Effective January 1, 2010 HUD implemented the new Good Faith Estimate (GFE) for both Refinance & Purchase transactions of FHA & Conventional loans. HUD has been working on this revision for over 4 years and finally pushed it through last year. The goal was greater clarity and transparency for borrowers. I do not want to get into the details of every single field of this 3 page document or I could write my own book. I would rather write about what I like about the New Good Faith Estimate form and what I don't like.
Improvements I like:
- All origination charges lumped together- This includes what was loosely referred to as the origination "point", underwriting, processing, flood cert, credit report, appraisal, doc preparation, wire transfer and any other fee that is required by the lender to originate the loan. This does make it easier for the borrower to shop rates and fees.
- It clearly explains if the loan will have a prepayment penalty, if the payments can change, if the loan balance can increase, or if the loan has a balloon payment.
- Tradeoff Table, this is a great idea but I promise you, most lenders will not use this. - Gives 3 different scenarios and compares the the loan quoted in the GFE to the same loan with lower closing cost but higher rate and the same loan with higher rate but lower closing cost. This gives the borrower the ability to pick the best option based on his/her situation.
- Gives a snapshot of loan with important dates - Under "Summary of the loan" section on page 1, the borrower can get answers to most of the questions regarding the new loan.
- Easier comparison of loan offers - The new GFE guides the borrowers on the factors against which to shop and compare loan offers. Surprisingly however, closing cost is not mentioned as one of the factors.
Things I don't like:
- Cash to Close missing - There is no place on the new form that tells the borrower what will be the cash required to close the transaction.
- The full payment with taxes and insurance is not on the Good Faith Estimate - This will confuse most borrowers and make them think the total monthly payment is much lower.
- Charges typically paid by the buyer have to be listed, even if the seller pays them - For example the owners title policy: if the lender quotes too low, then they are responsible to reimburse the borrower for the overage that exceeds 10% of the original quote. Don't you think most lenders will quote very high to make sure they don't pay for it? This will add to the disclosed estimated closing cost even though the borrower won't be actually be paying for it. This will confuse borrowers and make them believe the amount required to close is much higher and potentially make some borrowers believe a purchase is out of their reach.
- At least 1 provider per service required even if the lender permits borrower to shop - For some service providers lender may allow borrower to shop on their own. But even then, lenders are supposed to provide the borrowers with name of at least one service provider.
- No signature - There is no signature required from the borrower on the form. In case of dispute, it will be impossible to prove which GFE did the borrower actually get at the beginning of the transaction.
- 3 Pages from 1 - Even though HUD claims to make everything simpler and easier for the borrowers to understand, the new GFE is 3 page long compared to the old one which was 1 page.
- HUD prohibits Lenders from requesting income and asset documentation prior to issuing a Good Faith Estimate - All I can say is WOW! Most borrower believe that when they receive a good faith estimate that they are approved. Many will find themselves declined after the lender is able to review the borrowers full qualification. Just seems wrong to me.
Change is hard, and in this case, a little delusional. In my 14 years of originating mortgages in the Dallas/Fort Worth market I have seen many changes, let's hope this one is a good one for everyone. I would be happy to answer any questions regarding the 2010 Good Faith Estimate. Feel free to call me.
Richard Woodward
Banker / Senior Branch Manager
When Trusted Advice Counts
Envoy Mortgage
Office: (972) 661-5136 Fax: (972) 314-9647
17311 Dallas Parkway Suite 173 Dallas, TX 75248
Visit Us Online - www.EnvoyMortgage.us
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