You Have Until Friday to Voice Your Opinion on the Proposed Good Faith Estimates

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. 

When Can a Good Faith Estimate be Changed?

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?  


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.

Which Fees Can Change on a Rate Quote Worksheet

When a home buyer is shopping for their next home, they often request written rate quotes from mortgage originators to see a detailed list of closing costs and an estimated total monthly mortgage payment.  Before HUD mandated their Good Faith Estimate in 2010, they could rely on a Good Faith Estimate.  Due to the liability a mortgage originator may incur on issuing a GFE before the buyer has a purchase and sales agreement (in contract to buy a home), a buyer would be hard pressed to find a mortgage originator is allowed to issue a GFE pre-contract.  In addition, HUD's GFE does not include the total mortgage payment nor funds required to close the transaction, so it's not best tool for a buyer. 

In lieu of issuing the Good Faith Estimate, mortgage originators can issue a written "rate quote worksheet" which may have different names by different lenders.  Just like the old GFE, the rate quote worksheets also vary in appearance from lender to lender as they had to be created by lenders as a result of the limitations of the HUD's GFE…they are not a standardized document.    The written rate quote worksheet should contain all the same information as the good faith estimate did prior to HUD's 2010 GFE as well as the APR.

The rate quote worksheet is simply a tool to provide an estimate of closing costs as well as what current rates are available if the home buyer were locking at that moment. 

Some fees on the quote can change, including:

Title Insurance and Escrow.  There are several title insurance companies located within each county.  Home buyers DO have the ability to select their title and escrow providerand some offer discounts when you use title and escrow from the same company.  They may discover that their real estate agents try to control who provides this service.   Often times, listings have a title committment prepared by the listing agents preferred title vendor (sometimes called a "TBD").  Until the mortgage originator knows who the title and escrow company are, this fee is an estimate and the fees do vary.

Property taxes.  Property taxes are in the mortgage payment as well as the prepaids/reserves section of the mortgage quote.  The number of months required to collect for reserves may varies based on when the first month's payment is due…so until there is an established closing date, it's a "best estimate".  NOTE:  I use 1.25% of the sales price divided by 12 months, unless I am provided a different figure to use for taxes.  Property taxes are specific to the property that is purchased…and property taxes may change over the years (impacting your mortgage payment).  

Home owners insurance.  Home owners insurance is in the payment as well as the prepaids/reserves.  This fee can vary based on who the provider is (selected by the home buyer) and the amount/type of coverage they request.

Prepaid interest.  This will be based on the very date of closing, paying interest through the end of the month (because you now own the home and have a mortgage).  Until we have that contract, most lenders will use 15 days of interest for purposes of a rate quote.  Closing earlier in the month increases the days of interest and later in the month reduces the days of interest.

Of course, how the loan is priced once the rate is locked (with or without discount points) may also change as the home buyer may not decide this until they know the what pricing (what rate at what cost) is actually available until the moment they are able to "lock".

This post was written based on a question from a home buyer I'm working with in the Seattle area.  If you have a question regarding mortgages that I can answer on Mortgage Porter, contact me!  You just might read your answer on my blog.

Live from WAMP’s Annual Award Luncheon: VIBE

I'm going to do my best to blog "live" from WAMP's Annual Award's Luncheon at SeaTac.  I all ready lost my first post…so this may be a little etchy.  I will be updating this post throughout the day.   The room consists of half brokers and half correspondents (based on a show of hands).  It's truly great to see this gathering of mortgage professionals who care about their profession.

Deb Bortner of DFI just finished addressing the Mortgage Call Report which will be required of all licensees.  She added that DFI is obtaining software that will allow them to have access to every loan originated if the mortgage company uses a compatible LOS.  Currently Encompass is ready and Calyx and Byte should be ready by spring.   They will use this data to determine who they feel requires a more indepth review.

Regarding credit reports being pulled on licensed mortgage originators.  Deb Bortner says they're "looking for deadbeats".   Transunion is the credit vendor being used and will not allow DFI to share a copy of the report with the LO.  If the LO's credit score is higher (specific score not mentioned), they will not review the entire report.  Otherwise, credit reports are being reviewed for "general financial fitness and honesty".   If a LO has $100,000 in liens or judgements, they will not be allowed to have a license.  DFI is essentially making underwriting decisions reviewing Licensed Washington State Loan Originators as to who is qualified or no longer qualified to originate mortgages based on their credit report.

