UPDATE August 31: HUD just issued their 2nd revision to the RESPA FAQs…let's hope the third time is a charm.
As I mentioned in a previous post, I'm going to be doing a series to review the Good Faith Estimate that will be mandetory on new residential transactions effective January 1, 2010.
The top of the new form is not earth-shattering. It includes contact information for the mortgage originator and the borrowers' name, property address and the date the GFE was prepared. An improvement would be to have the estimate also include the actual time it was prepared as well since we are averaging 3-4 new rate sheets per day.
HUD created this new GFE so that consumers could shop by rate and fees, ignoring the qualifications of the mortgage originator. On the top of the form, they encourage you get three quotes.
We'll delve deeper into the "shopping cart" in a future post. Can you imagine if HUD also encouraged borrowers to compare the expertise and track-record of the mortgage originator?
The section "Important dates" is on the top half of the new Good Faith Estimate.
Item 1 is suppose to let consumers know how long their rate quote on said estimate is good for. There is no way to guarantee how long a rate is good with a quote unless the borrower is locking at that instant–infact, rate changes can and do happen while you're trying to lock in a rate. Mortgage originators do not have crystal balls to know when or if the next rate change is coming.
Item 2 is suppose to give the consumer a date for how long the closing costs are good for. Again, this is assuming the mortgage originator has some magically control over third party services, such as the appraisal, title and escrow. We have no way of knowing for certain if rate increases or reductions are planned by the various companies that are involved with putting together a real estate transaction. The estimate can only be reflective of what fees are at the moment in time that GFE is prepared.
Item 3 is just intended to disclose the lock period. The most common lock periods are 30, 45 and 60 days. Without a closing date on a purchase, you do not know the lock period. Some borrowers may decide to float (not lock) and home buyers without a signed around contract do not know what the agreed to closing date is.
Item 4 provides the consumer with a drop dead lock date. I don't have an issue with this. Consumers should know how long they can float should they decide to gamble the markets with mortgage rate.
Per HUD's New RESPA Rule FAQs, which they've all revised just 7 days after it was first issued, Good Faith Estimates expire after 10 business days:
If a borrower does not express an intent to continue with an application within ten business days after the GFE is provided (or such longer time period specified by the loan originator), the loan originator is no longer bound by the GFE.
I'm assuming this does not apply towards interest rates where the rates may be the same or we could have experienced 30 rate sheets within the said 10 business days. I'm also concerned about this language as the loan originator cannot guarantee that certain loan programs and underwriting guidelines will be available within any time period. Unless the borrowers information (credit, income, assets) and the mortgage world has not budged in ten days, I'm not seeing how a mortgage originator can be bound to the GFE.
I do stand by my good faith estimates, however until an application is made, all supporting information is provided and the rate is locked, there cannot be any guarantee. There are too many moving parts and uncertainty. Mortgage originators will need to state clearly to the consumer the rate is based on x, y and z and as long as all of these hold true, your estimate is "binding" for 10 business days assuming the rates are the same at that moment, underwriting guidelines have not changed and the program is still available (as I'm writing this post, I'm receiving notice from one of the lenders I work with that they are no longer offering the 40 year amortized mortgage). Do you see an issue here?
Watch for my next post in this series where we continue reviewing the first page of HUD's new Good Faith Estimate.