Some Lenders Being Accused Of Skirting New RESPA Good Faith Estimate Through Loan "Worksheets" And "Fee Estimates"

(As a lender/buyer closing attorney--file this under "Don't Shoot The Messenger! And Blame HUD, Not Me!")

Well, it didn’t take very long for some lenders to be accused by HUD and consumer activists of working around the new stricter Good Faith Estimate required by HUD’s new closing cost rules 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.

Reportedly, many lenders have began offering rough estimates or worksheets that some consumer groups and federal officials say attempt to skirt the hard estimates required by the new GFE. Under the new rules, if borrowers do not submit a formal application including property address and Social Security number, there is no obligation to provide a new GFE. 

Lenders respond that since the new GFE has a number of deficencies, such as not providing a total monthly cost payment and seller paid items, it justifies the worksheets/estimates.  I hear both sides of the argument.  If I were a loan officer, I wouldn't want to be hamstrung by not being able to provide the full loan picture.  Lenders, what are your issues with the new GFE and do think providing these worksheets will ultimately help consumers?  Are the critcisms about the worksheets unfair and uninformed? Did HUD get it wrong with the new GFE? (I think I know the answer to that!).

As an attorney, however, I would advise my buyers that if a lender gives you a worksheet or anything other than the prescribed Good Faith Estimate, it’s not binding and the closing costs can vary, even significantly.  Ultimately, the lender must provide you with a real Good Faith Estimate which when issued will provide you with some security in knowing that the quoted closing costs will not vary by much at the closing.

If lenders insist on using a worksheet, my recommendation is to 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.

My goal with this post is to get the conversation going on the new GFE, not a rail against the mortgage industry. It's a controversial issue...

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.