Good Faith Estimates Explained - FHA Loan Good Faith Estimates - Understanding the whole process - Part 1 of 2

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Mortgage and Lending with Social Media - Infinity Home Mortgage Company, Inc

 

Good Faith Estimates Explained

 

confused about good faith estimate?  Good faith estimates explained

 

2010 Good Faith Estimates - Is the new form better?  If so, for whom? Can it be more confusing? What is different from the new Good Faith Estimate than the old Good Faith Estimate?  I will be talking about some of the pros and cons in this post.

Key Point - The new Good Faith Estimate went into effect on January 1st, 2010.  This form is still not 100% clear as of yet, hence why you don't see too many people writing about it. 

Overall, in my personal and professional opinion, I think HUD did a losey job when constructing the new Good Faith Estimate. Sure, it was meant to protect the consumer and I don't have a problem with that kind of thinking.  What I have a problem with is how it's laid out and the meaning behind it. Let's explore.

 

 

 

 

Let’s first establish a time chart – When does a Good Faith Estimate have to be sent out?

 HUD states that a Good Faith Estimate does not have to be given to the borrower until a mortgage application has been taken. A mortgage application is defined as gathering financial information and determining the credit worthiness of the borrower. There are '6 trigger points' that constitute a application.  HUD has made it very clear, under GFE general, in # 4, which are called the '6 trigger points'

 

What are the ‘6 trigger points’? - New update - HUD added a 7th

 

  1. Borrower's name
  2. Borrower's monthly income
  3. Borrower's Social Security Number to obtain a credit report
  4. Property address
  5. Estimate of the value of the property
  6. Loan amount
  7. any other information deemed necessary by the loan originator

HUD has added a # 7, but I call it the CYA trigger. (cover your ass). It's very vague and I don't care for it. And this change was made in late January, which even shows that HUD is not clear on many issues. That scares me and the thinking that went into the new GFE.

 

Important Note – The loan originator has no later than 3 business days to send out a Good Faith Estimate (GFE) once the mortgage application has been taken. And it doesn’t have to be the actual full 1003, but just the 6 trigger points that have been mentioned above.

 

Important Reminder - Some lenders will have their own overlays when it comes to specific definitions. But this is the law set down by HUD and is mandatory. You will see many loan officers and lenders giving out different versions of the new good faith estimate, but they will be called :

  • Itemized Lender Costs
  • Mortgage Costs
  • Itemization of amount financed sheet
  • Itemization Fee Worksheet

 

What is deemed illegal in 2010?

Any form that says good faith estimate on it that is not the new 2010 GFE (Good Faith Estimate) form.  Yes, I have been given some of the old good faith estimates from borrowers in 2010 that are shopping for mortgages. Again, lenders will have their own standard form that will represent the old GFE, but it can't say Good Faith Estimate unless it's the new form.

 

 

 

 

The Pros about the new Good Faith Estimate -

  • The new Good Faith Estimate does have standard sections that a borrower can compare easily with other good faith estimates.  The negative about this?  That the borrower will just see a total of the charges and it won't be broken down. This could be a great way for lenders to disguise higher so-called junk fees.  I will be breaking this down in part 2 tomorrow.
  • The new GFE will have a summary section on page 1, that gives you specific details about your loan. Making you aware if your interest rate will rise, if your loan has a pre-payment penalty, or even a balloon payment.  I think this part is excellent and should have been mandatory decades ago.

 

 

The Cons about the new Good Faith Estimate -

 

HUD made this statement on November 12th, 2008. "New 'Good Faith Estimate' will help borrowers save nearly $700"

Is this true? Or could it cost the borrower more money?  In regards to items below, I will be going into details in Part 2.

  • There is now a block that shows the total costs to the borrower.  It just gives you a total amount of your settlement charges. In order to find your total amount, you need to look on Page 3 of the application.
  • The total monthly payment is not disclosed to the borrower. It will only show you the principal, interest, and if there is mortgage insurance. Found on page 2 of the application.
  • There is no signature spot on the new good faith estimate.  "well Mr. Borrower, I gave it to you, you must have lost it."
  • The lender is now bound by what ever is disclosed on the new good faith estimate. Because of this, I have already seen some lenders over-estimate some costs, just so they aren't eating the difference. I find this to be a huge problem. Keeping in mind that each state is different when it comes to specific settlement costs and what are mandatory to be shown on a good faith estimate. A good example are transfer taxes paid by the borrower. If the lender is short on these charges, the lender must eat the difference.  So once a GFE is issued, the mortgage originator is bound by these costs, unless there is a "changed circumstance" or the GFE "expires". This will be further explained in part 2.
  • As mentioned in the pros section, the costs aren't broken down.

