so you can have your Point up while taking the class. The schedule is located here, http://www.calyxsoftware.com/training/schedule.asp

I hope this helps. We are extremely busy so will not be able to monitor and reply quickly. If you have questions please call us at 800.362.2599, check out calyxsupport.com for quick answers or send an email to support@calyxsoftware.com. We are open today until 7pm CST and will re-open Monday, Jan 4th at 7am CST.

Have a safe and fun New Years celebration!

Dec 31, 2009 02:24 AM
#59
Rachelle McMahan
Golf Savings Bank - Grants Pass, OR

 Thomas - I just completed my training on the new GFE last week.  You took the words right out of my mouth - "the road to hell is paved with good intentions".   I couldn't agree more.  It especially bothers me that we are not allowed to provide a GFE to borrowers that have not identified a property yet.   Seems like these are the folks that would be most interested in shopping for a mortgage prior to shopping for a home.   

I know those ethical folks in the business will give these borrowers a "worksheet" detailing estimated closing costs, but heaven help those borrowers that fall into the hands of the loan officers that are responsible for the government feeling that they needed to implement this new regulation.

Jan 01, 2010 01:49 PM
Gerry Suarez Jr.
New American Funding NMLS 6606 - Orlando, FL
FL Mortgage Guru

Jenny-Thanks for the Calyx update and for the links. Personally we run Encompass in my shop but I really sympathize with what you LOS providers have had to suffer with these changes. I'm certain there will be continuing updates for all of us as the process continues.

Rachelle-There really is no restriction that prevents us from supplying a GFE before a buyer has identified a property, but I have heard a number of lenders are making that their policy. The problem with issuing a GFE early is that the origination fees will have little latitude to change. This again requires us to "quote high" in anticipation of any unforeseen expenses and will likely result in higher costs to the borrowers, especially when dealing with those less scrupulous lenders. Thanks for the comment!

Jan 04, 2010 02:11 AM
Roger Howell
Fairway Independent Mortgage Corporation NMLS #2289 - Boise, ID
We do business the Fair way!

To piggy back on the Caylx Point comment, with the new version, the "Initial Fees Worksheet" is the old GFE and it can be used to present payment and itemize the costs that are now being lumped together.  It also can show any seller contributions, thus showing the "cash to close".  There is also a cash to "close worksheet" in Point. 

 

Jan 08, 2010 01:09 AM
Gerry Suarez Jr.
New American Funding NMLS 6606 - Orlando, FL
FL Mortgage Guru

Roger-All lenders and LOS systems that I am aware of have done the same thing. Since the new GFE does not disclose all the information a borrower needs to know instead we have all come up with different forms to do that. Hmmmm- this is supposed to make it easier to shop for a loan?

Thanks for commenting!

Jan 08, 2010 01:51 AM
Paul McFadden
Responsive Pest Control - Seattle, WA
Pest Control, Seattle, WA.

Gerry: Good thoughts. We figured it out at our company with an estimate sheet that looks like a GFE but isn't. Although I don't care for shoppers, I have one on my hands and issued this non-binding estimate with the caveat that it was just an estimate. I also plan on being pretty upfront with my prospects, clients. I'm looking for a commitment before I go to too much effort. In my book, it's a little like a realtor getting someone qualified before driving their client all over Timbuktu. Thanks again for your thoughts. It's going to be an interesting year!

Jan 09, 2010 03:47 AM
Gerry Suarez Jr.
New American Funding NMLS 6606 - Orlando, FL
FL Mortgage Guru

Paul-Interesting it is, eh? That has been the reaction of all lenders I believe- doing a non-binding itemization prior to application. So much for HUD's intent that the buyer have the GFE to shop with!

Alisha- Thanks for the comment and I strongly encourage you to leave many more. AR is a great resource for all things real estate and I trust you will make plenty of relationships here. Please let me know if I can be of help.

 

Jan 20, 2010 01:58 AM
Anonymous
Gary

My wife and I are well qualified buyers who had an accepted offer.  All was well until we recieved the GFE package.  It is a suffocating confusing and inaccurate stack of what will become recycle.  You are forced to sign documents that do not apply to the transaction also sign that you understand Acts and Legislation that even the pukes who wrote them don't understand.  All under threat of civil and criminal penalty.  No thanks.  We are walking from the deal, will lose our EMD.  What a disapointment for a lot of people. If I were the investor I would be suspect that anyone stupid enough to sign the package had the intelligence to repay the loan.

Feb 07, 2010 02:27 AM
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