On January 1, 2010, the new standardized (nationalized) Good Faith Estimate went in to mandatory use. The intent of the form was to create a standard disclosure for all mortgage providers -- better allowing consumers to shop for a mortgage, make comparison of loan options, closing costs, etc. In the first sense (to create a single standardized form), the new Good Faith Estimate has succeeded. In a few other areas, the new form is a giant headache. So, to help you understand the new 2010 Good Faith Estimate, here is the good, the bad and, well, what you need to know to avoid getting the previously mentioned headache (the ugly).
First, the good:
- the new form gives a very good summary of loan terms (I honestly think that it should be renamed "A Summary of Loan Terms and a Guarantee of Closing Costs" because that is actually what it is . . . there are only a few items on the form that are actual estimates -- other costs must match the costs at closing exactly. Other details on the GFE answer whether or not the loan has an adjustable rate feature, the possibility of negative amortization, a pre-payment penalty, a balloon payment, and if the lender requires you to have an escrow account.
- the costs on the estimate are categorized and then added together and placed in easy to find boxes. For example, block A discloses all lender fees as one number = Adjusted Origination Charges
- the "lender fees" quoted on the Good Faith Estimate (block A) must match at closing. There are some conditions where the fees can change, but a change in conditions and in fees requires re-disclosure of a new good faith estimate and a three day waiting period before closing can occur. Thankfully, the low-life business of mortgage bait-and-switch is dead (mostly).
- the interest rate (locking-in the rate) are clear and in writing -- basically putting a time-line on how long the current offer is available. Good idea, but a bit of a headache (read on to find out why)
- fees from required service providers (credit report, flood certification) are clearly outlined
- fees that consumers are able to shop for (title services and closing fees) are put in to a different line
Now, on to the bad:
- customers want to know "What are my total closing costs?" On most previous Good Faith Estimates, the estimate broke out "closing costs" and "pre-paid expenses", the new form doesn't use those two categories. IF THEY HAD, then consumers could see that the "pre-paid expenses" are going to be the same regardless of who does your mortgage financing (prepaid interest is based on the day you close, tax and insurance escrow are based on your actual tax and insurance amounts). INSTEAD, the new form has a "Total Estimated Settlement Charges" which totals the "Adjusted Origination Charges" and the pre-paid interest, first year's insurance and escrow funds. So, in order to use this figure for any meaningful comparison, consumers need to make sure that each lender they are speaking with is using the same tax and insurance $$ amount.
- the second thing customers want to know, "How much money will I need at closing?" Well . . . it's not on this form.
And the now the ugly:
- the new Good Faith Estimate was created in the hopes of helping consumers shop for a mortgage, but because the form guarantees the interest rate (for a certain time period) and guarantees the closing costs (they must be guaranteed for at least 10 days), and because the closing costs are a product of the interest rate (it's a whole separate blog post as to why this is really NOT hard to understand), a Good Faith Estimate shouldn't be given to a consumer until they have completed a loan application . . . so, in order to get 3 or 4 competing quotes, do you need to fill out 3 or 4 loan applications (and provide financial documentation, etc)?
- mortgage professionals are required to issue a Good Faith Estimate within three days after loan application and this should be documented by . . . oops, there's no signature blank on the new form . . . documented by another form such as a "Good Faith Estimate confirmation of receipt" and then a form to confirm that you got that one, and a form to confirm you got that one (ad nauseum).
So, back to some more good news. We have created a great tool for walking our clients through the process of getting preliminary figures, through loan application, and through the new Good Faith Estimate and to closing -- in a way that keeps the intent of the new form = quote closing costs honestly (don't hide fees or under quote fees), and quote a real interest rate (not like they do in the newspaper and some places online to get the phone to ring), and then, quite simply . . . keep your word. Simple, honest, professional is still the key, despite a new, confusing to consumers, 3-page Good Faith Estimate (plus one more page for the itemization of costs, plus the page to confirm receipt of the Good Faith).
Van Purser and his wife Jeanne are a licensed Real Estate Brokers in Georgia. Since1984 they successfully purchased and renovated over 400 homes. Their expertise is in representing Buyers or Sellers as an advocate; which means always ensuring their best interest. Additionally, they represented hundreds of clients over the years as an Associate Broker with Metro Brokers, RE/Max and now with his own firm. He and his wife, Jeanne, have been married since 1977. Van or Jeanne can be reached at 770-623-3313, or by email at email@example.com or firstname.lastname@example.org.