RESPA Changes / Page 3 of the New Good Faith Estimate

February 11, 2010 by · 1 Comment 

The new Good Faith Estimate (GFE) became effective on January 1 and is the centerpiece of the RESPA changes. My focus the last two weeks has been on pages 1 and 2 of the new form. This week’s commentary focuses on page 3 and a sample of the form is attached for your review.

Not to beat around the bush, but most of page 3 of the new GFE is a waste of paper. The first section at the top is entitled “Understanding which charges can change at settlement” and this is really the only section on the form that has much benefit as it informs the buyer of which fees can change from the GFE to the final HUD-1 Settlement Statement. All fees are broken down into the following three categories:
1. Zero Tolerance – lender fees and GA taxes. This is a great move that requires lenders to more or less guarantee their closing costs (something we have already been doing for years)!2. 10% Tolerance – services required and selected by lender such as Appraisal, Credit Report, Closing Attorney, etc. The closing attorney’s fees can still come in up to 10% over the initial GFE.
3. No Tolerance – unlimited fees if the buyer uses different 3rd parties chosen by them and for other items such as Escrows, Daily prepaid interest, and the Homeowner’s insurance premium.

It is ultimately up to the closing attorney to determine if tolerances have been exceeded and to notify the lender. If charges are over the threshold, then the buyer must be reimbursed within 30 days of closing. Thus, it is critical that errors be caught at closing, and it is more important than ever for a lender to work with a closing attorney they know and trust. It is in the realtor’s best interest to make sure the lender and the closing attorney know each other and work well together, and realtors really should check with the lender before selecting the closing attorney listed in the contract.

The second section on p.3 is entitled “Using the tradeoff table” and is nothing more than a comparison chart to help the buyer compare different rate/fee scenarios with the same lender. The lender does have to guarantee all scenarios listed and, as a result, our corporate legal department has advised us not to show multiple scenarios as all this does is create additional liability as we are in essence guaranteeing two or three GFE’s rather than just one. Most lenders out there will most likely have the same stance, making this section mostly a waste of space.

The third section is entitled “Using the shopping cart” and enables the borrower to compare multiple GFE’s from different lenders. All I can say is this is craziness! What other industry requires a comparison sheet for the competition on an organization’s estimate form? The implication is that the transaction is all about price and not about service. Realtors and others in the industry know this could not be further from the truth and that is why it is more important than ever for realtors to get the message out that shopping for a mortgage should be limited to the firms that can get the job done and close on time with the least amount of hassle.

The page ends with a section entitled “If your loan is sold in the future.” This section simply states that the loan can be sold in the future but that this would not impact settlement charges if this happens.

Overall, the new GFE has a few nice additions but the final product is a form that is so complex that most lenders are giving out supplemental explanation guides just so the borrower can understand it. HUD set out to simplify and improve the closing process but they have mostly done just the opposite as the form has too many pages and is way too wordy. There are redundancies that could be eliminated and several sections are not needed at all. There is not even a spot for signatures, which means that the form is really a 4-page document once the lender adds a signature page (not very green!). This form is change for the sake of change and whoever was in charge of the changes, clearly never worked in the mortgage industry nor consulted with someone who did. Next week I will show you what they should have made the form look like as I introduce to you a great tool that we use daily at Fairfield Mortgage.