Loan Officers: Stop Your Crying…Let’s Love the Good Faith Estimate

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.valentinescandy 

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

My Loan Officer Won’t Provide Me a Good Faith Estimate

Mortgageporterpout 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.

Changed Circumstance: When a Good Faith Estimate CAN be Re-Issued

EDITORS NOTE: Effective on loan applications dated October 3, 2015 and later, the Good Faith Estimate has been replaced by the “Loan Estimate” which has some similarities to the retired Good Faith Estimate, including requiring a “changed circumstance” for it to be re-issued. 

Most Mortgage Originators have a distaste for Good Faith Estimate now required to be used by HUD due to a term called “changed circumstance”.  A changed circumstance is the only time that a mortgage originator can re-issue a good faith estimate (unless the estimate has expired) and the only items that can be modified are those impacted by the circumstance that changed.

According to the RESPA changed circumstances is defined as:

(1)(i) Acts of God, war, disaster, or other emergency;

(ii)  Information particular to the borrower or transaction that was relied on in providing the GFE and that changes or is found to be inaccurate after the GFE has been provided. This may include information about the credit quality of the borrower, the amount of the loan, the estimated value of the property, or any other information that was used in providing the GFE;

(iii)  New information particular to the borrower or transaction that was not relied on in providing the GFE; or

(iv)  Other circumstances that are particular to the borrower or transaction, including boundary disputes, the need for flood insurance, or environmental problems.

(2)  Changed circumstances do not include:

(i)  The borrower’s name, the borrower’s monthly income, the property address, an estimate of the value of the property, the mortgage loan amount sought, and any information contained in any credit report obtained by the loan originator prior to providing the GFE, unless the information changes or is found to be inaccurate after the GFE has been provided; or

(ii)  Market price fluctuations by themselves

HUD adds in their RESPA FAQs (as of December 30, 2009):

None of the information collected by the loan originator prior to issue the GFE may later become basis for a “changed circumstance” upon which a loan originator may offer a revised GFE, unless the loan originator can demonstrate that there was a change in the particular information or that it was inaccurate, or that the loan originator did not rely on that particular information in issuing the GFE….

According to HUD’s RESPA FAQ 8ii, simply issuing a good faith estimate with a TBD address (or no address) is not cause for a “changed circumstance” and if a mortgage originator does issue a GFE, remember, we are presumed to have all the information necessary to create a loan application per HUD.

If a mortgage broker issues a GFE based on one lenders products and origination fees, but places the loan with another lender–the mortgage broker may wind up having to eat the difference in fees if they are higher.

Examples of things that *could* be considered a changed circumstance (after a good faith estimate is issued)  according to HUDs FAQs:

  • GSE (Fannie/Freddie), FHA or mortgage insurance program changes prior to the GFE being issued IF the mortgage originator did not have notice of those changes (good luck proving that).
  • The property address provided by the borrower is not correct.
  • Parties are added or removed from title.
  • the loan does not close by the closing date in the original purchase and sales agreement provided to the lender.
  • Additional appraisal, pest or other inspections requried.

The fees in Block 1 of the Good Faith Estimate cannot change with a changed circumstance unless it is the loan amount that changed and a portion of the “origination charge” is a percentage of the loan amount.  If after a GFE is issued and a changed circumstance, or borrower requested change happens, which impacts pricing (for example, a low appraisal), the change must be reflected in Box 2 of the Good Faith Estimate, which will then reflect the “adjusted origination charges”.

Changed circumstances is another great example of the best of intentions with potentially terrible outcomes for borrowers.  Many mortgage originators will be weary to issue the new good faith estimate because of all the RESPA regulations it carries.  In addition, banks and wholesale lenders are making their own layer of guidelines on top of the “what could trigger a changed circumstance”.   Originators run the risk when issuing a revised GFE of the bank/lender balking at it down the road–especially if the borrower winds up going into default.  This is just another opportunity for banks/lenders to find cause for a “buy back”.

I’m hoping by reading my articles about the new GFE, you can see why some lenders are a little leary to issue them as freely as we did pre-2010.

An important reminder that this, as well as all of my posts are my opinion only and are not intended as legal advice nor do they replace your mortgage compliance department.


What’s Wrong with the New Good Faith Estimate?

