NEW RULES TO HELP THE CONSUMER UNDERSTAND HOME LOAN COSTS

There have been major changes to the Good Faith Estimate (GFE) which has been the key shopping tool for our industry for the past 35 years. The GFE has been the road map lenders used to estimate the charges associated with a new home mortgage loan. Like a roadmap, the GFE was an intended path but many times took unintended detours.
Scrupulous loan offices and lenders would keep an open dialog so borrowers would know of changes in fees, programs, or any other component of the loan a “detour” on their part would cause. Unscrupulous lenders would misguide or detour borrowers so they could add junk fees or arbitrarily increase an original fee to help them make more money. This was the result of much of the deregulation that took place in the early and mid 90’s. History tells us that economic freefall is preceded by deregulation and then followed by a period of much increased regulation. As if the first of this year, our country entered the later.

The new Real Estate Settlement Procedures Act (RESPA) regulations will be absolutely bound to the Good Faith Estimate. The GFE will not vary from the costs on the Final HUD statement (sounds good?). But because any variance up in a cost will born by the lender issuing the original GFE, they will not be issuing a GFE until all parts of the transaction have been researched. For this reason you will see lenders use a loan cost worksheet for pre approval and loan cost estimates. This will be a ball park summation of the transaction costs based on a transaction outline.

So is the new regulation good or bad for the consumer? It is both.

It is good because unscrupulous lenders will no longer be able to add fees and costs that materialize at the closing table. It is also good as this should help continue to weed out the lenders who made their money in questionable ways.

It is not good in that borrowers will have less clout when comparing loans as they will not have anything binding on paper to compare. So what good was the old Good Faith Estimate anyway? It always did irk me when someone would show me another lenders GFE and ask me to match it. I would tell them I could not as the numbers were intentionally low. Sadly many found out I was correct at the last minute and at the other lenders closing table.

One thing to note; the new Good Faith Estimate will not show the borrower the total payment nor the estimated funds to close anywhere in the 3 pages.

If you have specific questions about the new Good Faith Estimate feel free to call.