Good Faith Estimates Explained - Changes for the WORST - Detailed changes - Part 2 of 2
Great post for casual reading!
Important facts about the New Good Faith Estimate
The Main Negatives : The New Good Faith Estimate does not show :
- the total monthly payment. It only shows the principal, the taxes, and if mortgage insurance required.
- the total costs for the entire mortgage. It just shows your total estimated settlement charges, that doesn't include the down payment.
- a signature & date spot. Yes, this form is suppose to be given to you within 3 business days of applying for a mortgage. Read about the 6 trigger points that define the mortgage application. Yes, there are methods of tracking if the GFE (Good Faith Estimate) was sent to you. But in reality, there is no clear proof since you are not required to sign this form. Meaning that there can be ways around the fact if your received it or not.
- a break down of all lender costs. It just shows the total, in Box A. The title of Box A reads as, "Your adjusted Origination Charges". I will further explain this in detail below.
Please read Part 1 before you proceed to get a clear idea of what I am explaining and why :
Good Faith Estimates Explained - FHA Loan Good Faith Estimates - Understanding the whole process - Part 1 of 2
Break down of Box A for the Good Faith Estimates
It's been argued by some that you can't throw junk fees into the Good Faith Estimate last minute. That statement is correct, because you can only make certain changes on the New GFE. These are called "changed circumstances", which I will talk about later. But one fact that is misleading is the part that some loan officers state that the borrower can clearly see what the total of the lender charges are in Box A. I want to explain on how this might still hurt the borrower, if not explained properly.
Box A with Points and NO lender closing costs - Example # 1
My main focus is on Box A. It states, "your adjusted origination charges". In this case, the $2,488.71 are just points and no other lender charges, such as commitment fee, processing fee, or warehouse fee.
Box A with Points and lender closing costs - Example # 2
In this scenario, Box A has points and lender fees. The problem is that you don't truly know what your total points are and that they do not appear on the New Good Faith Estimate. If you clearly are given a Itemization Fee Sheet or a 2010 Itemization Sheet, you would be able to see the break down. The unfortunate part of this is the fact that all the forms mentioned, the Good Faith Estimate, the Itemization Fee Sheet, or the 2010 Itemization Sheet don't require a signature and a date. Sorry, but a sneaky loan officer could hide this from you. And you wpn't see the true charges until you actually go to settlement, because they will be broken down on the HUD settlement statement by numbers. The same exact numbers that were located on the Old Good Faith Estimate.
Detailed Box that would only show such items on the Itemization Fee Worksheet
As you can see with this form, this is a snap shot of the Itemized Fee Worksheet. You can see the total origination fee which is $3,288.71 and this matches Box A in example #2.
But as you can see, the break down shows you the other charges that Box A in example 1 doesn't show. Why do I think this is critical? I have 2 main reasons.
Jeff Belonger’s 2 Main Reasons
1. This would be based on a $200,000 mortgage. I charge the borrower 2 points that would be equaled to $4,000 and no lender fees, so my Box A would say $4,000. Yet my competition is charging 0 points and $3,500 in lender fees and their Box A total was $3,500. You would think that this lender is cheaper by $500, right? Incorrect. Why? You would need to speak to your tax accountant, but my reasoning would be because you can write off a percentage of your points, but you can't write off any of your lender fees.
So simple math says that if the borrower is in the 28% tax bracket, they would be able to write off $1,120 of my total points. Now, this is strictly for purchases. When it comes to refinancing, this is stretched out over the term of the loan, or for how long that they have the loan. Again, you need to speak to a tax accountant or CPA.
Overall, if I was charging $4,000, but the borrower gets to write off $1,120, my net expense to the borrower is $2,880. This technically means that I am $620 better than the other lender. Yes, the argument could be made that I would initially be $500 more out of pocket to the borrower. But this can be reviewed several different ways. I just wanted to show that the total of Box A is not your best proof of which loan could be cheaper for the borrower.
2. I have done a few experiments with borrowers recently to prove my point on this 2nd part. As I mentioned, the borrower does not see the total break down on the New GFE, aka the New Good Faith Estimate. I have sent out all disclosures to the borrowers and at first, didn't go over the actual break down which is listed on the Itemization form. I would then ask them if there were any questions and they would say no. I then would say, let me go over your break down anyhow. My point is that many people just look at the totals and not the separate charges. And just for the fact that the loan officer could get away without even disclosing the Itemization sheet upfront because it does not require a signature and a date. How would a borrower know unless they were properly educated about the procedures and such.
One excellent feature :
I do love this feature, because it explains to you if you have a fixed rate or an adjustable rate. It also tells you if you have any pre-payment penalty or a balloon payment. If HUD would just put this on the old Good Faith Estimate, I would love it then.
One Last Thing - CHANGED CIRCUMSTANCES –
Overall, it's a little more detailed in this, but I wanted people to beaware of this and to be careful on how some loan officers or lenders that might try to pull a fast one over you. Sure, they could be caught and fined, but some will take the risk on this. They have done it in the past.
Summary : HUD's intentions were to express to all borrowers to shop and shop effectively. I think that is awesome. But I have my opinions about that and how they have gone about this. I have spoken to about 15 different well respected loan officers and each one, including myself, think that they did a horrible job on the new Good Faith Estimate. I have shown a few reasons why and there are a few more that I could talk about at a later time. But they were briefly explained in the beginning. The average consumer just needs to speak to a trusted loan officer who will take the time to educated them on all details and not just rate and points.
The Series on the New Good Faith Estimates for 2010
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Copyright © 2010 by Jeff Belonger of Infinity Home Mortgage Company, Inc
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