 

 

 

 

What is not allowed anymore !!!

 

This comes directly from HUD - New RESPA rule FAQs

33) Q: Can loan originators charge fees prior to issuing a pre-qualification or preapproval?

A: No. HUD has long supported a public policy goal of creating a circumstance where consumers can shop for a mortgage loan among loan originators without paying significant upfront fees that impede shopping.  Loan originators may not charge consumers anything more than the cost of a credit report prior to issuing a GFE.

This was already disclosed in the Mortgage Disclosure Improvement Act (MDIA).

 

 

 

Summary :  In my opinion, I just think that the government got to involved and this could possibly make mortgage shopping more difficult and more expensive.  I will try to break down the details in part 2 to better explain these changes.

 

 

Good Faith Estimates Explained - FHA Loan Good Faith Estimates - Understanding the whole process - Part 1 of 2

Good Faith Estimates Explained - FHA Loan Good Faith Estimates - Detailed changes - Part 2 of 2

 

 

UPDATE : As of February 23rd, 2010 - I will be posting my part 2 tomorrow.... and

Larry Bettag has further discussed some of my disappointments in this post.  Please read :

It's Official, the New Good Faith Estimate Hurts the Consumer and the Industry!

 

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Copyright © 2010 by Jeff Belonger of Infinity Home Mortgage Company, Inc

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Copyright © 2011 by Jeff Belonger of Infinity Home Mortgage Company, Inc

Comments (32)

Wanda Promes
Sioux Falls, SD
Mortgage Loan Originator

Jeff, 

I am agreement on much of your blog post. However, I do want to point out a few things--  The following is a piece of your blog:

The new Good Faith Estimate does have standard sections that a borrower can compare easily with other good faith estimates.  The negative about this?  That the borrower will just see a total of the charges and it won't be broken down. This could be a great way for lenders to disguise higher so-called junk fees.  I will be breaking this down in part 2 tomorrow.

I disagree with this for this reason.  ALL fees charged at closing HAVE to be shown on the GFE, otherwise the lender is "out of tolerance" (only 10% difference allowed from original GFE to final closing statement). This means the lender cannot throw in "junk fees" at the last minute before closing. All fees will now show on the 1st block" or "section A"  on the GFE.  Now, as the borrower is comparison shopping, IF the lender is charging junk fees, the total in block 1 will be significantly higher than other lenders. Make sense?  There is NO DISGUISING junk fees any longer--

Point two I have in response to your blog is this.  We as lenders HAVE to "overestimate" as opposed to "underestimating" if we want to avoid paying the customer a refund.  If you think about what a loan officer makes on each deal (for a lot of bankers, just a percentage of that 1% fee), having to pay out a refund from the profit significantly cuts into income. Because we make so little on each deal, refunding any amount could negatively impact our business.  For instance,  on a $150,000 loan, we charge a 1% origination, or $1,500.  We do not pocket the gross of that, as there are costs to us (uw fees, tax transcript fees, ect) that sometimes come out of that amount. Let's just say a $200 UW fee comes out of that $1,500, netting $1,300.  The loan officer typically makes 40-60% commission on that origination and the broker or bank keeps the remainder.  This nets the loan officer approximately $650 on this deal.  If we have a Good Faith Estimate that is out of tolerance, by say $200, that $650 turns into $550 (if split with the bank or broker) or $450 of the "mistake" comes out of the loan officer's pocket.  For the hours that some files take, this is not very much profit.   This is the reason that loan officers will be careful to try to overestimate rather than underestimate.  Auditors will not allow loan officer to repeatedly grossly overestimate, i am sure, in the long run. Think about the average number of properties a realtor closes a month, and well, you do the math to compute what that loan officer may be making.

There are a lot of great things about the new GFE, but there are alot that is lacking. It could potentially hurt the lenders' profit. there are many expenses that could come up during the process that the lender will not be allowed to charge on the final closing statement.  For this reason, you will most likely see fees go up or pricing go up for banks and lenders.

