January 08, 2010

Changes to the Good Faith Estimate

This week at our sales meeting Shannon Baird of Prospect Mortgage gave a report on the new Good Faith Estimate that will be used by all lenders for loan applications taken after January 1, 2010. I thought you might like to learn a bit more about this so I have asked Shannon to review it for you. Shannon writes:

The U.S. Department of Housing and Urban Development (HUD) has announced significant changes to the lending requirements under RESPA and Regulation X. These changes impact the Good Faith Estimate (GFE) and HUD Settlement Statements (HUD-1 and HUD-1A) and will be effective with mortgage loan applications taken on or after January 1, 2010. These important regulatory changes will require lenders to ensure that borrowers are better positioned to understand their mortgage transaction.

Previously, you would see very different formats for the GFE used by different lenders. The GFE and HUD-1 forms have been re-designed with significant changes, which standardize the forms, making it easier for borrowers to compare offers between lenders. Specific changes include:

1st page: Now provides borrowers with all of their loan details, such as loan amount, interest rate, loan term, whether or not your interest rate is locked and if so, how long the lock rate is valid for and whether or not it is assumed that you will have an escrow/impound account for your property taxes and homeowner’s insurance.

There are also questions such as “Can your interest rate rise?” This will inform the borrower if the loan has a fixed or adjustable interest rate. “Even if you make your loan payments on time, can your loan balance rise?” This would have a yes answer if you chose a negative amortization loan. “Does your loan have a pre-payment penalty?”

The addition of this information ensures that the borrowers are aware of all the details of the loan before they reach the final settlement table.

2nd page: In the past lender fees would be itemized into applicable categories such as loan origination, processing fee, underwriting fee, etc. These are now all lumped together into “Our origination charge.” The field below that lets you know whether there are discount points (additional fee/charge) to get the interest rate listed or perhaps if there is a credit that is being provided for a borrower taking a higher rate.

Note that title/escrow fees that formerly were itemized are now lumped together as “Title services and lender’s title insurance”. Not included in this fee is the cost of the owner’s title insurance policy which has its own line on the GFE.

3rd page: To improve accuracy of the settlement charge information, new restrictions have been placed on lenders regarding how and when fees disclosed on the GFE may change. These are explained on the top of page 3.

This page also provides borrowers with a table they can use to compare different loan options – a loan with lower rate but higher points/settlement charges versus a loan with a higher rate but lower settlement charges. There is even a table where a borrower can compare loan options from different lenders.

The new GFE form can be seen at www.hud.gov/content/releases/goodfaithestimate.pdf

If you have questions about the GFE or would like to talk with Shannon about various loan options that might work for you give her a call at 925-890-1371 or email her at Shannon.Baird@prospectmtg.com.

Posted by:Kathy Mardiros