Written By: Jane Harford
Hello to all! My name is Jane Harford. I am a new blogger for NAMP. My 30 years in the mortgage business have provided much experience - great and awful. As we know, the business cycles in this business are feast or famine. Business is either very good or very bad.
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Changes are usually quickly put into place and then we take the time to learn what we are supposed to be doing differently. Change is often done for the better, but the implementation of it can be very painful.
The changes required on the new good faith estimate for loan applications date 1/1/2010 or later are now in place. It is obvious from the news, communication from HUD to the lenders, lenders to their LO’s and staff, from the sales force to the vendors and finally to the loan applicants that these changes have been difficult for all to understand and put into effect. We will take a few minutes to clarify the reasons that this law was passed by Congress and then clarify some of the basics on the new Good Faith Estimate.
When the housing market started to decline in 2006-2007 due to many economic factors, liberal underwriting guidelines, subprime loans and overvalued housing finally crashing, many borrowers had been steered into mortgage programs that they didn’t understand.
It has been clearly documented as to what the issues were and why borrowers either walked away from homes, lost their home in foreclosure, sold their homes via short sale and why values started crashing in all markets in the U. S. The citizens were angry and got that message to their representatives in Washington, DC. Congress started to debate these issues. FHA and other mortgage agencies had their input. Clearly, there were many things that needed to be corrected; updated RESPA laws were a large part of changes to be made.
Most of the changes on the new GFE deal with binding fees, changes in how the origination fees/discount points are determined, how these are disclosed and what can and cannot be changed. We will clarify the delivery of the Good Faith Estimate, important dates that must be met (to be in compliance), disclosing fees and explaining “changed circumstances” (to allow for changes to the GFE and terms of the loan).
http://www.hud.gov/content/releases/goodfaithestimate.pdf shows a copy of the new Good Faith Estimate Form.
There are changes regarding the “delivery” of the GFE form. The initial GFE provided to the borrower becomes the binding GFE unless there is a “changed circumstance. We will define that term in a bit. On the new GFE, lenders are required to provide lists of service providers for all fees incurred. The fees that will be charged at closing cannot exceed what is shown on the GFE. There are very stringent cost requirements that must be met or the loan is not in RESPA compliance.
Block #1 of the GFE will include disclosure of the lender/broker origination fees, points, processing and administrative fees. This will now include all points, and the origination costs will exceed. Mortgagee Letter 09-53 lifts the 1% maximum cap. If there are additional fees to be broken out and disclosed, they will appear in section #800 blank lines. Look at boxes #1-3 in the disclosing Fees section. This section is very specific as to how it must be completed. Only 1 of the boxes may be checked.
The fees disclosed on the new GFE have very limited tolerances that can be shown and approved on the final HUD 1. Required services chosen by the lender have a maximum 10% tolerance between what is disclosed on the initial GFE and what is charged on the final HUD1. It is required that the lender disclose at least 1 service provider for all items in blocks in sections #3, 4, 5, and 6. Sections 7-8 have limited tolerances of less than 10%.
There is no tolerance on the transfer taxes disclosed. If they are calculated incorrectly, the differences are not passed on to the borrower. Loan officers must also be very careful about disclosing an interest rate. The rate that appears on the GFE shows a rate and date for which that rate will be good. There is an important dates section on top of the form. The rate cannot change or deviate unless there is some “changed circumstances” that occur.
We will cover the changed circumstances topic in the next blog. The term “changed circumstances” is defined as an act of God, war, disaster or other emergency or a changed situation based on inaccurate information provided by the borrower after the issuance of the GFE.
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Stay warm during this warm winter and we will be back soon to unravel the mysteries of the new RESPA laws.
About The Author
Jane Harford - As an NAMP® staff writer, Jane brings 30+ years of mortgage business experience in FHA, VA, LAPP and is also an FHA DE Underwriter. If you would like to become a writer for NAMP® , please email us at: contact@mortgageprocessor.org.
