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
- Borrower's name
- Borrower's monthly income
- Borrower's Social Security Number to obtain a credit report
- Property address
- Estimate of the value of the property
- Loan amount
- 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.
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 :
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