(Originally published January 24, 2010.)
As of January 1, 2010, the latest government revision to the banking industry has been the redesign of the Good Faith Estimate (GFE). In years past, there have been many GFE designs used by different banks, mortgage lenders, and mortgage brokers, each looking different and disclosing information as they saw fit. In addition, as we all know, there were many abuses with less scrupulous mortgage salespeople baiting with a low estimate of closing costs, and then switching at the closing with higher points and fees.
With the release of GFE 2010:
GOOD NEWS: The new GFE clearly explains whether your rate can rise, if your payment can change, and whether the loan has a prepayment penalty and/or balloon payment. This is a great feature! Now a consumer will know if the mortgage is really a fixed rate or an adjustable. The new GFE clearly shows the loan amount, term, and rate. It clearly states when and under what circumstances any of these disclosed loan features can change.
BAD NEWS: Brokers and Lenders CANNOT change any fees once the GFE is disclosed except under very limited circumstances.
At first this sounds like a wonderful feature! Even though this prevents slick sales people from adding points to the deal prior to closing, it also prevents borrowers from changing the terms! For example:
- You’ve told your bank that you prefer to pay zero points. Once disclosed, if you change your mind and wish to buy down your rate with a point or two, you no longer can do so. The reverse is also true. Maybe you planned to pay points in order to get a lower rate, but now find yourself short on cash and want a zero point loan. No can do.
- Your mortgage broker plans to take your loan to “Bank A” who charges $450 to underwrite. But while processing your loan, your broker and you decide to go with “Bank B,” as the rate is .25% lower, but they charge $600 to underwrite. Guess who has to pay the difference? (Need a hint? His picture is at the top of this newsletter.)
THE UGLY: GFE 2010 is forcing lenders and brokers to overstate fees across the board in order to cover all possible contingencies. The bank fees, such as processing and underwriting, as disclosed, will be inflated to cover the possibility of moving your loan to another, higher cost but lower rate lender. And Origination Fees, as disclosed, will appear to be almost twice as high as the actual cost!
My advice? I strongly suggest having a conversation with your mortgage professional in order to review your true costs, versus how they will read on your GFE.
Since 1992, Warren Goldberg has helped thousands of clients own their homes, refinance their mortgages, restructure their debts, and invest in real estate. Warren is known for his wide knowledge of mortgage products and wealth-creation strategies.