THE NEW GOOD FAITH ESTIMATE: PART 1

In theory, the GOOD FAITH ESTIMATE (GFE) is an important and helpful document. In theory. This post had me thinking and wondering if  the new GFE is a positive step for the industry.

The main purpose is to give borrowers, at the beginning of the loan process, when they are figuring out their budget to purchase or refinance a home, a sense of their total cost. So a borrower could look at the GFE and evalutate the bank, title, and other fees, as an estimate, that are associated with their loan. You would think that this is–has been–a great document.

In the past, lenders had the ability to tell their clients that, for example, bank fees are going to be (say) $500, and then at the closing charge the borrowers $1500. At the closing table borrowers could either close and eat the additional fees, or they could decline to close and either try to sue the lender or find a loan with another lender.  Any scenario is painful. And rightfully so. This is the “inspiration” for the new GFE.

Now, as I will discuss in upcoming posts, the lender must write, in separate boxes, total bank charges, total bank credits (to the borrower), or total bank discount points. At the top of the second page the loan officer must clearly indicate:

1. the bank’s total orgination fees that usually include bank and/or origination fees.
2. if the bank is offering and interest rate with no other fees.
3. if the bank is offering any credit to the borrower.
4. if the bank is charging discount points to lower the interest rate.

Theoretically, then, borrowers can compare–the old apple to apple comparison–lenders cost to cost. It’s not a bad idea, and seems simple enough. But as the article that I have referenced explains, these numbers cannot change unless the borrower requests a change, and if the loan officer makes changes without the borrower asking for the changes, the lender will have to pay for the difference.  So in my initial example, a borrower showing up at closing with a settlement statement that is $1000 higher than the GFE will not have to eat the difference. The lender will be forced to pay the difference  Though this is a good thing for the borrower, to protect them for predatory lenders, it can be an unfair practice against many lenders. Now lenders are forced to wait until borrowers have a contract before issuing a GFE.  And so borrowers can only receive and estimate (an estimate for the Estimate?) of what their GFE will be.  Sound a little wacky?

Stay tuned for some more thoughts on the new document.

31 January 2010 | Closing Costs, Good Faith Estimate | Comments

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