My two cents, Wanda

Feb 23, 2010 12:40 AM
Larry Bettag
Cherry Creek Mortgage Illinois Residential Mortgage License LMB #0005759 Cherry Creek Mortgage NMLS #: 3001 - Saint Charles, IL
Vice-President of National Production

Jeff, I spent a lot of time working on my post over this past weekend.  The problems with the G.F.E. abound.  It's outrageous in true practicality.  It's ashame.  The consumer is hurt.  The industry is hurt and there's just so much that needs to change in order for this to be of any practical value to the consumer.  Good post that expains the "need to know" for the consumer.  But I will say that the G.F.E. is anything but providing truths to the consumer.

Feb 23, 2010 12:59 AM
Brad Yzermans
First Time Home Buyer & Down Payment Assistance Specialist in So Cal. - Temecula, CA
Temecula-Murrieta-Menifee FHA/VA Mortgage Lender

CHECK THIS OUT:  Some banks are now declining loans due to too many credit inquiries.  The GFE is encouraging buyers to shop for mortgages, and as a result, more inquiries show on the report.  Why you ask?  Because multiple mortgage inquiries looks like the buyer is trying to purchase several homes at one time without disclosing to the other bank.  Plus, it makes an underwriter think the multiple inquiries look like the buyer is getting denied and then moving onto the next lender.

 

Lets not forgot that a buyer can't see a GFE until he is in contract....which is too late to pick a lender by then.

 

Seriously, the people who literally drafted this new GFE should lose their jobs.  I like the intent but the exection is an insult to common sense.

Feb 23, 2010 03:06 AM
Bill Buettner
Keller Williams Greater Columbus - New Albany, OH
Your Real Estate Connection

Looking forward to part 2!

Thanks!

Feb 23, 2010 04:18 AM
Jeff Belonger
Social Media - Infinity Home Mortgage Company, Inc - Cherry Hill, NJ
The FHA Expert - FHA Loans - FHA mortgages - USDA loans - VA Loans

 

ERIKA... . it's not just explaining this, it's the many changes that have taken place in the last 12 months and the changes that will be taking place in the next 3 to 4 months. And the new GFE in my opinion just added to this effort.  I think the MDIA act was good enough... but this new GFE?  In my opinion, adds to the problems.

STEVE.... . as many knew, including yourself, I didn't stress as much about the GFE when it first went into effect. I actually sat back and watched others try to make heads or tails of this two-headed monster. My biggest concerns are the different dates on the GFE....  and the fact that you don't have total cash to close and the total mortgage payment. You and I both agree, that this was a horrible draft and yes, those people should be shot. Even for the fact that this was tested amongst other loan officers.  Sorry, but who the hell were they and had they been drinking for days?  lol

 

WANDA.... . I agree about the fee tolerance. But I guess my point wasn't clear. It's not the fact that the client will know by the total that shows up in each box, but that you can't determine from the new GFE the true costs.  Letters A & B could be misleading to some if they don't get a break down of these costs. My whole point again, when talking about the new GFE and only the new GFE, you don't see a true breakdown of all costs. You see totals. 

Example : Letter B are the borrowers charges for all other settlement services. In my opinion, since there are more boxes for the new GFE as opposed to more lines on the old GFE, I feel that many people will just look at the larger boxes with the totals.  And if this is the case, some fees might be higher than other fees and you won't know the difference. I have done a few tests on my own, when handing out the new GFE... I always go into detail and explain things.... my last 5 clients?  I didn't go into detail at first, to see what they picked up on and what they looked at.  They looked at the large charges in the big boxes that were highlighted.  if I am over-estimating to cover myself, my total box will look bigger and could hurt me. I still would prefer the old GFE because it was easier to break down and show the different costs.  On the old GFE, the best and easiest was to say, all lines associated within the 800's are the lenders charges.  You don't get that true distinctive difference now. To me, it's like a smoke screen.  That is just my opinion.

In regards to your second point... from reading your response, it sounds like we agree on that topic. I didn't go into detail because this post was already 1,000 words. The readers attention span doesn't always last as long.

