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As published on Huliq.com  http://www.huliq.com/1/90405/mortgage-borrowers-should-be-happy-new-good-faith-estimate

As of 1-1-2010, when they are quoting a mortgage rate, Mortgage Brokers and Mortgage Lenders are required to provide a new and improved version of the Good Faith Estimate . This will make borrowers happy because the risk of a bad estimate has been shifted from the borrower’s shoulders to the mortgage broker and mortgage lenders pockets.

This measure was taken to try to make the document easier to understand for the average customer and also to make it much more binding on the person providing the estimate. I am not sure if it is necessarily easier to understand this quote of a mortgage rate but it certainly does protect the borrower and is a great step against predatory lending.

For those of you who are not familiar with mortgage lending or getting a quote of a mortgage rate, the Good Faith Estimate is a very important document that is disclosed within three days of the initial application. The purpose of the Good Faith Estimate is to provide an accurate measure of final closing costs and out of pocket expenses for the borrowers. A good loan officer will check the fees of the lender, the fees of the title company involved and also take into account escrows for taxes and insurance and transfer fees of the state in which the subject property is located. A good loan officer should be able to come within $200 of the final number. A bad loan officer in the past would employ selective memory by leaving a few fees off to make his estimate appear less expensive then the next guys.

 The new Good Faith Estimate for 2010 is better because the customer is protected against a really bad estimate because of tolerance thresholds placed on the lender/broker. For example, lender fees must be 100% correct or quoted higher than necessary or the originator absorbs the difference. Third party fees have a tolerance of 10%. State transfer fees need to be exact. There is tolerance for differences in taxes and insurance but that is understandable because those numbers are determined after the customer makes a decision on which insurance policy they are going to go with.

When it comes time for closing, borrowers will now sign the new HUD closing statement which is compared directly against the New Good Faith Estimate they were provided. Closing agents will simply do the math to see if there are any discrepancies and then the loan officer will write the check if there is a major difference.

Under the new rules, a typical Good Faith Estimate is a quote of a mortgage rate that is good for about 10 days then it expires. If the loan is locked, then it is good for the duration of the lock.  Also the originator is not required to provide the estimate unless the customer fulfills all of the requirements of a real deal. The customer will need to provide: name, gross monthly income, social security, number (to obtain a credit report), property address, loan amount sought and estimate of value. So in other words if you are searching for a home and have not found it yet, you will receive an initial disclosure form rather than a good faith estimate.

The initial disclosure form looks a lot like the old good faith estimate but is not nearly as binding. In all fairness to the loan officer, it does take a lot of time to track down each fee on a file with 100% certainty. Also, if a customer wants to play games by getting five good faith estimates, they will have their credit pulled five times now which probably isn’t smart.  If a customer is just shopping for the sake of shopping for an interest rate, the initial disclosure form should suffice until they step up to the plate and decide which lender they want to work with and make a commitment.

Written by Preston Ware
First South Mortgage
Tel: 704-542-8057
* http://www.prestonware.com
Email is preston@prestonware.com.

    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.