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.  

EDITORS NOTE:  This post by yours truly was originally published at Rain City Guide.  Since I'm taking a blogging break, I thought I'd share it with you here.  To read the original post along with the comments, please visit Rain City Guide.

Okay, I admit…I’ve been groaning, sniveling and bitching along with many other mortgage originators about HUD’s 2010 Good Faith Estimate.   The document has it’s faults and was created pretty much because of the faults of loan originators who used the GFE as a tool for bait and switch.   We’ve had a month to mourn the loss of the old good faith estimate, which was an asset in how I explained scenarios to my clients…it’s gone.  Get over it.

I’m hearing from consumers that many mortgage originators are refusing to issue Good Faith Estimates – even if they have provided the “six points of information” which HUD uses to define a loan application.   A mortgage originator has three business days to provide you with a good faith estimate or deny your “application” if you have provided the following:

• the borrower(s) name
• monthly income
• social security number to obtain a credit report
• property address
• estimated value of the property
• loan amount

HUD has added an additional item (which can be vague):  any other information deemed necessary by the loan originator.

Per HUD’s most recent RESPA FAQs that were updated on January 28, 2010, a mortgage originator cannot refuse to issue a good faith estimate if they do not have supporting documentation (such as income or assets documentation) or verification disclosures signed by the borrower.   If after providing a GFE to a borrower, it is discovered that their income they provided is not how an underwriter would view it, this may constitute a “changed circumstance” allowing a revised good faith estimate to be issued.    If you read the FAQs, you can tell that HUD is well aware that consumers have been having a real challenging time getting their hands on the 2010 GFE.

Update from HUD’s RESPA FAQs (page 11, #33)

“In order to prevent over burdensome documentation demands on mortgage applicants, and to facilitate shopping by borrowers, the final rule specifically prohibits the loan originator from requiring an applicant, as a condition for providing a GFE, to submit supplemental documentation to verify information provided by the applicant on the application…

Similarly HUD has long supported a public policy goal of creating a circumstance where consumers can shop for a mortgage loan among loan originators without paying significant upfront fees that impede shopping”.  (Only a credit report can be charged to a borrower at this point).

So dry your eyes, my fellow mortgage professionals, the Good Faith Estimate IS a tool for consumers to use for shopping…whether we like it or not.  It’s time to open our arms wide and embrace it. 

PS LO’s:  This post (and any of my articles) are not a replacement to your employer’s compliance department or legal advice.

Happy Valentines Day

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.