January 1 marked the implementation of the new Good Faith Estimate (GFE) that resulted from the Department of Housing & Urban Development’s (HUD) reform of the Real Estate Settlement Procedure Act (RESPA).

Here’s a snapshot of the updated GFE:

  • The new GFE provides clarity about locked terms. If the buyer is locked, the expiration date is specified. If they aren’t locked, they know it and know when they must lock by in order to obtain the rate disclosed on the GFE. The new GFE also provides an expiration date for the estimate and is only good if the loan funds by that date.
  • The new GFE lumps all fees together regardless of who pays them so the buyer can quickly see the total costs of the transaction but will need further documentation in order to determine his/her true out-of-pocket costs.
  • The loan originator is responsible for all fees that are not disclosed; even if they underestimate the fees, your buyers don’t take the brunt of that mistake. As a result, mortgage advisors will naturally include on the estimate any possible fees that could be incurred so as to avoid underestimating and paying those costs themselves.

Under these new guidelines, the numbers from the GFE that the buyer was provided are compared with the final numbers on the HUD-1. If these numbers do not match up, or stay within the variance allotted by law, the lender is held personally accountable for the difference in cost.

While the new form was created to offer more clarity to buyers, there are still some instances where there can be some confusion.

For example, let’s assume a lender includes a $450 fee for the appraisal on the GFE form. Once the appraisal is reviewed by an underwriter, the underwriter may call for an appraisal desk review which carries an additional cost of $200. If this unanticipated $200 charge was not disclosed on the GFE form, the lender is required to pay this cost. As you can imagine, this can become quite costly for a Mortgage Advisor.

One way around this personal expense for the Mortgage Advisor is to include a $200.00 line item on the GFE for an appraisal review. And, if it turns out that an appraisal review is not required the borrower will not pay that cost (the new regulations allow the HUD-1 to be less than the GFE, but not more). However, a different lender that the buyer is considering may not include an appraisal review line item in their initial GFE. As a result, the Mortgage Advisor may appear to be $200.00 more expensive than the other lender.

When in doubt, encourage your buyers to talk to their lenders to ensure they understand the listed fees and any variances among lenders.

Here are a few more considerations associated with this regulation change:

  • Your more experienced buyers may be expecting to receive a GFE when they get pre-approved for a loan. Due to the many variances in costs associated with a loan, we will not issue a GFE until buyers are in contract. We will be able to provide them estimates of the costs and fees of their expected loan amount, but it will not be in the form of a GFE.
  • In the few instances where there are changes to rates or fees (e.g., if not locked when original GFE was provided or the borrower requests changes – in writing) the lender is authorized to change the settlement variables from the original GFE if the client signs the “Change of Circumstance Affidavit” at least 3 days before the loan closes. In these cases, the updated GFE must be provided to the buyer within three days after receiving the information or request. The basis for the revision must be documented and retained for at least three years after settlement. NOTE: The GFE cannot be updated to adjust fees that are not relevant to the changed circumstance.
  • Due to these regulatory changes, we require a firm estimate of final title and escrow costs (doc prep, wire fee, endorsements, copying, etc. . . ) within 24 hours of opening escrow. The final HUD-1 title and escrow fees must not exceed the estimate that the lender provided to the buyer in the GFE. If they do, the lender must personally pay for that difference.