Overall, I think the new GFE is worse than the old one. You want to talk about fees and compliance's?  I think the MDIA act was a great addition, at least giving borrowers 3 days of awareness if the fees changed. The fact that you don't see a total payment and your total costs... with no space for a signature, made this new GFE worse than the old one. But before I go, I do love the summary of loan section on the first page.  This clearly states the type of program that you have, if your interest rate would adjust and such.  Thanks for your input and feedback.

 

LARRY... . we seem to agree overall and how this actually could hurt borrowers. Yes, there are some positives to the new GFE.... but I don't like the grouping of the fees into 2 large boxes and not show the total monies needed which would include the down payment. People generally remember what they see and not what they hear.  Time will only tell, right?

 

BRAD.... . sorry, but I have not heard that one at all... and I am part of a group of loan officers from across the US, coming from 10 different lenders. Yes, the new GFE is encouraging more buyers to shop, and that was the governments intention... aactually on the top of their list.  But you should know that you can have as many credit pulls in a 30 day period and it will not affect your credit score. Yes, there will be alerts in regards to the credit pulls... but from an underwriter denying the loan because of this?  It if gets a DU approval or not, and it still makes sense, then how can one assume that it was turned down by another lender?  Again, I have not heard this kind of thinking from one underwriter and or lender... or investor.

You then went on to state this... : "Lets not forgot that a buyer can't see a GFE until he is in contract....which is too late to pick a lender by then."

And who says this?  Did you read the part about the 6 triggers?  All you need is an address and a GFE needs to be given out. I never read any where that you must have a contract before giving out a GFE.  Now, there are lender overlays and maybe your lender requires this.  But if you educate the client properly, being too late to see the costs of the mortgage in my opinion is not true. As I stated, most lenders that I know of are sending out the old good faith estimates, but the name of the form is different.


Overall.. I do agree that those that approved this form should be questioned... thanks for your input.

 

Feb 23, 2010 04:22 AM
Gene Riemenschneider
Home Point Real Estate - Brentwood, CA
Turning Houses into Homes

Makes me glad I do not do loans and I know so many good lenders from Active Rain.

Feb 23, 2010 04:31 AM
Jay-Paul Lowry
Riverside, CA

Jeff,

Thanks for taking on this issue. The new GFE and RESPA crap is going to cause alot of confusion and possible monetary loss to lenders (like we need more, right). FLAGGED FOR FEATURE!

 

JP

Feb 23, 2010 04:58 AM
Bill Gillhespy
16 Sunview Blvd - Fort Myers Beach, FL
Fort Myers Beach Realtor, Fort Myers Beach Agent - Homes & Condos

Hi Jeff,  As usual you give us a very well written analysis in this post.  Well done !

Feb 23, 2010 05:07 AM
Michael Faulkner
Keller Williams Realty Gateway - San Jose, CA
Michael Faulkner

Thanks for this post Jeff, You allways give somuch good information in your post. I look forward to part 2

Feb 23, 2010 05:38 AM
Jeff Belonger
Social Media - Infinity Home Mortgage Company, Inc - Cherry Hill, NJ
The FHA Expert - FHA Loans - FHA mortgages - USDA loans - VA Loans

 

WANDA ...  comment # 12 -

Please check out this comment from another blog. Maybe this helps clarify what I was trying to state and what you disagreed with me about.  Comment from another blog.

I just wanted to point out that I can't see how you can say on the new GFE, that the costs are as clear as it was on the old GFE...  Again, unless I am missing something.  thanks

 

BILL.... . not sure if I will get to this today.. if not, it will be posted tomorrow.  thanks

GENE.... . I wonder if I even want to do loans now... lol

JP... . There will be some losses due to this new change... and one thing that I didn't mention was that companies will raise rates and or fees if there happens to be consistent losses. I know that I am a stickler for details, but this will be hard to stay on top of.  I do see a few loop holes that I didn't discuss and I guess time will tell.  thanks

BILL... . thank you very much for those kind words and for the polite compliment.

MICHAEL....  . I hope I get to it soon.. lol  I should be posting part 2 by tomorrow and thanks for the kind words.

 

Feb 24, 2010 01:06 AM
Jeff Belonger
Social Media - Infinity Home Mortgage Company, Inc - Cherry Hill, NJ
The FHA Expert - FHA Loans - FHA mortgages - USDA loans - VA Loans

 

Larry Bettag has further discussed some of my disappointments in this post.  Please read :

It's Official, the New Good Faith Estimate Hurts the Consumer and the Industry!

