OK, so now that the new Good Faith Estimate (GFE) is “in use” those damn lenders are going to have to give us accurate estimates, right? Well… er… no. According to several video conferences and teleconferences I have been in on, you can expect that most mortgage companies will NOT be giving out any GFEs until well into the process.
Why, because the liability is too great. I know that it’s frustrating for consumers out there to get an estimate, and then have the fees be very different. Unfortunately sometimes that does happen – especially if the initial GFE was given before the property was selected. (See my Blog: http://sacrelender.com/?p=7) The fact of the matter is the lender is usually only charging one to three of the costs itemized on the GFE, they are collecting a few more fees that will be paid to other parties, and the rest are charged-by and paid-to someone that the lender has no control over. The new GFE requires us to GUARANTEE many of these fees, and be accurate on others within 10%. This is about like the car dealer being required to guarantee what your care insurance will cost – without being able to see your driver’s record! The simple fact is WE DON”T KNOW what a lot of these fees will be. (Here in Sacramento, for instance, many of our transactions require us to use escrow companies located Southern California and it’s not unusual for these companies to be as much a $2,000 higher than what local companies would charge for the same services.) The end result of this requirement is that no lender in their right mind will ever issue a GFE until they have a copy of the fully-executed contract, a complete application including a credit report, and have the escrow companies’ costs breakdown.
The other thing that I have not seen mentioned anywhere is that fact that the new form DOES NOT ALLOW US TO TELL THE BORROWER WHAT THEIR COSTS WILL BE. For some unexplainable reason we have to now itemize ALL closing costs regardless of whether or not they are to be paid by the seller or the buyer. There is no place on the form that tells the buyer which fees are which, what their total cash-to-close will be, or what their payment will be. Oh, and since there is no place to sign the form, there is no way to know just when a borrower received and/or looked at the form.
I have always taken a great deal of pride in my ability to do a very accurate GFE, and to explain to my borrowers just which fees can change and why. Later if we find out that: the seller will require the buyer to pay fees normally paid by the seller, or we have an out-of-area escrow company, or that the property is in a flood zone, or that we need a 2nd appraisal, a septic inspection, a well inspection, a pool inspection, a structural pest inspection, a foundation inspection, a re-inspection for work required, etc., etc., etc., I simply re-do the GFE. But the new regulations don’t allow me to do that because most of these things do not constitute a “change of circumstances” according to HUD.
The really frustrating thing to me is that this will only make the situation worse. Unfortunately many lenders have adopted more of a bait-and-switch business model. They are not going to change; they are going to take the same unethical and dishonest approach that they always have. Crooks are crooks. In the mid 1990s our state changed the laws to allow the same people that run pay-day loan and check cashing companies to do mortgage loans; the result was just about everybody with a pulse could get into the mortgage business – including people on probation for felonies! Some of these people are still in the business (and on the radio.) Do you really think these people are going to follow the rules? Of course not.
It’s really going to be interesting to see just what happens. My prediction is that this new disclosure law will undergo a major overhaul in about 6 months when the consumer complaints begin to mount. In the mean time legitimate lender will be severely restricted in their ability to assist borrowers because they are trying their best to follow the rules without going broke. The crooks will use the new requirements to totally baffle, intimidate and confuse borrowers – pretty-much just as they have always done. They’ll just have a much better tool to do so.