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New federal regulations went into place on January 1 requiring lenders to issue new Good Faith Estimates (GFE) regarding loan fees and closing costs. The lender is now required to provide estimates on lender related charges that are the same as or nearly the same as the actual fees charged at closing. There is a 10% allowance on other, non-lender related charges such as title insurance and closing fees. If the final costs are more than what was disclosed, the lender must now make up the difference, not the consumer.
However, if you don’t submit a completed application (leaving out, say, the address of the property to be purchased) then the lender is not required to issue a GFE. In those instances, they may provide you with a worksheet that provides much of the same information but is not legally binding. Lenders say this protects them when all the costs cannot be known. From the Contra Costa Times,
“We can’t be 100 percent certain on every cost that HUD is asking us to be certain about,” said Steve Stamets, a loan officer for Union Mortgage Group Inc. in Rockville, Md. “So when there is no full application, or you’ve got people just shopping around, we can help them” with the worksheet estimate.
Tom Balk, a senior loan consultant for Mortgage California Inc. in Alamo, says the worksheets allow him to give clients “an accurate sense of the fees they’d pay if they move ahead to a full application,” at which point he’d be able to issue an official GFE.
Asked for HUD’s position, Vicki Bott, the agency’s deputy assistant secretary for single family housing, said that although the reform rules are silent on the subject of worksheets, they “can be a useful tool when the consumer doesn’t want to give enough information” to constitute a formal application.
The best thing to do is ask lenders for the Good Faith Estimate by name. If they only issue you the worksheet, ask what additional information you need to complete the application in order for them to issue a GFE. If you are not able to issue a complete application and you only get the worksheet, be aware that the costs you end up with could be substantially higher than what the worksheet shows. When you do submit a completed application, be sure to ask for the GFE again.
Working with lenders can be tricky business. Having an experienced real estate agent on your side can make the process go more smoothly for you. If you’re looking to buy a house in Pleasanton, Dublin, San Ramon, Danville or anywhere in the Tri-Valley give me a call and I can help you through the process.
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Comment posted by David Walden
on March 5, 2010 at 4:07 pm
Doug - I submit to you that working with real estate agents can be tricky too. In this market many real estate agents are hurting for business and are no longer in the business full time. When dealing with the GFE, having an inexperienced real estate agent who does has not had training on the nuances of the new GFE and how they can affect the transaction can be also harmful.
Although the new GFE has been long in coming and revisions have been needed, it does not give the borrower two important facts that are needed to fully inform the borrower - namely the PITI (principal, interest, taxes (property) and insurance) the full monthly cost of the purchase and actual “costs to close”. With these two missing items, the GFE is a blunder in use for the consumer.
Additionally, the way that the structure of the GFE is set up, to protect himself financially, the lender must include items on the GFE as “borrower costs”, items that paid by the buyer, seller and any third party to the transaction. Items that appear as charges or fees on the HUD-1 must be disclosed. An example would be city and county transfer taxes which could be paid by the buyer, seller in entirety or split. In the case of this new GFE, they must be shown as borrower costs. If the real estate agent is not forthcoming in fees for inspections or other things that normally before were not necessary for the GFE, his lack of experience can cost the lender money for no reason.
Another problem is that the issuer of the GFE must anticipate all charges that might be on the HUD-1 that would not be in the mind of the buyer, seller, agent or lender such as extra signing fees when buyer reschedules are necessary or inspections not anticipated in the process or that issuer of the GFE is responsible for that cost even though everyone else agrees that it is not. This flaw in the system will cause the GFE to be padded for cost and not really a Good Faith Estimate that be shopped at all.
I appreciate your articles because you obviously know what you are doing - sorry that I missed this one to comment earlier.