January 29th, 2010 5:56 AM by Preston Ware
Following up on comments about the new Good Faith Estimate I am seeing that it is being used as little as possible. Loan originators are not required to issue it unless the customer has provided all of the elements of a loan application. In many cases if a customer is "shopping" they will not provide their social security number or if they are purchasing they will not know the property address yet.
In these cases the loan officer will provide an "initial application disclosure" which is an exact replica of the previous version of the Good Faith Estimate with a new name. This document is not binding in the same ways as the new Good Faith estimate with regards to tolerance levels of the numbers provided. In some ways, it is better than the new Good Faith estimate because it provides a clear estimate of cash to close which the new version of the form does not.
Also, in all fairness to the loan officer, we really should not be issuing a Good Faith Estimate in a case where the property address is not determined. The reason being is that the loan originator is responsible for estimating a proper measure of closing costs for the title agent. If we are wrong, it will come out of our commission check. Getting an accurate estimate involves locating the agent that will be handling the closing and calling them up to discuss fees associated with purchase price and loan amount. In some areas of the country such as Broward county and Palm Beach county Florida, the closing agent handles closing costs completely differently based on county the property is in. One mile over the county line can result in a completely different estimate. Also, depending on how the contract is written will determine who is responsible for what costs.
Another reason for not issuing the new Good Faith Estimate that is the more obvious, is that many "shoppers" do not wish for us to pull credit until they have a comfort level with the numbers we are quoting. (Which is understandable) Since every loan program today has very sensitive risk based pricing based on credit score it is really unfair for the loan officer to be expected to quote a rate and guarantee that rate for 10 days if we have no measure of what the true credit report looks like. The new form was partially designed to cut down on "shoppers" but so far that is not the case because the initial application disclosure is still being used in exactly the same way as the previous good faith estimate was.
A good loan officer should be able to provide an estimate that comes within $200 of the final closing costs. As I tell my customers, it is always better to be overly conservative with the Good Faith Estimate and over estimate costs and escrows so that the final numbers come in much less than disclosed.