The more accurate Good Faith Estimate (GFE) released in January 2010 under the Real Estate Settlement and Procedures Act (RESPA) is still not accurate enough, according to the Center for Responsible Lending. Under RESPA regulations, the lender’s GFE, mandated to be prepared and handed to the homebuyer at the beginning of a loan transaction, reflects loan costs within 10 percentage points of the costs actually incurred at closing.
However, the form does not unpack and spell out everything it should to be meaningful. Some seller-paid costs, such as transfer taxes levied when a property changes hands, are bundled under “total estimated settlement charges” instead of listed individually. As a result, some sellers and buyers will end up paying an amount not accurately stated on the GFE when such costs are clarified at closing.
The Bureau of Consumer Financial Protection (BCFP) is now considering revising the GFE yet again to make all costs clearer to the homebuyer.
first tuesday take: Revisions to the GFE are invited especially if lenders protest the upgrade, which implicitly indicates the edit is necessary. The sole purpose of RESPA and the Dodd-Frank Wall Street Reform and Consumer Protection Act is to make the costs of acquiring a mortgage absolutely clear. Homebuyers must be able to shop multiple lenders and use the uniform GFE to compare and select their best loan arrangement. [For more information regarding the January 2010 GFE, see the January 2010 first tuesday article, HUD’s new GFE.]
Lenders continue to avoid preparing an official GFE when pre-qualifying a homebuyer, opting instead to use their own “loan scenario” worksheets which provide similar information without imposing the liability of the GFE on the lender. Vigilant agents insist their homebuyers receive a GFE when getting either a pre-approval or submitting an application so they can avoid surprise costs at closing. [For more information regarding lenders’ use of the GFE, see the January 2010 first tuesday article, Lenders take steps to avoid HUD’s updated GFE.]
It is imperative that agents also strongly encourage their homebuyers to shop around multiple lenders for the best rates, and use the GFE from each to readily compare the terms offered by each — its true purpose. Multiple loan applications are explicit in the consumer protection regulations. The GFE will not work in the best interest of homebuyers unless shopping around is advocated. [For more information regarding loan shopping, see the September 2010 first tuesday article, The good faith estimate is designed for shopping around, the May 2010 first tuesday article, Shop, shop, shop until you drop and the February 2010 first tuesday Form of the Month.]
Re: “Problems with new good faith estimate forms” from the NY Times
Clients should be encourged to check around for rates but putting in full applications where credit reports are run numerous times is bad for the buyers who run the risk of lower credit scores and therefore having to pay a higher interest rate in the end.
The new GFE does not clearly show the buyers the total money required to close. Down payment is not reflected but seller fees are!! Whose bright idea was that.
I have been in the business 22 years and most of my buyers when presented with the GFE looks at it and ask what is this and say I don’t understand it, so I give them the 44 page booklet to make it all clear…….
The government has decided that the average American is too stupid to understand the old forms so they decided to make new forms that no one understands including the people who wrote it. HUD stated at the meeting when they came out with the GFE that they just wrote it and we have to figure out how to use it, clearly they have never done a home mortgage.
Once again the government gets involved like HVCC and it ends up confusing and costing the buyer more money and time.
Amen Lisa, the writer of this article has not spent enough time in the field to understand that government employees who have never spent a day in the field can produce forms that will work for use in a particular industry.
I’ve said it before and I’ll say it again…there was nothing wrong with the old GFE. Where were the regulators during the boom years when unscrupulous lenders abused the spirit of Reg X and low balled or flat out omitted true settlement costs on their GFE’s? Because of that, we now have to use this new form, which is admittedly NOT making things more transparent for the consumer as it’s intended. I’m tired of reading posting after posting from First Tuesday suggesting that lenders are trying to do something sneaky by giving the client a loan scenario worksheet – a form that DOES give the buyer a true sense of what their fees will actually be – including the benefit of seller credit (which the new GFE does not disclose) and excluding fees that the seller has to pay so they should not be in my buyer’s debit column. No, instead we have to use this new form which, after suffering with it for a year now, is finally hitting home that it’s not working. And TWO new government agencies are there to make sure we’re all doing this right. Well, who’s going to make sure they do? Reg X is nothing new folks, it’s been around since the 70’s. If the regulators weren’t doing their job 4 years ago, who’s going to make sure they do now? Everytime these disclosure rules change, closings take even longer for the buyers. It’s really a shame.