Recap on the new Good Faith Estimate

I've been requested to repost the six part series I wrote about the HUD's new Good Faith Estimate which goes into effect on January 1, 2010.   I like to keep my readers happy…so here it is:

Part 1: Review of HUD's Good Faith Estimate

Part 2:  Summary of Your Loan

Part 3:  Escrow Account Information

Part 4: Your Adjusted Origination Charges

Part 5: Your Charges for all other Settlement Services

Part 6:  Page 3 of the Good Faith Estimate

Please keep in mind that HUD has issued several revisions to their RESPA FAQs and I'm sure we're not done seeing additions and revisions since January 1 is still a couple months away.

When Are You Required to Receive a Good Faith Estimate?

Per HUD, a loan originator (mortgage broker or lender) must issue a Good Faith Estimate no later than three business days after an application or enough information is provided to the mortgage originator to complete an application.

An application is basically defined as having the following information (for purposes of providing a GFE):

  • Borrowers full name
  • Borrowers monthly income
  • Borrowers social security number to obtain a credit report
  • Property address
  • Estimate of value of the property
  • Loan Amount
  • Any other information deemed necessary by the loan originator.

Once a borrower decides to lock in their interest rate, if the rate, rate related fees or terms have changed, a new good faith estimate must be provided. (UPDATE FAQs issued on January 28, 2010 addressed this point).

If the loan is declined or the application is withdrawn from the borrower within the three day time period, then the good faith estimate is not required. 

In addition, HUD makes it more difficult for mortgage originators to issue a revised Good Faith Estimate to borrowers.  "Changed circumstances" (which I may have to write about in a future post) does not seem to include changes with underwriting guidelines or if a loan program is terminated from the lender (unless that's considered an Act of God).  If a borrowers situation qualifies as a "changed circumstance" which would impact the terms of the mortgage, then a new good faith estimate would be required to be issued within three business days. 

I prefer to provide a good faith estimate whenever someone is serious about receiving a rate quote–even if I'm missing any of the criteria above.  A Good Faith Estimate is not a commitment to lend or a preapproval–in the preliminary stages, it's just that, an estiamte provided in good faith detailing the cost of the mortgage associated with the rate that is being quoted.  HUD's latest FAQ (issued September 18, 2009) has a line that concerns me…and I'm not totally sure of the (or if there is) potential implication:

"If a loan originator issues a GFE, the loan originator is presumed to have received all six pieces of information…."

I'm not sure why that line was added to the many revisions to HUD's RESPA FAQs…we'll see if HUD sheds some light with more revisions which I'm sure we'll continue to have.

Update January 17, 2010:  Now that the new Good Faith Estimate is requried to be used, most mortgage companies and banks will not allow it to be issued for purposes of rate shopping.  Many are using substite forms for preliminary rate quotes. 

Read this post for more information on Changed Circumstances and when a good faith estimate can be re-issued.

Good Faith Estimate Part 6: Page 3 of the Good Faith Estimate

This is the last page of HUD's new Good Faith Estimate should hopefully be pretty self-explanatory…although it is new concept as compared to the GFE that we have been using.  

The first section covers which charges can increase, which have a limit of increasing no more than 10% and which can change.


If you decide to shop for your own title, escrow or home owners insurance and not use who the lender recommends, the lender is not responsible.  If you use who the lender recommends, the total of those fees cannot increase by more than 10% at settlement.  

The Tradeoff Table is intended to help you select between various ways of having your mortgage priced.  Your rate can be priced with or without points (or origination fees)–it is your choice.  The mortgage originator is only required to complete the first column on the left.


The Shopping Cart is intended for you to shop…shop…shop…to your hearts content.  If you're a long time reader of The Mortgage Porter, you know I feel strongly that selecting who is going to help you with your mortgage by rate and cost alone alone can be one of the most expensive mistakes you make.  Especially considering how challenging it is to accurately shop rates factoring in how often rates change and that unless you are locking in your rate at that moment, it's a moving target.   Good intentions–but wrong message. GFEShoppingCart

Why not add a box to this all ready long document where consumers can compare the qualifications of the mortgage professionals they're shopping? You're not at Target–you don't need a shopping cart.

