Review of HUD’s New Good Faith Estimate: Part 1

August 26, 2009 by Leave a Comment

UPDATE August 31:  HUD just issued their 2nd revision to the RESPA FAQs…let's hope the third time is a charm. 

As I mentioned in a previous post, I'm going to be doing a series to review the Good Faith Estimate that will be mandetory on new residential transactions effective January 1, 2010.

The top of the new form is not earth-shattering.  It includes contact information for the mortgage originator and the borrowers' name, property address and the date the GFE was prepared.  An improvement would be to have the estimate also include the actual time it was prepared as well since we are averaging 3-4 new rate sheets per day.

HUD created this new GFE so that consumers could shop by rate and fees, ignoring the qualifications of the mortgage originator.  On the top of the form, they encourage you get three quotes.

GFEshopping

We'll delve deeper into the "shopping cart" in a future post.  Can you imagine if HUD also encouraged borrowers to compare the expertise and track-record of the mortgage originator?

The section "Important dates" is on the top half of the new Good Faith Estimate.

GFEImportantDates

Item 1 is suppose to let consumers know how long their rate quote on said estimate is good for.   There is no way to guarantee how long a rate is good with a quote unless the borrower is locking at that instant–infact, rate changes can and do happen while you're trying to lock in a rate.   Mortgage originators do not have crystal balls to know when or if the next rate change is coming. 

Item 2 is suppose to give the consumer a date for how long the closing costs are good for.  Again, this is assuming the mortgage originator has some magically control over third party services, such as the appraisal, title and escrow.  We have no way of knowing for certain if rate increases or reductions are planned by the various companies that are involved with putting together a real estate transaction.  The estimate can only be reflective of what fees are at the moment in time that GFE is prepared. 

Item 3 is just intended to disclose the lock period.  The most common lock periods are 30, 45 and 60 days.  Without a closing date on a purchase, you do not know the lock period.   Some borrowers may decide to float (not lock) and home buyers without a signed around contract do not know what the agreed to closing date is.

Item 4 provides the consumer with a drop dead lock date.  I don't have an issue with this.  Consumers should know how long they can float should they decide to gamble the markets with mortgage rate.

Per HUD's New RESPA Rule FAQs, which they've all revised just 7 days after it was first issued, Good Faith Estimates expire after 10 business days:

If a borrower does not express an intent to continue with an application within ten business days after the GFE is provided (or such longer time period specified by the loan originator), the loan originator is no longer bound by the GFE.

I'm assuming this does not apply towards interest rates where the rates may be the same or we could have experienced 30 rate sheets within the said 10 business days.  I'm also concerned about this language as the loan originator cannot guarantee that certain loan programs and underwriting guidelines will be available within any time period.   Unless the borrowers information (credit, income, assets) and the mortgage world has not budged in ten days, I'm not seeing how a mortgage originator can be bound to the GFE.

I do stand by my good faith estimates, however until an application is made, all supporting information is provided and the rate is locked, there cannot be any guarantee.  There are too many moving parts and uncertainty.   Mortgage originators will need to state clearly to the consumer the rate is based on x, y and z and as long as all of these hold true, your estimate is "binding" for 10 business days assuming the rates are the same at that moment, underwriting guidelines have not changed and the program is still available (as I'm writing this post, I'm receiving notice from one of the lenders I work with that they are no longer offering the 40 year amortized mortgage).  Do you see an issue here?

Watch for my next post in this series where we continue reviewing the first page of HUD's new Good Faith Estimate.

Filed Under: Disclosure Forms, Legislation, Mortgage

Not so much Good in the new Good Faith Estimate

August 25, 2009 by 3 Comments

Effective January 1, 2010, HUD is requiring mortgage originators use a new Good Faith Estimate which was designed to reduce the confusion for consumers and HUD claims that the "new Good Faith Estimate will help borrowers save nearly $700".

The new GFE is drastically different than the current form and in my opinion, it's not all for the better.   To begin with, the new form is three pages long instead of the current single page form…this seems to be the wrong direction for reducing paperwork for American borrowers. 

The intent of the new form is to "help consumers shop for the lowest cost mortgage and avoid costly and potentially harmful loan offers".   If you are a long time reader of The Mortgage Porter, you know that I strongly feel that you should select the person who is going to help you with your mortgage, possibly the largest debt in your lifetime that is attached to your most valuable asset, by rate and cost could be one of the most expensive mistakes you ever make.   Other factors are overlooked when you're chasing the bottom dollar or a rate that you're not in position to lock when rates are changing 3-4 times per day on average in this turbulent market. 

What's more important than rate and fees?  How about making sure you're working with an experienced and qualified mortgage originator who can navigate your transaction to closing for starters.  It is more important than ever to select a mortgage originator who stays current on underwriting guidelines and who will roll up her sleeves to work for you.  If you're working with an originator who cares about her clients returning to her, has referral business (does not have to rely on cold marketing or junk mail to find clients) and who is ethical; then a fair competitve rate and fees will follow.  

