Mortgage forms: The new HUD Good Faith Estimate

November 24th, 2010

Among the many results of the housing and mortgage market crisis that began in 2008 has been an increase in disclosures for mortgage applicants, and stiffer penalties for mortgage originators who do not follow the regulations and deliver the disclosures. Paramount among these disclosures is the new Good Faith Estimate revised by HUD and effective with all mortgage applications taken on or after Jan. 1, 2010. Whether you are applying or inquiring about a refinance mortgage or new home loan after using mortgage calculators the new GFE is a form you must receive.

Keeping mortgage lenders honest

In creating the new Good Faith Estimate and releasing it for use by all mortgage originators and lenders, HUD announced the purpose to be protecting consumers and putting an end to "bait and switch" tactics. Because of the information required on the form that cannot change throughout the transaction, HUD is hoping the new GFE will result in most mortgage applicants receiving the mortgage they applied for at the rate and cost they were quoted at application.

When you use a refinance calculator to determine your savings with a mortgage refinance and apply for a mortgage based on being told that the rate and cost are similar to what you input into the mortgage calculator; your savings depends on that rate and cost remaining the same until your mortgage actually funds. The purpose of the new Good Faith Estimate is to ensure just that, your rate and terms remain the same from your initial inquiry to closing.

Timing

Upon receipt of transaction-specific information including your name, income, property address, estimated value and loan amount, the mortgage originator must issue a Good Faith Estimate within three days. Listed on the GFE are the date issued, the time period during which the interest rate discussed or quoted is valid and a date ten days from the issuing date that all charges quoted are still valid.

If there is a change of circumstances the new GFE must be issued within three business days. Briefly, HUD defines a "change of circumstance" as any of the following:

  • Acts of God, war or disaster
  • Changes or inaccuracies in information relating to the borrower or the transaction
  • Changes to the loan amount or estimated value of the property
  • New information regarding the borrower or transaction not relied upon when the initial disclosure was provided.

All that aside, most commonly a new GFE must be issued when your interest rate and terms are locked, unless locked at the time when initial information was exchanged between you and the mortgage originator.

Origination fees

The GFE has many sections on the first two pages. Of most importance to you and the mortgage originator is Box A, "Your Adjusted Origination Charges," and item one in Box A, "Our Origination Charge." These are the fees that are directly controlled by the lender or originator and changes cannot occur unless warranted by "changed circumstances."

If these charges are different at closing from the initial GFE disclosure without any disclosure to you (or changed circumstances) the lender or originator must credit you with the difference. Essentially if your mortgage originator quotes a low price and closes at a higher price you benefit from the difference -- as long as it can be shown that changed circumstances did not occur and that you were not properly informed with the reissuance of a GFE.

Other charges

Also disclosed on the GFE are charges for appraiser, settlement agent, title policy premiums and fees that the seller will or may pay. Failure to properly disclose these charges may result in a credit to you from the mortgage originator or lender. On its own the GFE form does not break down individual charges from service providers. Because of this you should also be provided an Initial Fee Worksheet that details all charges related to the GFE.

When completing the charges for the GFE the mortgage originator must include estimated charges for title and settlement services, and list the companies whose charges are used for the estimate. In addition you must be provided with a List of Service Providers so you can contact the companies and verify the accuracy of the estimated charges provided.

Make sure you receive the GFE

Unfortunately when creating the new Good Faith Estimate, HUD omitted one crucial factor to ensure you will not be subject to deceptive lending practices: nowhere is there a place for you to acknowledge receipt of the GFE -- there's no signature line. Because of this it is possible for you to not actually receive the GFE and a deceptive lender to place the appropriate GFE(s) in your mortgage application file.

Most reputable lenders require you sign an acknowledgement form that you have received the initial disclosure and any subsequent GFEs that may be issued due to change of circumstances.

If you are applying for a refinance mortgage or new home loan make sure you receive a Good Faith Estimate within three days of your application, and another one when your mortgage rate and terms are locked. This will ensure your final mortgage payment and costs match those from your mortgage calculator results.

Posted By :
Dennis C. Smith is co-owner and broker of record for Stratis Financial in southern California. He has over twenty years' experience in the mortgage industry.

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