Good Faith Estimate Part 5: Your Charges for All Other Settlement Services

Are you still with me?  I hope so.  I've been writing a detailed review of HUD's new Good Faith Estimate.  This post will cover the "other settlement charges" as shown on page 2 of the GFE (below).


Block 3 "Required services that we select" is where fees specific to government loan programs, such as the VA Funding Fee and (I'm assuming, since it is not specifically addresses in the FAQs) FHA Upfront Funding Fee or USDA Funding Fee.  This has been reflected under prepaids on the existing good faith estimate (see the last photo on this page, lines 902 and 905 of the old GFE).

Block 4 "Title services and lender's title insurance" is where the lenders title policy (typically paid for by the buyer) and where the escrow companies fees will go.  Below is a shap shot of our current–soon to be retired GFE section.  The escrow company fee is line 1101 and the lenders title insurance policy is line 1108.   Now it appears these items will be lumped together.   NOTE: the total closing costs shown below also include the Section 800/Lender Fees aka Origination  Charges.


Block 5 "Owner's title insurance".  This is the policy that typically, the Seller pays for–not the buyer.  Why it's on the buyers good faith estimate beats the heck out of me.

Block 6 "Required services that you can shop for".  Finally as the consumer you do have an official say in who your title and escrow provider may be. Some companies may offer a discount when you use both their title and escrow services.  However, should you decide not to use who is recommend by the lender, then the 10% limit on how high the fee may adjust come settlement time is waived. 

Block 7 "Government Recording Fees" is simply that…the cost to record your new documents

Block 8 "Transfer Tax".  I wonder if we are really suppose to include what the excise tax is on a purchase–again, this is a Seller cost and not a Buyer cost.


Block 9 "Initial Depost for your escrow account" is the cost associated with starting your reserve account including your home owners insurance and property taxes.   This is section 1000 of the old GFE.

Block 10 "Daily Interest Charge" is simply your prorated interest.  I do like the description provided on the new good faith estimate.  Shown on line 901 of the old GFE.

Block 11 "Homeowner's Insurance".  This provides a block for you to shop and I leave this task for my clients.  This cost does fall under those that can change at settlement if the borrower is not using the company the lender selects.

Our old GFE that will be in use until the end of this year (unless lenders require the new one in advance–which will not surprise me) has the reserves and prepaids reflected as photod below.


This section is being replaced with Blocks 3, 9, 10 and 11.

TMI:  I've got a case of heart burn…perhaps it's time to wrap up this post and tackle page 3 of HUDs new GFE another day!

Good Faith Estimate Part 4: Your Adjusted Origination Charges

Page 2 of HUD's new Good Faith Estimate which will be mandatory effective January 1, 2010 begins with addressing the origination charges associated with the proposed mortgage.

GFEAdjustedChargesThe origination charge shown in Block 1 includes the following:

  • Origination fees (currently shown on line 801, or 808 if you're working with a mortgage broker).   Origination fees do not include "discount points" which are paid to buy the rate down.
  • All originator charges (as what is currently itemized in Section 800 of the GFE, shown below).   According to HUD's New RESPA FAQs, these fees include:
    •  Processing
    • Administration
    • Underwriting
    • Document Preparation
    • Wire
    • Lender Inspection
    • and other misc. fees.


So instead of seeing an itemized list as we currently do on the soon to be extinct GFE (above), you're going to have this cost lumped together in Box 1 above.   In some ways I think this is good–I've recommended many times that consumers who are shopping lenders should do so by the total closing costs shown in Section 800.  Now consumers won't have a choice but to view those fees as one lump sum in relation to rate.

The total sum of closing costs in Section 800 of the "old GFE" is $5318.  This is what you will find on the new GFE "Block 1".

Block 2 of Your Adjusted Origination Charge is intended to help consumers understand how their rate is priced.  

The first line "The credit or charge for the interest rate of X% is included in "our origination charge".  For example, if on Block 1 above, I had $4000 listed (as I do on the old GFE line 801); the borrower can assume there are $1318 of lender charges in addition to the origination fee.