Don't get me wrong, you should compare…but compare more than rates and fees.  Not shopping the mortgage originators qualifications and focusing only on the dollar may wind up producing a "potentially harmful loan offer" that is not suited for your financial scenario. 

I will be reviewing the new Good Faith Estimate in a series of posts here at The Mortgage Porter.   Stay tuned.

Filed Under: Legislation, Mortgage

Reader Question about FHA Mortgage Insurance

August 24, 2009 by 2 Comments

I received this email this past week while I was on vacation.  Right now I am licensed for loans only in Washington State and I don’t always have enough time left in the day to answer the questions or request for advice that I receive from readers who are located outside of my current “lending boundaries”…although I do try.  Sometimes a question or email makes a good post because it may help others who read this mortgage blog.

UPDATE: FHA guidelines constantly change. Whether or not your FHA mortgage insurance will drop off will depend on when you obtained the FHA mortgage. 

[Read more…]

Filed Under: Mortgage Programs Tagged With: ,

Back from Vacation

August 22, 2009 by Leave a Comment

The family just returned our annual summer trek, which must include a long car trip.  This year we checked out Sandpoint, Idaho which is located off of the north end of Lake Pend Orlielle.  We had fantastic weather and I had fun doing goofy photos of where my feet traveled during our trip and posted them on Facebook.  (It doesn't take much to amuse me).

P8170047 

It's good to be back home and Monday will be business as usual…if I have time, I might even post a mini-rate update.  I'm trying to take the remainder of the weekend "off" since our kids all start school this week.

Filed Under: Just for Fun

What is your Mortgage Exit Strategy?

August 20, 2009 by Leave a Comment

I actually wrote this almost 2 years to the day at Rain City Guide.  A recent track-back brought this past article back to my attention.  Since I'm taking a short break from blogging and mortgage this week, I thought I'd share this oldy-but-goodie with you. 

Unless you have a long term fixed rate mortgage, you should develop an exit strategy.   An exit strategy is a well thought plan on how you’re [photopress:airplaneexit.jpg,thumb,alignright]going to leave your current mortgage.  Every time you board an airplane, the Stewardess reviews the “exit strategy”.   They’re not planning on an actual emergency landing, they are simply preparing you for a worse case scenario and informing you where the exits are and what you need to do in that event.  

You should have a plan if your current mortgage is:

Having a plan (being prepared) does not mean waiting until you receive a notice from your mortgage company that your mortgage payment is hiking because your fixed period on your ARM is over.   You need an exit strategy because once fixed period is over and your mortgage adjusts, odds are that your new mortgage payment will not be desirable or affordable.  

You need to start developing your plan well in advance.    Here’s what I recommend:

  1. Find the Note for your mortgage (deed of trust) and determine what your new rate may be using the worse case scenario.   If you have an ARM, you can figure this out by adding the first cap to your interest rate.   For example, if you currently have a 5/1 ARM with a note rate of 5% and the first adjustment rate cap is 5% (5/2/5 is a common cap structure), your new rate could be 10%.   If the first adjustment cap is 2% (2/2/6 is another possibility); your new rate could be 7%.   If your ARM has an interest only feature and will also be converting to amortized payments (some have longer interest only terms beyond the fixed rate period), you’re in for a double whammo if you’re keeping the mortgage.
  2. Determine what your worse case payment may be.  Your new payment will be amortized over the remaining term of the mortgage.   Use an amortization schedule to see what your mortgage balance will be at 60 months (using the 5/1 ARM scenario) and figure your payment based on the maximum possible rate amortized for 300 months.   This new payment does not include taxes and insurance.  In fact, anyone with an adjustable rate mortgage, regardless how long the remaining fixed term is, should contact their LO to determine what their “worse case payment” may be when their mortgage’s fixed period is over.
  3. While you have your Note out, review it to see if you have a prepayment penalty and when the term is over.   It’s possible that you may or may not want to wait for this to expire depending on your personal circumstances.   Even if you have a prepayment penalty, don’t stop preparing your exit strategy.
  4. Visit www.annualcreditreport.com and review your credit report.  You don’t need to sign up for all the credit bureaus extra stuff.   In fact, I recommend that  you just use one of the bureaus to pull your information for review and select another bureau in 4 months and the last bureau in 8 months so that you are constantly reviewing your credit information.  
  5. If you’re satisfied with the Loan Originator you worked with, contact them and ask them to review this information with you.   Most Mortgage Professionals will provide Annual Reviews for their clients which includes assessing their current mortgage, examining their credit report and reviewing goals (including if you’re planning on retaining your current home and/or mortgage).

Of course selling your home is another way to exit your mortgage.   In this case, I recommend that you price your home correctly.   I’m noticing more “new price” signs on listings in my neighborhood of West Seattle (I guess “new price” sounds more fresh than the old “price reduced” signs).   If you wait too long to work on your exit strategy, you may have to sell if you’re not able to refinance due to not being in the posititon to qualify for a new mortgage (this is why I strongly recommend meeting with your Mortgage Professional ASAP).

