What’s Wrong with the New Good Faith Estimate?

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The new good faith estimate is getting plenty of protest from mortgage originators across the country…my biggest issue is that I cannot effectively use it as a tool to help people who are interested in buying a home or refinancing effectively see what the proposed mortgage scenario may look like. 

I received this email from a client I've been working with this morning:

"[We] are back on the search for a new home and we have found a couple that we would like to run past you.  When you have a moment, could you crunch the numbers for us and provide a good faith estimate on these two properties.  We would like to see one with the variable that the seller covers the closing costs and one with us covering the closing costs.  That will give us a good idea of what the middle looks like once we start negotiating."

The new good faith estimate from HUD does not show consumers:

  • seller contributions towards allowable closing costs
  • total funds due at closing
  • total monthly mortgage payment (PITI aka principal, interest, taxes and insurance)

For what my clients are interested in seeing, HUD's good faith estimate isn't very useful or meaningful.

I do like that the new GFE is a uniform document required to be used by all mortgage originators however it is not effective for consumers who actually want to compare potential scenarios. 

I find the new good faith estimate conflicted since it has a heavy emphasis on shopping rates (page 3 of the document includes a shopping chart), yet mortgage originators are (and will be) discouraged from using it for "rate shoppers" since the document is binding for a minimum of 10 business days even though the consumer does not have to sign it or commit.  It's one thing to be bound by our lender fees I quote (I've done that for years without this new document), however to be stuck with third party fees that I have no control over for 10 business days is something I'm not too happy about.

Many mortgage companies, banks and loan operating systems are in the process of creating forms that can be used for the purpose of rate quotes and/or illustrating what the new good faith estimate has missing.  This recreates the very same scenario which I thought HUD was trying to correct: consumers will have to sift through various documents which will not be uniform from lender to lender.  It's very puzzling to me and I'm sure it will be to the consumer as well.

Comments

  1. I am a broker in MN and feel the new GFE is much more confusing and actually benefits the broker in terms of “selling” the loan. Amazing what happens when you add more regulation!

  2. So why would a form that is confusing for the consumer to understand benefit a broker in selling a loan?

    Oh, wait a minute – I get it. When someone doesn’t understand what is going on it’s a lot easier to take advantage of them and squeeze them for more money.

    Obviously, the system still needs to flush out more of the human waste it contains and hopefully the remaining mortgage brokers who think like this idiot get the boot sooner than later.

    Fortunately, there are still a few in the business I admire (very few) and Rhonda is one of them.

  3. Rhonda,

    You are right about the new GFE. Good intentions that missed the mark and by a mile.

    HUD has been promoting the new GFE as a way consumers can now easily shop a home loan and end up on average saving over $700. A total joke. The form is totally useless in this regard.

    I’m sure the overwhelming majority of LOs will not use it as a means to provide initial quotes to compare against and will only issue a valid GFE after a 1003 application is taken – not before.

    After all the years they have had to come up with something meaningful that would make sense this is pretty pathetic. Just another example of your government at work that should scare the bejeezus out of everyone. And people wonder why the country is so screwed up.

  4. Jim, I’m hearing from many LO’s that they will not issue the GFE for “rate shopping”. It’s too bad that HUD didn’t create two documents:

    Good Faith Estimate: designed for rate shopping with a lot of the components of page 3 of the 2010GFE but without the binding concequences…and

    Good Faith Guarantee: once the consumer decides the like the proposed GFE, they can tell the LO they want the guarantee. At that point the LO issues a binding GFG.

    Who would have an issue with that?

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