 

Feb 24, 2010 01:08 AM
Wanda Promes
Sioux Falls, SD
Mortgage Loan Originator

Jeff,  The cost estimate on the new GFE DEFINATELY are not as clear.. We cannot show the complete breakdown of fees in BLOCK 1..

What I was disagreeing about is the fact that some lenders can hide JUNK fees in this area.. True, in reality if they can with a borrower that is not savy to the 1% origination and standard fees and/or they are not shopping other lenders.  If they are shopping other lenders, they would clearly see block 1 as being much higher.  The lender coudl not throw their junk fees in at the end of the transaction, which has been typical of predatory lenders prior to the new Good Faith.

I cant tell you how many times I have seen borrowers using out-of-state lenders or predatory companies- get to the closing table and finding out their rate isn't what was originally disclosed, or the fees are doubled--this was in the old world before the RESPA reforms.

I hope this makes sense

Feb 24, 2010 01:19 AM
Wanda Promes
Sioux Falls, SD
Mortgage Loan Originator

Jeff,  The cost estimate on the new GFE DEFINATELY are not as clear.. We cannot show the complete breakdown of fees in BLOCK 1..

What I was disagreeing about is the fact that some lenders can hide JUNK fees in this area.. True, in reality if they can with a borrower that is not savy to the 1% origination and standard fees and/or they are not shopping other lenders.  If they are shopping other lenders, they would clearly see block 1 as being much higher.  The lender coudl not throw their junk fees in at the end of the transaction, which has been typical of predatory lenders prior to the new Good Faith.

I cant tell you how many times I have seen borrowers using out-of-state lenders or predatory companies- get to the closing table and finding out their rate isn't what was originally disclosed, or the fees are doubled--this was in the old world before the RESPA reforms.

I hope this makes sense

Feb 24, 2010 01:19 AM
Larry Bettag
Cherry Creek Mortgage Illinois Residential Mortgage License LMB #0005759 Cherry Creek Mortgage NMLS #: 3001 - Saint Charles, IL
Vice-President of National Production

Thanks for the shout out Jeff.  It is scary what our leaders are doing.  I could design a form that is so much simpler.  I wonder how much it cost in time, costs and committee meetings and hearings to make something so atrocious.

Feb 24, 2010 01:41 AM
Edward & Celia Maddox
The Celtic Connection Realty - Queen Creek, AZ
EXPERIENCE & INTEGRITY - WE TAKE THE HIGH ROAD

Thanks for posting. We learn a lot from Active Rain blogs. Best Regards,

Feb 28, 2010 01:14 AM
Jeff Belonger
Social Media - Infinity Home Mortgage Company, Inc - Cherry Hill, NJ
The FHA Expert - FHA Loans - FHA mortgages - USDA loans - VA Loans

 

 

Working on part two and it should be posted either later today or tomorrow.  thanks

 

 

Feb 28, 2010 01:20 AM
Ann Hayden 636-399-7544
Berkshire Hathaway HomeServices Select Properties-St. Louis Missouri - Chesterfield, MO
SelectAnn.com

Jeff,

Of course it will cost more and make more paperwork.  I think they are trying to help but are misguided about how to do that...

Ann Hayden in Wildwood, MO

Mar 01, 2010 01:23 AM
Barbara-Jo Roberts Berberi, MA, PSA, TRC - Greater Clearwater Florida Residential Real Estate Professional
Charles Rutenberg Realty - Clearwater, FL
Palm Harbor, Dunedin, Clearwater, Safety Harbor

thanks so much for explaining what our government has been doing -

Mar 13, 2010 05:53 AM
Wanda Promes
Sioux Falls, SD
Mortgage Loan Originator

How do people get by with spamming on Active Rain?

Aug 31, 2010 02:37 AM
Tim Bradford
Cleveland, OH
NMLS 250013

Jeff,   I know this is an older post.   Not supprisingly when I Googled "trigger points for GFE" this post came up in the #1 Spot.  

Please correct me if I am wrong.  Am I correct in saying the an 8th trigger point would be that the consumer requests a GFE and without that consumer request, Loan Officers have no requirement to create a GFE. 

The reason for my question is the newer software my company is using triggers a RED FLAG Disclosure Requirement when the first 6 items are input. 

Mar 05, 2011 12:45 AM