Vince Kingston

Anyone purchasing or refinancing a home as of January 1^st 2010 will be subjected to a much different good faith estimate experience.  In a classic bureaucratic attempt to regulate an industry they have no personal experience with, the new good faith is a breathtaking mess, being more opaque, inaccurate, and inscrutable to the average borrower than the prior standard good faith estimate.  For example, the new form is a three page maze of boxes, sub-categories, exceptions, and “adjustments” that only a bureaucrat could love.  The old GFE was a one page form.  In addition, the new GFE requires that fees that will not even be paid by the borrower still be listed as borrower settlement costs.  So, you mean to say that even though a fee is not charged to a borrower, it still must be shown as a fee on the new GFE?  Yep, that’s exactly what the new GFE does (a good example is the title insurance charge on a purchase…in the state of Oregon the seller pays for 2/3rds of this policy on behalf of the borrower, yet the new GFE insists that the full cost of this be shown as the borrowers fees, even though they patently are not borrower fees).  You can find a copy of the new GFE at http://www.hud.gov/offices/hsg/ramh/res/gfestimate.pdf and a list of FAQs at www.hud.gov/respa.

To be fair, the new good faith does finally account for the “yield spread premium” or “after market rebate” that some lenders are paid, and this rebate is applied toward the borrowers closing costs.  However, again for no apparent reason other than to obfuscate and confuse consumers, this after market rebate is only required to be applied by mortgage brokers.  Banks will not be required to display this rebate nor apply it to your closing costs.  I view this as a stunning success for Mortgage Brokers as now it will be that much clearer that Mortgage Brokers generally can choose to offer superior rates and lower fees than most retail banks (not to mention professional counsel and service retail bank loan officers many times are unable to offer).  I have been trying to educate consumers for years that, contrary to myth, a retail bank that must support the overhead of the entire retail operations cannot typically provide the same rate and or fees as a Mortgage Broker who has only their individual overhead to maintain.  Now that will be readily apparent.  This new twist will show up on line A at the bottom of the first page of the good faith estimate under “Your adjusted origination charges”.  This is where the rubber meats the road for borrowers and is calculated on the 2^nd page.  On line 1 on the 2^nd page, you will see the gross origination charge.  Bear in mind this gross charge includes all processing, administrative, overhead, underwriting, and loan officer compensation.  If you are working with a Bank, 100% of these charges will accrue to the borrower.  If you are working with a Mortgage Broker, most likely you will see a significant credit listed in box 2 on the 2^nd page that will offset these borrower charges.  That is why borrowers comparing a Bank vs. Mortgage Broker (on the same day, remember rates can change daily) will most likely find that the Mortgage Broker provides the same rate or better than the bank while offering significantly less “adjusted closing costs”.      

Borrowers most likely will not receive a formal good faith if the following six pieces of information are not provided: Full legal name, monthly income, social security number, subject property address, estimate of value of property, loan amount, and “any other information deemed necessary by the lender”.  The reason being is that the lender is bound to that good faith once it is issued.  It is unreasonable to expect a lender to be bound by a good faith based on assumptions regarding the borrower’s ability to qualify.  Therefore you will most likely receive a informal “estimate” of settlement fees and interest rate if these six pieces of information are not provided.  What this means is that if you shop on line for a mortgage and are provided a good faith without supplying all of the above information (including your social security number) then you are either receiving something that is not based on your relevant situation or the loan officer is desperately hoping that your presumed situation is accurate (and thereby demonstrating their industry inexperience).  In either case, the information cannot be relied upon if the six pieces of information are not provided.  This may prove to be an obstacle to online lending which had already generated a reputation as less than reliable. 

Bottom line, a borrower’s best friend is still a trusted loan officer that will take the time to go behind the forms and numbers and clarify their meaning and patiently answer all of your questions.  I am always available for your questions.  You can contact me anytime at This e-mail address is being protected from spambots. You need JavaScript enabled to view it or 971-221-8525.