Has the the New Good Faith Estimate help?

Mortgage and Lending with Peoples Bank

At the beginning of 2010 new lending guidelines went into effect regarding how loan originators handle the loan process and how closing costs must be disclosed to the buyer.  One of the new rules included a nationwide standard Good Faith Estimate (GFE).  The purpose of the new Good Faith Estimate is to hold lenders to the fees they quote the buyer and make it easier to compare loan programs and fees between lenders.

New GFE's Goal: Allow Buyers to Compare Loans

New Good Faith Estimate Misses the MarkHUDs goal is to make sure that all lenders quote realistic fees and try to avoid any last minute closing cost surprises.  This is definitely a plus for the buyer but besides HUDs goal of quoting realistic fees, the new regulations were put into affect to help home buyers make an apples to apples comparison between loan products and fees from different lenders.

Does the New GFE Solve the Problem and Help Home Buyers Shop?

I'd say no.  The problem with the new GFE is that lenders are not required to provide a Good Faith Estimate or commit to any fees quoted until a home buyer has an accepted contract to purchase a certain property.  This means if you want to compare loan products from different lenders, you really can't make an apples to apples comparison until you have an accepted contract, which, in my opinion, is too late.

Can't I Start Shopping for a Loan After I Get an Accepted Contract?

Remember, when you are under contract, you are also under the time constraints of the contingencies in that contract.  (A contingency is a legal right to get out of the contract.)  In San Mateo County, you typically have 14-17 days to get final loan approval under the financing contingency.  Once the clock starts ticking on the contingencies, it is nearly impossible to start shopping for a mortgage loan and close your transaction on time.

Final Verdict? The New GFE has made things worse.

Although HUD had good intentions in standardizing the GFE so buyers can accurately compare loan products, the fact that they cannot start to compare loans until they have an accepted contract makes it impossible to gather the information and close the loan while staying within the time frames laid out in the contract.

Comments (2)

Diane Osowiecki
Diane O and Friends - Benchmark Realty - Franklin, TN
Greater Nashville Real Estate

The new document makes no sense to anyone trying to explain it to the client.  We need to go back to the old HUD 1....use that as a good faith estimate.  It explained everything.

Jan 12, 2011 09:07 AM
Mayra Espinosa Realtor San Mateo Pacifica Homes
Mayra Espinosa Broker- Realtor | Call 650-996-8961 - Pacifica, CA
San Mateo County Real Estate | Buy | Sell | Invest

John you are right it is best for buyers to start compare rates in advance way before they get into contract, because after offer has been ratified is nearly impossible to try to start shopping around for a better rates and close escrow on time.

Jan 12, 2011 03:50 PM