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The road to hell and the new mortgage disclosures

Reblogger Scott White
Mortgage and Lending with Land Home Financial Services, Inc. 82835

Original content by Gerry Suarez Jr. 310298

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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!

 

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Scott White | Mortgage Loan Originator | Equal Housing Lender | Personal NMLS # 82835 | AMEC NMLS # 150953 | AMEC Branch NMLS # 844359