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