The new good faith estimate is getting plenty of protest from mortgage originators across the country…my biggest issue is that I cannot effectively use it as a tool to help people who are interested in buying a home or refinancing effectively see what the proposed mortgage scenario may look like. 

I received this email from a client I've been working with this morning:

"[We] are back on the search for a new home and we have found a couple that we would like to run past you.  When you have a moment, could you crunch the numbers for us and provide a good faith estimate on these two properties.  We would like to see one with the variable that the seller covers the closing costs and one with us covering the closing costs.  That will give us a good idea of what the middle looks like once we start negotiating."

The new good faith estimate from HUD does not show consumers:

  • seller contributions towards allowable closing costs
  • total funds due at closing
  • total monthly mortgage payment (PITI aka principal, interest, taxes and insurance)

For what my clients are interested in seeing, HUD's good faith estimate isn't very useful or meaningful.

I do like that the new GFE is a uniform document required to be used by all mortgage originators however it is not effective for consumers who actually want to compare potential scenarios. 

I find the new good faith estimate conflicted since it has a heavy emphasis on shopping rates (page 3 of the document includes a shopping chart), yet mortgage originators are (and will be) discouraged from using it for "rate shoppers" since the document is binding for a minimum of 10 business days even though the consumer does not have to sign it or commit.  It's one thing to be bound by our lender fees I quote (I've done that for years without this new document), however to be stuck with third party fees that I have no control over for 10 business days is something I'm not too happy about.

Many mortgage companies, banks and loan operating systems are in the process of creating forms that can be used for the purpose of rate quotes and/or illustrating what the new good faith estimate has missing.  This recreates the very same scenario which I thought HUD was trying to correct: consumers will have to sift through various documents which will not be uniform from lender to lender.  It's very puzzling to me and I'm sure it will be to the consumer as well.

My “Ideal” Home Purchase Time Line

Previously I reviewed HUD's Home Purchasing Time Line, which I found several issues with if you're a home buyer in Washington State.  If I'm going to pick something apart, it's only right that I offer an example of how I think it should be corrected.

Below is HUD's suggested time line.


Here is how I see a successful purchase transaction evolving.  My modifications to HUD's time line are in blue below.


Rhonda Porter's Ideal Home Purchase Time Line   

Step 1: Determine what you can afford. Make sure you really consider how much home you can personally afford (not just how much home you qualify for or what a lender tells you).  Please do not stretch yourself to be "house poor".  Keep in mind the lessons that this economy is teaching all of us.

Step 2: Shop for a mortgage pro. Oh how I wish that instead of a shopping cart for rates (which is a moving target) and fees on page 3 of the new Good Faith Estimate, that it had a place for you to "shop" your mortgage professional instead.  Perhaps a place where you could compare resumes and available products instead of focusing so much on rate and fee.  The person who will be guiding through the process of obtaining one of the largest debts you may have in your lifetime should not be selected so casually.

Step 3:  Choose the best loan for you.  After selecting your mortgage professional; he or she should consider your financial goals and help provide you with information to allow you to make an educated decision on which mortgage program best suits your goals based on what you currently qualify for.  You need to know what your total payment will be and how much money will be required for your down payment and closing costs BEFORE you start looking for your next home.

Step 4: Find a real estate agent.  I recommend asking friends and family members who have recently purchased or sold a home and interview them.  If you need a recommendation for one around the greater Seattle area, please ask me!

Step 5: Shop for other service providers.  This has to happen BEFORE you prepare an offer on your next home assuming your lender permits you to shop (this is per RESPA guidelines–not a control freak mortgage originator).  If you select your own title and escrow service provider, there is no cap to how much their fees can change at closing.  If you use the providers from the mortgage originators preferred list, the accumulative fees at closing cannot exceed 10% from the good faith estimate.

Step 6: Find a home and negotiate contract terms.  Now you can start searching for your next home with confidence since you know what you can afford and you have your home buying team assembled.

Step 7: Have house inspected.  I recommend this even if your home is new construction.  I can tell you a few stories…but this post is all ready getting too long!

Step 7.5:  Shop and select your home owner insurance provider.  Do not wait until closing to do this.  Home owners insurance rates can vary and your credit score will impact your insurance rate.  Also if the home has a history with certain insurance claims, there could potentially be issues that are better to be aware of early in the process.

