I'm hearing from many consumers that they are having a challenging time obtaining a good faith estimate from mortgage originators. Once borrowers receive the GFE, they're often surprised to learn that it doesn't contain basic information that they need for planning their home purchase or refinance such as the total monthly mortgage payment or total funds needed for closing. Regardless, if a borrower has provided the "six points of information" as defined by HUD or has completed a loan application, the mortgage originator must provide the good faith estimate in three business days or deny the loan.
Why the hesitation? HUD has stated that if a mortgage originator provides a good faith estimate without the "6 points of information" then it is presumed that the mortgage originator has the information and they cannot use receiving this information as a "changed circumstance". HUD's Vicki Bott had a power-point presentation that stated this (it appears to have been removed from their website). From HUD's "RESPA in Plain English" slide 28:
"If a GFE is given during pre-qualification, the receipt of one of the six required pieces of documentation will not constitute a "changed circumstance".
Issuing a good faith estimate not only creates liabilities for the mortgage originator, it triggers several compliance issues and a bevvy of documentation. There is nothing simple or easy about this document which was intended to be used to provide borrowers a tool for a more "meaningful" rate quote. These issues are just some of the reasons why mortgage loan originators have shied away from providing this document not to mention the GFE is cumbersome to complete and includes costs that most buyers in Washington State do not pay (such as the owners title police and excise transfer tax).
HUD is keen on this reluctance and issued 57 pages of revised RESPA FAQs late last week with many new points addressing this. Here are some of the new points from the FAQs updated on January 28, 2010:
- If a good faith estimate is issued while the rate is floating, once the rate is locked a new GFE must be issued updating the important dates within 3 days. (See FAQ 19 on page 8)
- A loan originator may not require a borrower to sign consents ot verify income, employment or deposits as a condition of issuing a GFE. (FAQ 31 on page 10)
- A loan originator may not require "an applicant, as a condition for providing a GFE, to submit supplemental documentation to verify the information provided by the applicant on the application". I interpret this to mean income and asset supporting documentation. (FAQ 33 page 11)
If a borrower provides me with income that has been not calculated the way an underwriter would view it, perhaps they're factoring in a bonus they have not been receiving for a full two years, for example, there is going to be a discrepancy between what the borrower perceives as their income and what we do. The same may hold true for how the borrower views their amount of assets. This is especially true in our current mortgage climate where guidelines continue to tighten on every level.
It's my understanding that once we receive supporting documentation, if it does not match what was provided by the borrower, it constitutes a changed circumstance (meaning we can issue a revised GFE modifying the points the changed circumstance impacts). If there is a qualified changed circumstance (paystubs don't match the income that was verbally provided, for example) the loan officer must reissue a new GFE within three days if terms have changed from that specific changed circumstance.
If you're a mortgage originator reading this, please do not rely on any of my articles as a substitute of your own compliance departments. Check with your employers and legal staff…this is just my two cents.
So if you're really wanting a good faith estimate from your mortgage originator and you've completed a loan application (or provided the information that defines one per HUD), let your mortgage professional know that they need to provide you one or "decline" your loan application.
If you are buying or refinancing a home in Washington State, I'm happy to provide you with a Good Faith Estimate.