The second line states "You receive a credit of $Y for this interest rate of X%.  This credit reduces your settlement charges".   This section would be used in the event there is Yield Spread Premium/YSP (rebate pricing) or if the mortgage is being priced as a "no cost" loan.

The third line "You pay a charge of $Y for this interest rate of X%.  This charge (points) increases your total settlement charges".  Of course this is referring to discount points which are intended to buy your rate down.

What are your thoughts about the new changes?  Would you rather see your closing costs from Section 800 itemized or lumped together?   My next post will cover "Other Settlement Charges".


Good Faith Estimate Part 3: Escrow Account Information

This next section of HUD's new Good Faith Estimate covers the escrow account, also known as the reserve account. (Click the graphics for a larger picture).


According to HUD's New RESPA FAQs, the block you see above does not include the taxes or insurance (the escrow/reserves portion of the payment). 

"…the first block is for the monthly amount that will be owed for principal, interest and mortgage insurance only.  Additional information on charges relating to the escrow account is in Block 9 on page 2 of the GFE."

This section primarily addresses whether or not there is an escrow reserve account.  Borrowers may elect to waive their reserve account when they have conventional finanancing and at least 20% equity in their home.  Most lenders charge a fee of 0.25% of the loan amount should a borrower elect to pay their own taxes and insurance.   Having an escrow reserve account when a home owner has enough home equity is generally not "required" as stated on the new GFE, however the home owner will receive either a slightly better rate or lower cost opting to have taxes and insurance included in their payment.

Hop on over to "Your Charges for All Other Settlement Services on page 2, Boxes 9 – 11 of the GFE to see how much will be collected to initiate your escrow reserves (boxes 9 and 11) account and prepaid interest (box 10).


Our current good faith estimate (below) shows the escrow reserve account with a detailed account of how many months of taxes and insurance are due verses the dumbed down lumped version of the new GFE.


The current (soon to be retired) GFE includes taxes and insurance in the mortgage payment–even if the borrower has elected to waive the reserve account (pay taxes and insurance on their own) since borrowers are qualified based on the entire mortgage payment due (principal, interest, taxes and insurance).

Is this easier to understand so far? I don't think so…but I would love to hear from you.

Good Faith Estimate Part 2: Summary of Your Loan

The next session of the new Good Faith Estimate that I'm reviewing is the "Summary of your loan". 


If you're working with a mortgage originator in Washington State who's regulated by DFI, then a lot of this information is included on the Loan Application Disclosure Form.  

The first three lines are pretty straight forward; covering your initial loan amount, the term and initial interest rate if you have a conforming mortgage.  I'm not sure how FHA, VA and USDA loans will be disclosed where there are upfront mortgage insurance or funding fees that are often financed (added to the "base" loan amount).

What blows me away is the next line which addressed the mortgage payment. 

Your initial monthly amou nt owed for prinicpal, interest, and any mortgage insurance is: $_____ per month.

Currently, Good Faith Estimate itemizes the monthly mortgage payment and includes property taxes and home owners insurance (PITI).


I have reviewed the new three page GFE over and over again and cannot find a total estimated monthly payment. Consumers will have to add in their estimated property taxes and home owners insurance to determine what their actual monthly mortgage payment will be.

The line "Can your interest rate rise?" addresses having an adjustable rate mortgage.  You should also have additional disclosures that will explain how your ARM adjusts if you are selecting this type of mortgage.  (Washington State's Loan Application Disclosure Form covers this).

The following two lines regarding loan balances increasing have to do with negative amortized mortgages such as option ARMs and reverse mortgages.

The last two lines are clearly disclosing whether or not the mortgage has a prepayment penalty or a balloon payment.

Per HUD's New RESPA Rule FAQs, the initial loan amount and initial interest rate are based on the figures that are applicable on the date of closing.  

NOTE:  If you have a mortgage where the balance or payment may change–it is YOUR responsibility to understand the terms and all the possiblities may be presented to you with your mortgage payment.   If the terms are too complicated, please consider selecting a 30 year fixed rate mortgage (or a similar mortgage). 

Post from this series:

How Much Reserves are Required When Refinancing?

I had a great question yesterday from a potential client who asked how come my Good Faith Estimate was showing more reserves being required than the other lenders he was comparing me to. [Read more…]