Step 8: Loan is processed.  Once we have a signed around agreement, your loan is processed and various services are ordered or set up.  This is also the time to review you lock options to determine whether you want to commit to an interest rate or float (not lock). 

Step 9: Loan is approved.  The loan approval may come back with conditions.  This happens after the underwriter reviews what has been submitted to them during the processing period. 

Step 10: Do the final walk through. 

Step 11: Go to settlement.  Prior to your escrow appointment, I recommend that you obtain a copy of your estimated HUD-1 Settlement Statement 1-2 days in advance so that you have time to review the final figures.  Be sure to let your mortgage professional and escrow officer/settlement agent know that you expect this as the lender will need to provide your loan documents to the closing company a few days earlier than "the norm".  The same is true if you want a complete copy of your loan documents to review prior to your signing appointment.

Step 12: Move in!  Yay–this can be such an exciting time!  Typically there may be a few days between signing your closing documents and moving into your new home. 

HUD’s Home Purchasing Time Line

HUD has unveiled their new "Shopping for your Home Loan – HUD's Settlement Cost Booklet".  What was once a ppamphlet that was included with your loan application has been replaced by a 49 page booklet.   This revised guide for borrowers was created to accompany HUD's new Good Faith Estimate which goes into effect on January 1, 2010. 

HUD's new guide is to help consumers navigate the new Good Faith Estimate.  I'm not going to go all the way through it on this post, I do want to point out issues with HUD's Home Purchasing Time Line (which you'll find on page 4).


Do you see anything wrong with this picture?   Let's review step by step.

1. Determine what home you can afford.   I agree with this.  What home you can afford may be different than what home you qualify for.  You don't have to buy as much home as you may qualify for and you might qualify for less than you desire.  What's most important is being able to afford the home.   I think this step is referring to doing some serious gut checking and reviewing of your personal budget BEFORE meeting with a real estate agent or mortgage originator.

2. Find a real estate agent.  I think step two should be to find a mortgage professional instead of the agent.  They have the cart before the horse with this step.  The last thing a home buyer needs is to be shown a bunch of home they may not qualify for.  Meeting with a mortgage originator first will help them narrow down what programs they qualify for that will suit their financial needs (I think this is HUD's Step 5).  Agents may debate me on this because they like to direct buyers to their preferred lender.

3. Find a home and negotiate the terms.  This is unbelievable!  HUD is recommending that you enter into a binding contract before knowing if you're approved for the mortgage.  Yes there are financing contingencies, but you do not tie up a seller's property when you don't even know that you can close on a transaction.  Plus, most real estate agents will not show you a home until you have been preapproved by a mortgage professional.

4. Shop for your loan — compare multiple good faith estimates.  This is very flawed.  HUD's new good faith estimate carries RESPA reform which in a nutshell means that if a mortgage originator provides a borrower a good faith estimate, they are presumed by HUD to have obtained enough information from you to have created a loan application.  This creates a certain amount of liability for the mortgage originator that in this day and age, most will not accept.   Not to mention that rates change constantly, sometimes several times a day.  If anything, you should shop for the most qualified mortgage professional and not "the loan" or rate…this step should take place around Step 2.

5. Chose the loan that's best for you.  This should take place at step 2 or 3 (after you select your mortgage professional).  This is too late in the game to be determining your financing.

6. Loan originator processes the loan.  Your mortgage originator begins processing your loan at application for purposes of preparing your preapproval letter.  Your loan may actually go into processing and underwriting once you are proceeding with your transaction.

7.  Have house inspected.  This typically take place after you find your home and have negotiated your contract.  You're not going to want to be paying for an appraisal (which would take place at processing) if your potential home doesn't pass inspection.

8.  Shop for other service providers (title, attorney, escrow agent).  Is this a HUD after thought?  If you are going to shop for your title or escrow, you're going to need to do this prior to the contract being written as the purchase and sales agreement dictates who the providers will be (unless the agent writes "buyers choice").  Plus, HUD's new GFE dictates how much the title and escrow fees can change at closing based on if you shop or if you allow the lender to select these service providers.

9. Loan is approved.  There are different steps of loan approval.  This is most likely "final loan approval" meaning all conditions (documentation) have been provided and reviewed by underwriting.

10. Get insurances and do final walk through.  I recommend shopping and selecting your home owners insurance much earlier in the process.  Once you have a bona fide contract and your home has passed inspection, you can start shopping for your insurance agent. 