Deb Bortner strongly recommends that LO's who are required to be licensed (LO's who work for banks or credit unions are not licensed) – DON'T DELAY!  Your renewal and/or license may not be processed in time if you wait too long.

Loan Originator Compensation with Patrick Palmer with Pinnacle Capital and Gary Szymanski with Flagstar Bank.  "What we think we know…."

After April 1, 2011, mortgage originators can only be paid by the borrower or the lender — no blending of the two.  This means that mortgages can only be priced with points or without points: if a borrower wanted a loan priced with a half point, they will not be able to.  

For example, based on the scenario below, the borrower would not be allowed to have the rate of 4.125% since compensation would be coming from the them and the lender.   It doesn't matter that the loan originator would be compensated the same with every scenario.

  • 4.00% priced with 1 point paid by the borrower with zero rebate from the lender.
  • 4.125% priced 0.5% point paid by the borrower with 0.5 pts paid by the lender.
  • 4.25% priced with 0 points paid by the borrower with 0 points paid by lender

The presenters are showing that there is confusion and different opinions on how compensation for LO's will be next spring.  

Brian Chappelle with Potomac Partners in Washington D.C. has examples of compensation.


The Good Faith Estimate – Present and Future with Andrew Fay, HUD Supervisory Investigative Coordinator and David Friend, HUD Compliance Coordinator via Skype.  (Laura Gipe was not able to participate).  

What HUD's looking for:

Required uses of affiliates – should not be in block 3.  Looking for affiliated business disclosure form.

A credit union rep refused to give Andrew Fay of HUD a GFE unless he paid $100 for underwriting and credit report!  (Obviously not knowing who they were dealing with!) Only a credit report can be charged for GFE.   You must give a GFE on a refi if requested (and 6 points of info provided) - you cannot use "not knowing the address" as a reason to now issue.

When re-issuing a Good Faith Estimate you must make sure you have the "changed circumstance" well documented–especially if it's borrower requested.

Q: Why must we include excise tax and owners title insurance on the GFE?

A: The GFE is a form that is intended to be uniform across the country.  Some states have different laws, regulations regarding excise/transfer tax.  If exclusively assessed to the seller, then some states exempt.   There is no exemption allowed for non-disclosure of the owners policy even if there's a contractual agreement that the seller pays.

Q:  Why have a disclosure document not have a signature line on the GFE?

A:  Because it binding of the LO, not the borrower.   Andrew suggests that borrowers can sign the GFE but you cannot add additional lines–they can sign the top above their names on page 1.   David says additional disclosure form signed by borrower to prove receipt is acceptable.

More answers…and tidbits.

The GFE must detail all fees that are charged to the borrower, even if the lender is paying them.   

The HUD-1 is no longer a disbursement document.  HUD says it's intended to be a disclosure document. 

An in-house appraisal goes in Block 1 and an outside appraisal is to be disclosed in Block 3 of the Good Faith Estimate…"sometimes a LO may wind up having to eat an appraisal fee" ($500 approx)… "they may want to disclose the appraisal fee in both blocks 1 and 3 but then risk looking not so competitive with their GFE".

Dodd Frank Act passed in July transfers the RESPA function over to the new bureau next July.  The statute specially requires the GFE, RESPA and TILA forms must be combined into one document (how many pages??) by July 2012.

Property taxes are not shown on the GFE because HUD feels that the new GFE was intended to only show fees charged by the lender in association with the loan (that conflicts with excise tax and the owners policy IMO)…HUD states that the property taxes are the buyers responsibility with or without the mortgage loan.

If a HUD examiner finds that a "changed circumstance" is not valid or lacks documentation, the GFE that was issued with invalid changed circumstances will be "tossed out".   Documentation is key.

Under the RESPA regulation, the LO is also bound by the TERMS of the loan–not just the terms! (Section 5 of RESPA).   A mortgage originator issued a GFE based on a 30 year fixed rate when it should have been prepared for a 5/1 ARM.  The mortgage company is now holding that mortgage a 30 year fixed with a rate for a 5/1 ARM due to the mis-disclosure.   HUD says the LO checked "no" on all boxes stating as the the loan being fixed and at settlement/closing, received an ARM Note. 

If you issue a GFE with a TBD address, receipt of an address (or once a property is identified) does not constitute a "changed circumstance" where fees may be adjusted for the actual property.  (This is why LO's WILL NOT issue a GFE on a "preapproval" until there is a property identified.

