January 23, 2010

The New Good Faith Estimate, part 2

Three weeks into the New Year and the real estate industry continues to digest RESPA’s new Good Faith Estimate form and rules. In Part 1 of my blog on this topic, I mentioned there were features in GFE 2010 that I like.

If you ask a borrower who didn’t have a good financing experience, you will likely hear a common reason was their “cash to close” ended up significantly higher than what they were told or expected. These surprises happened whether a loan came from a traditional bank or mortgage broker. The new GFE will prevent this because once fees are disclosed in a section called “Your Adjusted Origination Charges” they can NOT change. NO MATTER WHAT! And this section contains the bulk of costs associated with obtaining a loan.

The new GFE breaks down costs into 3 sections.

FIRST SECTION, amounts cannot change from beginning to end of loan
SECOND SECTION, there can only be a 10% variance
THIRD SECTION, allows changes for things we have no control over like your hazard insurance premium and property taxes

I also like that my conversation with borrowers now focuses on interest rates and the corresponding “lender rebate” (a credit) that now belongs to the borrower and used to lower loan costs. When it comes to numbers, I have learned that borrowers are most interested in their total cost, interest rate, loan program and cash to close. GFE 2010 summarizes many fees into one category and itemizes certain others. With few exceptions, figures disclosed on a GFE at the beginning of the loan process will be the same as those at the end.

According to RESPA, a loan originator must issue a GFE no later than 3 business days after they receive the following information:

1) borrower’s name
2) monthly income
3) social security # to obtain a credit report
4) estimated value of property
5) loan amount
6) property address

Without all the above, don’t expect any loan originator will give you a GFE nor are they required to by law. This includes during the pre-approval process and prior to having a purchase agreement in place. In the case of a purchase, if you want to shop for “true loan costs” you will be doing it after a purchase offer has been accepted.

Two problems of the new GFE is ... it doesn't provide a cash-to-close area for the borrower. Nor does it detail the proposed housing payment associated with the loan. It's focus is merely to provide total loan costs. Borrowers and their mortgage advisors will have to use other means to get those questions answered.