Mortgage Myth Busters: Is the New Good Faith Estimate Good or Bad?

Is the New Good Faith Estimate Good or Bad?

 

Good Faith Estimates are suppose to give you a very good indication of what it will cost you when applying for your mortgage.  The new Good faith estimates, also known as GFE’s, went into effect on January 1st, 2010 and are less complicated than the old good faith estimates. In my opinion, the problem with the new good faith estimates is that they are misleading and don’t share enough pertinent information. I truly think that the government over-steps the boundaries when it comes to protecting the consumer. But let’s explore in detail.

 

The good faith estimate is comprised of 3 pages.  The example below appears on page two.

Good faith estimate of origination charge

 

As you can see, this part of the good faith estimate doesn’t break down the total costs, but lumps all the costs into the origination charges. You don’t know if you are paying points, lender fees, or anything else that could be part of this total charge.

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Here is an example of a specific section from the ‘itemized fee worksheet“.

 

details of a good faith estimate which is shown on the itemized fee worksheet

 

Here is a breakdown of any types of charges that you would get from the lender. These charges could be anything to include origination points, underwriting fees, doc prep fees, commitment fees, and so on. Each state is different in regards to what is allowed to be charge and on FHA loans, HUD has restrictions on what can be charged. This is not to say that FHA loans are more expensive, because that is a rumor. Or to say that there is a FHA good faith estimate compared to a conventional good faith estimate. The good faith estimate is universal, is the same for any mortgage program and should be the same from any lender, by law.

As you notice, the fees are broken down into different types of lender fees and then added back up as your origination charge. If you go back to the first example, you will see that the total number matches what is in Box A, which is the same as line 801 on the second example. The worst part about this whole process is that these same charges will be broken down again on your HUD-1 Settlement statement when you go to closing.

Another issue that I have with the new good faith estimate is that you don’t see your total monthly mortgage payment; to include the principal & interest, your property taxes, and homeowners insurance (depending on the type of property). One page one, it will show the total of your principal, interest, and if mortgage insurance is applicable.

 

Conclusion : The good faith estimate by law, is suppose to be given to the borrower by the loan officer or the lender within three business days after an application is taken. There is a set of items that need to take place that enforce what a true mortgage application is. There are a few problems with this though. When you do a mortgage application, you are shown the good faith estimate, but not always given a copy. It’s the borrower’s duty to ask for one, because not all loan officers will voluntarily give you one. Secondly, when you are actually shopping for a mortgage, you should be given some sort of break down that should resemble what the old good faith estimate looked like. Many of us call the new form the ‘itemized fee worksheet.’  This will allow you to compare all charges properly. It's not required that a lender give you the itemized fee worksheet, so ask for this when you get the good faith estimate. And I highly recommended that when shopping for a mortgage, that it’s all done on the same day. I have gone into details on how to shop for a mortgage.

 

 

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Copyright © 2011 by Jeff Belonger of Infinity Home Mortgage Company, Inc

Comment balloon 8 commentsJeff Belonger • February 10 2011 10:16AM

Comments

Jeff,

I agree; unfortunately the GFE in it's "new and improved" state may not be.  The industry seems to have "adapted" to it's use however. There is still no substitute for working with a mortgage broker you can trust.

Best,

Steve

Posted by Steve, Joel & Steve A. Chain (Chain Real Estate Investments & Mortgage, Steve & Joel Chain) almost 10 years ago

Jeff - I'm not exactly sure why anyone who worked on the new format for the GFE thought it would be easier for a consumer to understand.  

I feel this form will be revised in the coming years to more accurately depict the true concerns of the consumer which are; interest rate, monthly payment, cash to close, and loan charges. 

The fact that the origination charge is lumped is not a bad thing.  The problem with the current regulation is if the consumer wishes to buy down their rate and you've already disclosed low fees, they can no longer accomplish this.  Penalizes the consumer. 

Posted by David Krushinsky, AZ MB-0949619 MLO NMLS #202115 (Dk Home Loans, LLC) almost 10 years ago

 

STEVE... . yes, the industry has adopted quickly and I see many loan officers that use this new form to their advantage. And don't go further in educating the borrower about the details.

 

DAVID.... .Well, I don't like the new GFE because it doesn't break down all charges within the origination box. It just lumps it all together. And my point on that is one lender could be charging all fees which you can't write off, and the other lender could be lumping it all into points, which a portion can be written off.

Regarding the rate and what's disclosed, and that a borrower now can't buy down their rate, this is not true. It could be the lender/investors interpretation.  If the change is done in box two as showing the points to pay down the rate, this is allowed even after it's been disclosed initially. If not explained to the consumer correctly, then it could penalize the borrower. And I have found one investor that reads the letter of the law differently, as you have stated. Just like lender overlays... and depending on what box you are talking about and where you are reading it from. thanks

 

Posted by Jeff Belonger, The FHA Expert - FHA Loans - FHA mortgages - USDA loans - VA Loans ( Social Media - Infinity Home Mortgage Company, Inc) almost 10 years ago

Jeff:  It seems that the consumer has fewer questions and I do not know if it is the form or the fact that they are more educated and beginning to ask the right questions because they are doing their homework.  However, I do like your suggestion for obtaining the itemized fee worksheet if they are going to do some comparison shopping.

Posted by Barb Van Stensel almost 10 years ago

This is interesting.  I didn't even realize there was a new GFE and I didn't realize it was to be delivered that early to the consumer.  I have been getting them delivered right before loan docs to title.

VERRRRRRRRRy interesting!

Posted by Renée Donohue~Home Photography, Western Michigan Real Estate Photographer (Savvy Home Pix) almost 10 years ago

very interesting. thanks for the info.

Posted by Shannon Coe, 916-597-3818, Lincoln, Rocklin, Loomis, Roseville (Keller Williams) almost 10 years ago

Jeff, Just another fine example of the Big Guys poking their noses in where they don't belong...again!

I am not a huge fan of the new GFE either.  I did NOT know that there were itemized fee worksheets.

You can bet I'm going to be asking for those as well now, lol.  The local lenders will thank you for my new pain in the butt "look out for my clients best interest" requests, lol.

If you'd get licensed in Alabama you'd make my life SO much simpler!

 

Posted by Elizabeth Cooper-Golden, Huntsville AL MLS (Huntsville Alabama Real Estate, (@ Homes Realty Group)) almost 10 years ago

Jeff

Sometimes "improvements" are not that at all. One has to wonder about who this was made better for? Your suggestion about the itemized fee worksheet is an excellent. I just wne through some issues with this NEW GFE and it was an eye opener for all involved.

Jeff

Posted by Jeff Dowler, CRS, The Southern California Relocation Dude (eXp Realty of California, Inc.) almost 10 years ago

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