If a LO has to use a different lender after a GFE is issued, they're still bound by the GFE–it's not a "changed circumstance".

Deb Bortner of DFI asks HUD regarding getting the SAFE rules out.   Will HUD issue them or will it be sent to CFFB?  Reply is "We can't answer…that's another department in HUD".

GFE's must be re-issed at the time of lock–this is a qualified "changed circumstance".

Andrew Fay says that there is nothing wrong with issuing multiple GFEs showing different scenarios…the borrower can chose which GFE they prefer.

HUD encourages you to sign up for their RESPA Roundup Newsletter by emailing

Note:  I had to leave after HUD's presentation so this wraps up my "live" post.  Thanks for reading!

How to Shop for a Mortgage Originator When They Won’t Provide a Good Faith Estimate

I just received this excellent question on a post I wrote at Rain City Guide about why Loan Originators are hesitant in issuing a Good Faith Estimate without all the required information:

…I am a new buyer with a question regarding the GFE. I am brand new to this world, so I apologize if this is a dumb question.

I read that I should shop around to a few banks and get a GFE to see who can give the best deal. I was pre-qualified by my personal bank but my Loan Officer denied me a GFE. She stated she cannot give me one until my offer is accepted for a home.

How am I supposed to shop around for the best deal, if they won't give me a GFE until I've found a home & been accepted? My intent of the shopping around is to be ready when the home comes along.

I've been meaning to write a post about how to select a mortgage professional since my original articles on this topic are a little out of date with the introduction of HUD's Good Faith Estimate at the start of this year.

Currently, if a mortgage originator issues a good faith estimate without the property address (when someone is shopping for a home), the addition of a property address does not create a "changed circumstance".  The only time a mortgage originator can issue a new or revised Good Faith Estimate after the initial GFE is if there is a qualified "changed circumstance".   Since the 2010 GFE has certain liabilities associated with various fees that are quoted, a mortgage originator is at risk for having to shell out hard earned cash if there are differences between the Good Faith Estimate issued and the HUD-1 Settlement Statement at closing.  I say "currently" because I do hope that HUD recognizes this significant flaw and that they correct this soon because a home buyer does not have their future home address will be hard pressed to obtain a Good Faith Estimate from any mortgage originator–which defeats the purpose of why HUD created this document!

So how can a home buyer "shop" for the person who is going to help them with one of their largest debts secured to where possibly their most significant asset?   Here's what I recommend:

  • Ask for a rate quote sheet or work sheet.  Lenders may have different names for this but HUD does allow us to provide rate quotes as long as they do not look like a good faith estimate.   If you are going to do this–it's imperative that you do in a short amount of time and provide each LO the same criteria as rates are a moving target.  Currently we're experiencing 2-3 rate changes per day. 
  • Determine if your mortgage originator is licensed or registered and if this is important to you.  Licensed Mortgage Originators are held to higher standards per the SAFE Act than Registered (bank or credit union) Mortgage Originators. If you visit you can verify a license and see your mortgage originators history.
  • Consider what type of mortgage company the mortgage originator works for.  What this boils down to is do they have in-house underwriting?  Where are the decisions on your loan going to be made?  Is the processing down in a far away "processing center" or does the processor work in the same office with the loan originator.   There are differences between correspondent lenders, mortgage brokers, mortgage banks and credit unions.
  • Google your possible mortgage originators.  A Google search may reveal rants or raves about the person you're considering to help you.  You may learn more about the mortgage professional.  Just enter their name into the search box–you might have to add the word "mortgage" if their name is common.
  • Is the mortgage originator or their company affiliated with a builder (the seller) or real estate agent's office?   If the mortgage originator is a builder's site agent, they may be naturally more incentized to look out more for who feeds them the most business–which isn't you.  If they are cozied up in the real estate agents office, make sure they are committed to not disclosing information that you may not want the real estate agent to have (for example, the maximum amount you may qualify for).   If you're comfortable with not having someone intendant of attachments to work with, then this point may not be a huge issue…but it is something to think about.

These are just a few suggestions to help you select your mortgage originator.  Mortgage rates and closing costs are important, but there are other considerations to factor as well. 

If I can answer your questions or help you with a mortgage for a home located in Washington state, please contact me.  I've been originating mortgages for the past ten years and I'm happy to help!

Dear HUD

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.

How Much Should I Pay for an Adjusted Origination Charge

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.

Second Opinions on Good Faith Estimates

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.