Someone recently landed on my blog by searching: "can a bank alter a good faith estimate?".
The answer is yes IF there is a qualifed changed circumstance or IF the good faith estimate has expired. If the mortgage originator made a mistake with a good faith estimate (regardless of how human the mistake may have been) they still cannot reissue the good faith until it has expired. This is why many mortgage originators or loan officers are still hesitant to provide the good faith estimate that HUD created last year.
Even though HUD created their GFE as a tool for lenders to shop, they have decided that the addition of a property address is not a valid changed circumstance — meaning that mortgage originators cannot reissue the good faith estimate because someone has gone from being "preapproved" to in a bona fide contract. From HUD's FAQs dated April 2, 2010:
"…if a GFE is issued wihtout a property address, the future receipt of the property address is not a changed circumstance that would allow the loan originator to issue a revised GFE."
So if an LO issues a GFE without an address, they are bound by those cost (subject to certain tolerances) if the buyer accepts the GFE prior to expiring. This is why MLOs (mortgage loan originators) have been issuing rate worksheets prior to having a transaction. However, if the MLO has received the criteria HUD had determined is an application a Good Faith Estimate must be issued within three days or the loan must be denied…this tends to happen more often with a refinance than a purchase scenario due to the valid address component.
When does a Good Faith Estimate expire?
From HUD's RESPA FAQs:
If a borrower does not express an intent to continue with an application within ten business days after the GFE is provided…the loan originator is no longer bound by the GFE.
It's a minimum of ten business days (two weeks) after the Good Faith Estimate is issued to the borrower that the mortgage originator is liable for the good faith estimate. If the MLO forgot to include the owners title policy fee (which the buyer doesn't pay for) they (or their employer) may out hundreds of dollars. On a $400,000 sales price, an owners policy runs about $1000. That's a hefty penalty to a mortgage originator for something the buyer doesn't even pay for in Washington state or that has nothing to do with the mortgage. Another expensive mistake is if the MLO forgets an upfront funding fee that FHA, VA or USDA loans have…HUD does not allow any wiggle room for human errors once that GFE is issued.
With all that said, President Obama's new Consumer Financial Protection Bureau is working on drafting a new Good Faith Estimate that is suppose to be friendlier (to conumers) which will also combine the Truth in Lending. Watch for this new document to be created by June 2012…with new guidelines on when a good fiath estimate may be changed or reissued.
In the aftermath of the sub-prime collapse, lawmakers rushed in with regulations they promised would help solve the problems. Not only have they not helped the situation, but they have also been confusing and senseless. The public needs to be educated on the process and their rights. Unethical lenders need to be prosecuted. More complicated forms and impossible regulations are not the answer!
Cheryl L. Peck
Cheryl, I would add that most lawmakers are not educated about the mortgage process…which is apparent by the forms, laws and rules that have been created. Unethical lenders along with unethical consumers who committed fraud should be prosecuted…let’s not forget appraisers, escrow agents or real estate agents while we’re pointing fingers…if someone was unethical, they had a huge opportunity to work it during the subprime era.
What are your opinions on bank reps who called on mortgage originators to tell them how to submit stated income loans, how to jack up to rate to make more or who pressured LOs who did not sell risky products (like option ARMs)?
There’s enough blame to go around!
One of my pet peeves was the way
stated income programs were misused,c
ausing their demise which prohibited
a lot of deserving people from getting
a mortgage loan. Stated income
programs were for those(usually -self employed)whose income could not meet the
traditional documentation requirements.
You could count nontraditional income NOT MAKE UP INCOME THAT DIDN’T EXIST!!!
That’s fraud. None of my lender reps ever encouraged unethical behavior. There were lenders I didn’t use because I didn’t trust
them. As in any industry, the key is the inegrity and personal responsiblity of the individuals. The mortgage industry was ripe for the picking for the bad guys!
Cheryl, there’s blame to go around BEYOND the mortgage industry. Stated income loans and other toxic programs along with their guidelines were not created by mortgage originators…they were created by banks and wholesale lenders.
Our company did very few sub-prime programs. Most were requested BY the consumer or their RE agent…they didn’t want to work on their credit or savings to wait to qualify for another program, like FHA, when something zero down was readily available.
There were wholesale reps and companies I REFUSED to work with too…but even “big bank” wholesale reps would call on us to let us know how much money we were missing out by not originating option ARMs when “everyone else was”.
In my 10 year career, I believe I originated 2 or 3 stated income loans…and guess what, they were self-employed and providing the supporting documentation was difficult… you can search “why I don’t like stated income loans” on my site or google to read my articles about that program.
With NMLS Licensing, I’m hopeful that consumers have better odds of working with higher quality mortgage origintators…consumers DO have a responsibility to select someone who is qualified and a program that is suitable. If a mortgage originator cannot explain the terms of function of the loan, consumers should find a new LO.
What happened with stated income loans is a good example of the problem. Rather than being used for what it was designed for, many used the program to close loans for those who couldn’t afford them. Also, the required credit scores for stated income loans was too low. Stated income, low scores, & let’s throw in 100% LTV loans – no wonder the market collapsed. I thought that rather than doing away with this program, you could change the requirements. Have higher credit score limits. Require down payments. An example of what the program was designed for: my client had a credit score in the 700s. He worked for a company for 20 years, receiving bonuses. Quit & moved to Texas for a couple of years worked in the same type job. Moved back, went to work for the same company. A year later he wanted to buy a house. Could not count the bonuses because of time on the job. Renting the house he bought in Texas but couldn’t document the rent. This is a perfect example of what the program was intended for. Now people like him can’t get financing! Meanwhile, fraud is running rampant!