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

Mortgage and Lending with HomeStar Financial Corporation

I don't necessarily agree that the new Good Faith Estimate hurts the consumer.  The new Good Faith Estimate does help the consumer more in a refinance transaction, than a purchase transaction. It does not completely resolve the issue of clearly disclosing the details of a purchase transaction in an easier, more understandable format for the buyer of a home.

There are obvious flaws with the new Good Faith Estimate for the buyer of a home.  For example, presently there is no way to disclose split fees which show who is paying for what (buyer vs. seller paid closing costs) in a purchase transaction.  However, there are ways to demonstrate to the buyer what the costs really are.  For example, The Details of Transaction on page 3 of the Loan Application can easily be used to explain to the borrower in a purchase transaction, in a simpler manner, what will occur at closing and if the borrower will be required to bring cash to closing, unlike the new Good Faith Estimate, while remaining in compliance. The use of "initial fees worksheets" or the use of the older Good Faith Estimate is potential grounds for non-compliance.  Just like Real Estate Contracts/Purchase and Sales Agreements change every so often, I suspect the new Good Faith Estimate will be amended in the coming years, just like the standard Loan Application has in recent years.  Patience is a virtue!  Stay tuned folks!

Original content by Larry Bettag NMLS ID# 158606

It's official:

The New Good Faith Estimate is causing real pain to

  1. The Consumer and;

  2. The Real Estate Industry

I've now spent two months working on this new good faith estimate.  It's been implemented since January 1rst of 2010. So, without further adieu.....what is the problem with the new Good Faith Estimate?


First, let's call it like it is.  The government wanted to create a "new and improved" Good Faith Estimate that is "user friendly, easy to read, and would promote a fairness in comparison shopping for the consumer."    The consumer would be able to shop one lender against the other with such clarity that the Obama administration fully believed that the consumer would get better, clearer information and that the consumer would save about $700 per transaction. 


1  The new Good Faith Estimate (or GFE) is anything but clear.  Fortunately lenders are using the initial fees worksheet in conjunction with the new GFE.  The New GFE is three pages long and discloses EVERYTHING, EVEN IF IT DOESN'T APPLY TO THE BORROWER.  For example, the lender needs to disclose the title insurance in a purchase transaction even though the buyer doesn't pay for it in Illinois, the seller does.  The title insurance becomes a "cost" disclosed to a borrower....but it is not a cost incurred to the borrower.  The same can be said with most transfer taxes in Illinois.  State and County transfer taxes are paid by the seller.  Some munipalties have transfer taxes as well.  Needless to say,

2)  It is much more expensive for the consumer under the new Good Faith Estimate law for two reasons:

  • There are different categories on the good faith estimate.  If the lender makes a mistake in certain categories, the lender eats it 100%.  There are other categories with variances, but let's say that a lender fails to disclose a transfer tax that is charged to the seller, the lender eats 100% of it.  It could be $1,500 up to $3,500 dollars.  With a mistake like that looming over every lender, a smart lender will charge an extra few dollars to absorb mistakes on the loans that they don't get it right;
  • It's so much more difficult to get a loan done from start to close.  Ridiculous really compared to what it was.  Sure it should be tighter, but it's so tight that all a loan officer does is look for ways to make things more palatable.  Slam dunks?  Few and far between.  With more to do, lenders are not goint to want to be paid less.  They are closing less, but their family expenses having gone down one bit.  The cost to manufacture a loan is the same as always.  With less loans closed per loan officer, invariably the costs need to go up.  I just reviewed a Good Faith Estimate on a no cost refinance from Bank of America where the charges are just over $12,000.  Wow!



Currently, I have a borrower who is buying a home with zero down payment.  Needless to say, I have to approve the borrower by verifying over $8,000 of funds, when, in fact, the borrower only needs about $3,500 dollars to bring to closing.  Getting this borrower approved has been rough because the borrower has to now play a game and show more funds than they'll need at closing because the government wants it that way.  Can I say...."Where is the Truth in our Lending" anymore?


This one is short and sweet.  It basically cheapens our industry.  The government has overcorrected for the actions of a few.  The government should have prosecuted and punished those who were criminal.  They didn't do so until there was a public outrage.  Now, as a result, the government is punishing the industry, and, as a result the consumer who is supposed to benefit as a result of the new legislation.

Great loan officers will calculate for a borrower what he or she needs to bring to closing.  If the good faith estimate is so far off, the loan officer will say,

"here's exactly what you'll need to bring to closing.  "

"I know Mr. Borrower that the good faith estimate says our closing costs are X,Y and Z, but really they're not.  You see that the seller's charges are on here.  Transfer taxes are on here."

BORROWER:  "Yeah, but your good faith says...blah, blah, blah."

Loan Officer "Just trust me." 

Thus giving birth to the "Used Car Salesman"..."Just trust me"

Are you kidding me?  We're supposed to be trusted advisors not sleazy used car salesmen.  I'm not a used car salesman.  But here's another conversation that I had with a realtor.  I work with a Re/Max agent who is in the top 1% nationally.

Realtor:  I got a call from Joe blow.  He's confused on the fees.

Me:  I know.  I just got done meeting with him.  I went through the good faith estimate and told him that the new government forms suck.

Realtor:  Well he's concerned because it says that he needs to bring in $11,000 to closing.

Me:  I know, but I calculated it out and he's really only bringing in just under $3,500.  Blah, blah, blah.... (I'm now back to just trust me).  GROSS!!!!

My trusted referral partner now has to hear the "pitch" from me, her 15 year partner in the business.

Normally I'd say that the Jury's still out, but in this case, the jury has returned, really quickly.  The law has good intent, but the results?  I'm sorry, but the results of this bill is a resounding guilty.

There are ways around showing the client the new Good Faith Estimate.  I have spoken to folks who are legally getting around going through all the headaches of this bill.  What they're doing is legal, but it' skirting the intent of the law.  I guess my bottom line is this.  Fix the bill before someone gets hurt.  In this case the someone's are consumers, realtors and well as our economy.

Larry Bettag - Regional Vice President, Midwest Region

Illinois FHA Specialist


 Cherry Creek Mortgage Company - Saint Charles, Illinois 

               Equal Housing Logo

An Illinois Residential Mortgage Licensee


Comments (2)

Randy Ostrander
Lake and Lodge Realty LLC - Big Rapids, MI
Real Estate Broker, Serving Big Rapids and West Central MI

I have to agree Jeff. I have heard nothing but complaints from both clients and lenders. I think the fix may be worse than the problem.

Feb 24, 2010 02:04 AM
David J. Stiles
Waynesville, NC

The new GFE is an abomination. I am preparing my first new version of the HUD and the closing had to be postponed.  The seller of new construction passed the NYS Transfer Tax ($4 per thousand) to the buyer and the buyer's attorney did not inform the loan officer.  Thus the estimate for the mortgage tax is to low to cover the mortgage tax and NYS transfer tax. The lender is re-disclosing and the buyer cannot move into his new house.  The lender is not "eating" this charge but merely delaying the closing to come into compliance.

Feb 24, 2010 06:51 AM