The 2010 Good Faith Estimate was created to protect consumers and allow them to have a meaningful tool for selecting a lender. This GFE has been very controversial and an interesting challenge for all of us to adapt to. I've done my best to embrace it since my only other choice is to find a new career. HUD has been fairly responsive with issuing many FAQs to help us better understand their intentions and to guide us with this document.
Here are three suggestions I would like HUD to consider when they issue their next RESPA FAQs:
Allow adding an address from a TBD (preapproval) to become a "changed circumstance". Currently a home shopper may have a challenging time having a mortgage originator provide a GFE without a property address as adding an address does not constitute a "changed cirmcumstance". HUD does not prevent a LO from providing a GFE in this case, however they do warn that if a LO does indeed provide one, they're doing so at great risk. A "changed circumstance" is what allows a LO to re-issue a Good Faith Estimate, without a qualified "changed circumstance", we're violating RESPA. A mortgage originator who issues a GFE without the property address is currently on the hook for fees that exceed the tolerances.
This is why LO's are offering "work sheets" instead of GFEs for home-shoppers. Yet a majority of the third page of the Good Faith Estimate is all about shopping lenders and the home buyer cannot effectively use the document for this until they have a purchase and sales agreement. In my opinion, this doesn't leave you much time for selecting the professional who will be assisting you with one of your largest debts and assets.
Treat the owners title insurance premium the same as you do excise tax/transfer tax. If it's customary for the owners title policy to be paid for by the Seller, do not require to have it disclosed on the Good Faith Estimate. In Washington State, this is not the case.
Yesterday, I was reviewing my GFE for the second time on a 1 million dollar purchase and I just caught that I forgot the seller paid owners title insurance policy fee of $2,000 on the GFE. It was a simple error that would have meant that I would be out those funds (which would benefit the Seller–not the buyer). It's the first time I've come that close to forgetting to add that fee…I am human and I'm hearing of other fellow mortgage professionals who are having to eat that fee.
In addition, the owners title policy fee makes our closing costs look much higher than what they truly are. It really makes no sense disclosing a fee a buyer does not pay AND to have a mortgage originator responsible for a fee that has nothing to do with the proposed mortgage.
Forgiveness when a mortgage originator makes a human mistake. Mortgage originators across the country are having to pay for the seller's title policy or the FHA upfront funding fees (2.25% of the loan amount) if they issue a Good Faith Estimate making an honest mistake. I'm not talking about a slime-ball LO who's doing "bait and switch"…I'm talking about an exception for when and if a human mistake was made. Most mortgage originators are not paid enough to pay for a 2.25% funding fee mistake…there's not that much revenue in our income. Perhaps this could work with a time limit, such as 1-2 business days?
Dear HUD, if you're listening…I'm doing my best to adapt to the 2010 Good Faith Estimate. I think these three tweaks would be helpful for consumers and mortgage originators alike. April 2, 2010 was your last revision to the FAQs, I'm hoping your next revisions will address these issues.