After more than 4 years of discussions with various trade and consumer groups, HUD implemented the new Good Faith Estimate (GFE) on January 1, 2010 for San Francisco (SF) Bay Area borrowers. The goal was greater clarity and transparency for borrowers. I do not want to get into the details of every single field of this 3 page document, and make this a 10 page post. I would rather write about what I like about the New Good Faith Estimate form and what I don’t like. Here we go!
Things I like:
- All origination charges lumped together- Now loan officers wont be able to sneak in an extra couple of hundred dollars under some junk fees e.g. Application Fee, Admin Fee etc.
- Is more detailed & Explains all the fees
- Tradeoff Table – Gives 3 different scenarios and compares the the loan quoted in the GFE to the same loan with lower closing cost but higher rate and the same loan with higher rate but lower closing cost. This gives the borrower to pick the best option based on his/her situation.
- Gives a snapshot of loan with important dates – Under “Summary of the loan” section on page 1, the borrower can get answers to most of the questions regarding the new loan.
- Easier comparison of loan offers – The new GFE guides the borrowers on the factors against which to shop and compare loan offers. Surprisingly however, closing cost is not mentioned as one of the factors.
Things I don’t like:
- Cash to Close missing – There is no place on the new form that tells the borrower what will be the cash required to close the transaction. That information is now to be obtained (most likely) from the escrow company.
- Charges typically paid by the buyer have to be listed, even if the seller pays them – This will add to the closing cost even though the borrower won’t be actually be paying for it.
- At least 1 provider per service required even if the lender permits borrower to shop – For some service providers lender may allow borrower to shop on their own. But even then, lenders are supposed to provide the borrowers with name of at least one service provider.
- No signature – There is no signature required from the borrower on the form. In case of dispute, it will be impossible to prove which GFE did the borrower actually get at the beginning of the transaction.
- 3 Pages from 1 – Even though HUD claims to make everything simpler and easier for the borrowers to understand, the new GFE is 3 page long compared to the old one which was 1 page.
To wrap up this rather long post, I can almost guarantee that the close of escrows will be longer mainly because of 3 reasons:
- There are too many parties for which the fees have to be quoted by the lender and that too within 10% or zero tolerance level.
- The awareness is still minimal across all the parties.
- In changed circumstances, the new GFE allows borrower 10 day shopping period after re-disclosure.
Whether you are a San Francisco (SF) bay area borrower or a real estate industry professional, if you need help in understanding the document, call me at 408.905.6261 and I will do my best to explain it for you.