11. Go to settlement.  In Washington, you're probably going to your signing appointment at the escrow company a couple days before closing.   Sometimes signing will feel like it's at the eleventh hour!

12. Move in

Watch formy next post where I share how I think this purchasing time line should look. 

Title, Escrow and HUD’s New Good Faith Estimate

I have been wondering how HUD’s new GFE, which goes into effect on January 1, 2010 will impact title and escrow companies.   It appears as though HUD would like to see the borrower have the possibility of more control in selecting those services instead of the current system where typically in our area of Washington, either the real estate agents thumb wrestle over their favorite title or escrow company or the lender may select.  Rarely does the consumer have a voice in who will be providing the title insurance on their home or who will be the “neutral third party” facilitating the closing one of their largest transactions in their lifetimes.

From a local escrow and title provider The Talon Group’s blog:

The current local practice of the seller choosing title insurance appears to be at odds with HUD reform that attempts to put the buyer back in the drivers seat. HUD makes no bones about it’s intentions for empowering buyers to shop for the best deal possible when choosing title and settlement services. Also going into effect January 2010, lenders  will face strict guidelines and tight tolerances when listing these services on the new Good Faith Estimate.

The “tolerances” define what the variance in costs for title and escrow/settlement services may be between the (soon to be) binding good faith estimate and the settlement statement at closing.   The tolerances for title and escrow fees fall into a couple “buckets”:

10% tolerance:the accumulative fees for title and escrow services cannot exceed higher than 10% of what was disclosed on the good faith estimate.

  • the lender provides the consumer with a written list of their preferred service provider and is then subject to the 10% tolerance IF the consumer selects a service provider from said list.
  • the lender does not permit the consumer to shop and requires certain service providers to be used.  No list is provided to the consumer.

Not subject to tolerance; there is no limit to what the difference may be at closing verses what was disclosed on the good faith estimate.

  • The consumer selects their own title or escrow service provider that is not on the lender’s list. 
  • When the seller or real estate agents direct title or escrow services that are not on the lenders list, it is presumed that the buyer selected (or agreed to) these services and therefore, they are not subject to tolerance (no 10% cap on fee increases at closing).

With these tolerances set forth on the new good faith estimate, I wrote an article at Rain City Guide predicting that the big banks will use the new Good Faith Estimate as a reason to mandateto their mortgage loan originators they must only use their “in-house” or affiliated providers and may not recommend outside escrow or title companies for service–regardless of established relationships or a proven track record of excellent service.   I believe this will follow in the footsteps of HVCC where banks are using AMCs (appraisal management companies) that they have ownership interest in–even if the HVCC fiasco is fixed, I think you’ll see banks still insisting that an AMC is used and will use the new GFE to gain title and escrow revenue.  They’ve tasted the gravy.

The Last Word: Page 3 of the Revised HUD-1 Settlement Statement

If we mortgage originators had more flexibility of when a good faith estimate could be revised for our clients, I would be applauding the last page of the revised HUD-1 Settlement Statement.  On this page, the borrower actually get to compare the closing costs on the good faith estimate directly to the those shown at closing on the estimated HUD-1 Settlement Statement side by side.  My beef is that we are very limited by HUD's grey definition of "changed circumstances" which allows us to issue an updated good faith estimate.

The page 3 of the HUD-1 also breaks the fees into the various tolerance levels.   The first section has the fees that cannot increase.  If the HUD-1 fees in the right column are higher than those in the Good Faith Estimate column on the left, the mortgage originator will have to refund the difference.


The next section has the fees where HUD will allow an accumulative variance of up to 10%.

Followed by the last section where the tolerance does not apply.   The fees shown in the section below can change from the good faith estimate.


Page 3 of the HUD-1 Settlement Statement concludes with a summary of the loan terms.  Hopefully none of these terms (or fees) are a surprise to the borrower, their mortgage originator should have explained the details fully well in advance of the signing appointment. 


Ideally, mortgage companies will provide loan documents a few more days in advance than what is taking place with our current GFE/HUD and RESPA guidelines…this means longer transaction times for consumers.   I also highly recommend that consumers obtain a copy of their estimated HUD-1 Settlement Statement two days before their scheduled signing appointment.

I've always recommended that borrowers bring their good faith estimate with them to their signing appointment, maybe now they won't need to!