(As a lender/buyer closing attorney--file this under "Don't Shoot The Messenger! And Blame HUD, Not Me!")
The Los Angeles Times and other media outlets are claiming that lenders' use of loan cost worksheets and estimates are a "sidestep" of the new RESPA mandated Good Faith Estimate which went into effect on January 1. HUD officials say they plan to conduct a review of the growing use of “worksheets” and “fee estimate” forms by mortgage lenders providing quotes to home buyers and refinancers.
The new closing cost rules under the Real Estate Settlement Practices Act (RESPA) significantly changed the manner in which lenders are required to estimate loan and closing costs. Many charges cannot deviate at all, or at most by a 10%, from the Good Faith Estimate to the closing. That’s in stark contrast to earlier rules, which essentially allowed some lenders to quote low estimates of total costs, with no responsibility for the final dollar charges at closing, HUD contended.
Lenders -- many of whom feel the new GFE is the single worst form the government has ever dumped on the mortgage industry -- respond that since the new GFE has a number of major deficiencies, such as not providing a total monthly cost payment, seller paid items and most importantly, total cash-to-close, it justifies the worksheets/estimates.
Lenders, what are your complaints with the new GFE and do think providing these worksheets will ultimately help consumers? Do you use them? Are the criticisms about the worksheets unfair? Did HUD get it wrong with the new GFE? (I think I know the answer to that!). What can HUD do to improve it?
There is nothing explicit in the new RESPA rules prohibiting the use of these cost worksheets/estimate. However, since this is on HUD's radar, if lenders insist on using a worksheet, my recommendation to them is explain clearly to the customer, preferably with a written disclosure right on the estimate, that this is not binding and not a substitute for the new GFE. That way, if HUD comes knocking on the door, you've covered yourself.
My goal with this post is to get the conversation going on the new GFE, not to rail against the mortgage industry. I'm on your side! As Jerry Maguire said, "Help me, help you...help me, help you!"
On a related note, as buyer's counsel I now insert a rider provision into the P&S providing that the seller agrees to an extension (up to 7 days) of the closing date due to any RESPA/GFE related delays.
For more RESPA information, please visit my main blog, The Massachusetts Real Estate Law Blog.