You cannot start too soon in preparing your exit plan.   The more time you allow yourself (at least 12-24 months in advance of a rate change), the more improvements you can make to your credit scores, assets, employment and home equity.   Avoid a rough landing and meet with your Mortgage Professional to work on your strategy to be in the best possible position when it’s time for you to exit your mortgage.

Filed Under: Mortgage

Mortgage Disclosure Improvement Act: New Waiting Periods on Mortgage Transactions

August 18, 2009 by Leave a Comment

I'm taking a break this week from blogging and work.  I'll be back to the mortgage grindstone on Monday, August 24, 2009 like a bright and shiny new penny.   While I'm taking some time off, I thought I'd repost some of my articles.   You can read this original post at Rain City Guide.

In an early post, Ardell wrote about the significance of a buyer being able to close quickly…new regulations may put a damper on that.   With mortgage applications taken after July 30, 2009, waiting periods will go into effect with regards to when and how disclosure forms are provided to the consumer.   The Mortgage Disclosure Improvement Act (MDIA), which modifies the Truth in Lending Act (TILA), was originally going to become effective on October 1, 2009, however the effective date was moved up two months which may catch some real estate professionals by surprise.

Here are some of the details:

Good Faith Estimate and Truth in Lending Disclosures….required waiting periods.

Under MDIA, early disclosures are required for "any extension of credit secured by the dwelling of the consumer."    Three business days from application, the consumer must receive an initial Good Faith Estimate and Truth in Lending (unless the borrower is denied at application).   

The earliest a transaction can possibly close is seven days after the initial disclosures have been issued by the lender (delivered in person, mailed, emailed, etc.).    This is assuming no re-disclosure is required.

Re-disclosure (waiting periods after the early disclosure and corrected disclosures) of the GFE/TIL are triggered if the fees and charges are more than 10%; if the APR is more than 0.125% or a change in loan terms.   Three business days must pass in the event of re-disclosure.   Re-disclosing is nothing new, it typically happened at closing–this will no longer be acceptable.    Mortgage originators "should compare the APR at consummation with the APR in the most recently provided corrected disclosures (not the first set of disclosures provided) to determine whether the creditor must provide another set of corrected disclosures".   Double check those APRs prior to doc!

From MortgageDaily.com:

"The Commentary added by the MDIA Rule expressly provides that both the seven-business-day and three-business-day waiting periods must expire for consummation to occur.  The seven-business-day waiting  period begins when the early disclosures are delivered to the consumer or placed in the mail, and not when the consumer receives the disclosures.  The three-business-day waiting periods begin when the consumer actually receives or is deemed to receive the corrected disclosures.  If corrected disclosures are mailed, the consumer is deemed to receive the disclosures three business days after mailing.  If a creditor delivers corrected disclosures via email or by a courier other than the postal service, the creditor may rely on either proof of actual receipt or the mailing rule for purposes of determining when the three-business-day waiting period begins to run."

Consumers have the right to waive or shorten the MDIA if "a consumer determines that an extension of credit is needed to meet a bona fide perosnal financial emergency".  

No monies may be collected from the borrower with exception to a "bona fide and reasonable" credit report fee until they receive the initial disclosures.   This may cause a delay of when an appraisal is ordered.  Most lenders require an upfront deposit to cover the cost of the appraisal.    The collection of fees rule may also cause potential issues if a borrower is doing a certain type of lock (some with float down or extended lock periods require an upfront deposit).   NOTE:  HVCC requires the borrower receive a copy of the appraisal at least three days prior to closing.

Tim Kane can attest that there is nothing worse than a borrower learning at signing their final loan papers that the fees are significantly higher than what was originally disclosed.  I'd like to think that all mortgage originators redisclosed WHEN modifications to the transaction/fees take place…obviously, this has not been the case.  

DFI covers MDIA here. 

Re-disclosures could become a "holy hand grenade" to quick closings.

Filed Under: Legislation

How Do I Plant my Keikis?

August 16, 2009 by Leave a Comment

A while back I shared a photo of my baby orchid, called a keiki.  This plant (which is my only still living orchid from the plants I started with) has produced three keikis. They're in bloom but I'm sure I need to separate and plant them.  Are any of my readers orchid experts? 

DSC_0165

Filed Under: Just for Fun

September’s Recording Office Closings for King, Pierce and Snohomish Counities

August 13, 2009 by Leave a Comment

Be sure to mark your calendars and plan your closings around these dates next month:

September 3, 2009 – Snohomish County closing early at 3:30 p.m.

September 4, 2009 – King, Pierce and Snohomish County closed due to the furlogh.  Mortgage Master will be closing at 3:00 pm for the holiday weekend. 

September 7, 2009 – Labor Day Holiday:  King, Pierce and Snohomish County closed.  Mortgage Master is closed too!

Don't forget that  Snohomish and Kitsap Counties are closing early on Fridays and to hug your Escrow Officers and Funders. 

Filed Under: Escrow and closing
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