The Consumer Protection Financial Bureau would like you to vote on two different proposed mortgage disclosure forms created to replace the current Good Faith Estimate and Federal Truth in Lending documents.   You have until Friday to make your selection between the Pecan Bank or the Ficus Bank examples.  Both contain (and are missing) the same information.

I personally prefer Ficus Bank (the darker example) as it discloses key information at the top of the form, including the interest rate and monthly payment.  The Pecan example features projected payments along the top section along funds due at closing being the very first box on the form.  I've written more about the proposed disclosures at Rain City Guide.  It's really a choice of style and arrangement of content.

I still believe that most consumers would rather return to a detailed Good Faith Estimate featuring all closing cost itemized instead of having certain cost lumped together where it's hard to see exactly what they're paying for.  Why not have the Good Faith Estimate resemble an estimated HUD-1 Settlement Statement so that there is congruency between the beginning of the transaction and closing?

I've provided my opinions and vote to the CFPB, have you?  

After you visit CFPB's site and have voiced your opinion, I'd love to know which selection you made and why. 

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.

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.

I love reading how people found Mortgage Porter via search engines.  Apparently someone has been doing some research on how much their adjusted origination charge "should" be.  The new 2010 Good Faith Estimate was designed by HUD with the intent that consumers would be able to shop mortgages using a more meaningful document.  The 2010 GFE is suppose to be an easier tool for home buyers and those considering refinancing to make educated decisions about their mortgage. 

What HUD and mortgage rate shoppers alike cannot control is how often mortgage rates change…just as with the pre-2010 good faith estimate, if you are selecting your largest debt (your mortgage) on your largest asset (your home) by interest rate alone, you're doing so with a moving target.  The 2010 GFE does provide the consumer with some protection as to how much certain closing costs may change, it cannot and does not protect the consumer against unlocked rate changes depending on what the mortgage originator uses for an expiration period on the GFE in the "important dates" section.

What also has not changed is how mortgage rates are priced.  Home buyers and home owners interested in refinancing still have the option of having their mortgage priced with or without points or origination fees.  They simply need to communicate this to the mortgage originator.  Lower closing cost tends to equal a higher interest rate (typically, but not always, 1% of the loan amount tends to pencil out to 0.25% in interest rate).  Mortgage rate shoppers will still need to compare interest rate to closing costs keeping in mind that the rate shown on the GFE may no longer be available by the time they select a mortgage lender.

The 2010 Good Faith Estimate includes additional fees than just the origination on the "adjusted origination charges".  The fees reflected in this section may include:

• loan origination fees
• discount points
• processing/admin fees
• underwriting fees
• funding fees
• doc prep
• wire fees
• other misc. lender fees charged by the lender when originating a mortgage

For example, if a mortgage originator provides an estimate priced with zero origination or discount points, the adjusted origination charges may still show fees if they have an underwriting or funding fee (any fees listed above).  You can request the mortgage originator provide you with an itemized list of fees when reviewing an estimate. 

When reviewing the 2010 GFE make sure that you're also factoring in the lock period the mortgage originator is using (the shorter the lock period, the less expensive your rate will be).  Obtaining a rate quote based on a 15 day lock looks great and is useless if your transaction is closing in 30 days.  (Refer to the "important dates" section on page one of the GFE).

Don't forget, if your mortgage originator won't provide you with a good faith estimate on your home located in Washington State, I will.  Many LOs are reluctant to issue the 2010 GFE because of the liabilities associated with guaranteeing closing costs.

Update August 15, 2010:  Since 2010, HUD has created a new GFE and rate shoppers may find a challenging time obtaining an estimate from a mortgage originator without meeting what HUD constitutes an application.  Many mortgage originators are issuing "rate quote work sheets" with a Good Faith Estimate to follow once the 6 points of information (application including a credit report).

EDITORS NOTE:  This is another personal favorite article that I wrote at Rain City Guide.  Since I'm taking a few days off from blogging, I thought I'd share it with my Mortgage Porter readers.   To read the original post including the comments, please visit Rain City Guide.  With the changes to the Good Faith Estimate that have happened in 2010, this post is as relevant as ever.

A few weeks ago, one of the Realtors I work with, Suzy Seller, contacted me to see if I could help her client with an out-of-state mortgage.   Ima Rusty (names are changed to protect the innocent), was moving to Arizona to retire and perhaps see the sun.   Ima had gone to her “local bank mortgage company” since they had provided her mortgage for her home in Washington, for her financing on her new home.    For some reason, Ima was not feeling very confident with her lender after two weeks into the transaction.

Since I stick to lending in Washington State, I offered to review Ima’s good faith estimate for her.   The rate was fine and the closing costs all seemed in line…everything looked great until I noticed that on the Federal Truth In Lending, the box that states there “may be a prepay” was checked.    According to Ima, their credit is perfect.   She was completely unaware of a prepayment penalty.   After I encouraged her to contact the Loan Originator to ask if there is indeed a prepayment penalty.  Maybe the box was marked in error?  Here’s what Ima told me:

I was able to speak with our loan officer and arrange for the documents to be changed to reflect appropriate changes to allow prepayment of up to 20% of the loan amount within a 12 month period without penalty or fees thereby reducing the monthly payment.  I am satisfied that we’ve covered the areas which were of major concern and as far as I can see, we’re “good to go”.

He bamboozled her into thinking she did not have a true prepayment penalty.  He did not make any changes to her documentation…this is a boiler plate prepayment penalty.   I proposed one last question for her.   “What if you decide to sell the property next year”.   After all, what if after the Rusty’s move to AZ, they miss our rain and our four seasons?   That’s when she discovered that the prepayment penalty was for three years. 

Ima Rusty decides this is a bad deal.   After confronting the Loan Originator, the Rusty’s decide they want out.   The Loan Originator was unwilling to waive or reprice the loan without the prepayment penalty.   I have a hard time believing this was their only option.  Especially since the prepayment penalty was not explained (it was disclosed…only by sneaking it on the TIL) to the Rustys upfront.

I often review Good Faith Estimates to check on the rate, closing costs and prepayment penalties.   When a rate looks too good to be true (something I cannot come near offering), I encourage the borrower to see if they can lock it in and to have the LO provide a written lock confirmation.    I also advise borrowers to see if the Loan Originator will guarantee the closing costs (Section 800) on the good faith estimate.  A consumer should bring their Good Faith Estimate to their signing appointment to compare the closing costs with those on the HUD-1 Settlement Statement.   If a Loan Originator starts back peddling when asked these questions, I suggest that the borrower should do the same. 

Second opinions on Good Faith Estimates are FREE and any Mortgage Professional should be happy to provide this without running your credit.   

By the way, Ima Rusty use to work for an attorney…

I did send [Big Bank Mortgage] an email message which included reference to fair lending practices (not specifically predatory lending laws)…. I have been in touch with the Attorney General’s office and they seem to feel there’s some indication of senior exploitation in this case.  If we want to proceed with an investigation they are willing to do so…. Meanwhile, I’ve cancelled the [Big Bank Mortgage] loan and requested cancellation of our line of credit.