The thing about change, is that it’s not always bad.  In fact, in some cases change can be a good thing, even welcomed.  So, before we talk about the changes to the new GFE, let’s talk about how we got here.  In November 2008, HUD published its final rule amending Regulation X of the Real Estate Settlement Procedures Act (“RESPA”).  The final rule included significant changes to the Good Faith Estimate. 

The changes were done with two major objectives in mind:

       The first, to provide an enhanced sense of transparency to each transaction.  The old GFE could be used to disguise and hide fees – the new version seeks to change that.

       The second objective is to standardize the disclosure of fees across the industry.  Each lender – depending on their origination software – used a slightly different GFE in appearance.  The new GFE seeks to keep the visual display of information constant across all lenders (i.e. no matter which lender you choose, you’ll be looking at the same GFE….in appearance).

It is also different in a few other ways:

       First of all, the new GFE is three pages – expanded from the original single sheet breakdown of fees.

       Second, certain costs are bundled together rather than itemized as per the original GFE.  The most glaring example of this is the Title and Escrow fees; normally itemized, are now lumped together in a single GFE entry.

       Third, the new GFE does not denote who is paying the costs.  If you’re working on a transaction where the seller or lender is picking up a portion of the costs, there is no place to distinguish that fact. 

The New GFE simply appears as though the borrower is still responsible for all costs associated with the loan – even if that isn’t the case.

Probably the most evident change with the new GFE is the fact that the monthly payment is completely omitted from being reported.  Since the monthly payment is often the focal point of each borrower, this omission is curious at best.

Along those same lines, the new GFE also does not indicate the particular mortgage program associated with the loan.

Finally, we save the biggest change for last.  Unlike the previous GFE, which could change many times with the loan, the new GFE is binding and can only be changed under certain circumstances

       The first circumstance under which the new GFE can change is an act of God, war, disaster, or other emergency.

       Information particular to the borrower or transaction that was relied on in providing the GFE that changes or is found to be inaccurate after the GFE has been provided.  This may include information about the credit quality of the borrower, the amount of the loan, the estimated value of the property, or any other information used in providing the GFE.

       New information particular to the borrower or transaction that was not relied on in providing the GFE,

       Other circumstances that are particular to the borrower or transaction, including boundary disputes, the need for flood insurance, or environmental problems.

The new GFE can’t be issued without a complete application

A “complete application” consists of the following six items:

                                                              i.      Name

                                                            ii.      Social security number

                                                          iii.      Monthly income

                                                           iv.      Subject property address

                                                             v.      Estimated subject property value

                                                           vi.      Loan amount

So, how do we move forward through these new changes?  What strategies can we employ to ensure our transactions don’t suffer as a result of these new changes?

Weed to work in a team environment.  We must work closely together with all referral partners, Realtors, our internal staff (assistants, processors, underwriters), and the closing agents to ensure fees are reported correctly and timelines are adhered to. 

In closing, change is good.  Good for our borrowers and good for the industry.  The new GFE represents a tremendous opportunity for our businesses to show our knowledge and commitment to serving the client.

If you would like a more detailed explanation or even an office training on the new GFE and the NEW HUD that goes along with it, please do not hesitate to call any of the Academy Mortgage Team.

~To Your Success in 2010

Derek R. Egeberg