Per HUD, a loan originator (mortgage broker or lender) must issue a Good Faith Estimate no later than three business days after an application or enough information is provided to the mortgage originator to complete an application.
An application is basically defined as having the following information (for purposes of providing a GFE):
- Borrowers full name
- Borrowers monthly income
- Borrowers social security number to obtain a credit report
- Property address
- Estimate of value of the property
- Loan Amount
- Any other information deemed necessary by the loan originator.
Once a borrower decides to lock in their interest rate, if the rate, rate related fees or terms have changed, a new good faith estimate must be provided. (UPDATE FAQs issued on January 28, 2010 addressed this point).
If the loan is declined or the application is withdrawn from the borrower within the three day time period, then the good faith estimate is not required.
In addition, HUD makes it more difficult for mortgage originators to issue a revised Good Faith Estimate to borrowers. "Changed circumstances" (which I may have to write about in a future post) does not seem to include changes with underwriting guidelines or if a loan program is terminated from the lender (unless that's considered an Act of God). If a borrowers situation qualifies as a "changed circumstance" which would impact the terms of the mortgage, then a new good faith estimate would be required to be issued within three business days.
I prefer to provide a good faith estimate whenever someone is serious about receiving a rate quote–even if I'm missing any of the criteria above. A Good Faith Estimate is not a commitment to lend or a preapproval–in the preliminary stages, it's just that, an estiamte provided in good faith detailing the cost of the mortgage associated with the rate that is being quoted. HUD's latest FAQ (issued September 18, 2009) has a line that concerns me…and I'm not totally sure of the (or if there is) potential implication:
"If a loan originator issues a GFE, the loan originator is presumed to have received all six pieces of information…."
I'm not sure why that line was added to the many revisions to HUD's RESPA FAQs…we'll see if HUD sheds some light with more revisions which I'm sure we'll continue to have.
Update January 17, 2010: Now that the new Good Faith Estimate is requried to be used, most mortgage companies and banks will not allow it to be issued for purposes of rate shopping. Many are using substite forms for preliminary rate quotes.
Read this post for more information on Changed Circumstances and when a good faith estimate can be re-issued.