The Department of Housing and Urban Development, or HUD, spent several years, millions of dollars and tons of personnel hours trying to replace the stodgy old Good Faith Estimate or GFE. The GFE is a document that is required by law to be provided to any home loan applicant within three business days after completing a mortgage application with a mortgage company. This GFE helps identify the various charges a borrower might incur when buying real estate and securing a home loan.
The problem with the old GFE, retired on the very last day of 2009, was its confusing language to borrowers. For instance, there might be a line item called “814…Document Preparation Fee” or “1203…State Tax/Stamps” or other such monikers. So HUD invented a new version, just to clear things up.
But did they?
The most glaring change is in the “Origination Charge” to the borrower. Historically, this was represented as a percent of the loan amount and simply labeled 1 percent Origination Fee, which would be paid to the lender. Now however, the Origination Charge lumps all lender charges into one lump sum.
On a $200,000 loan a lender might charge a 1 percent Origination Fee of $2,000, $400 Loan Processing and $500 Loan Underwriting. Instead of itemizing those charges on the GFE, there’s only one fee - $2,900. That can make it harder to compare one lender to the next.
A loan officer might quote you over the phone they have a 1 percent Origination Fee. When you get the GFE from that loan officer, suddenly the 1 percent Origination Fee is a lot more than what was originally quote. At first glance it looks like a bait-and-switch tactic but it’s really not, it’s just the new way lenders have to disclose the various fees.
Another difference with the new GFE is how government insurance premiums are quoted to the borrower. With an FHA loan there is a mortgage insurance premium that is paid by the borrowers that insures the mortgage to the lender should it default. This premium is most always rolled into the loan amount. A mortgage insurance premium might be $4,500 but is shown on the GFE as an additional cost to the borrower instead of explaining that it is included in the loan amount. This nuisance occurs with VA’s Funding Fee that is included in all VA loans as well.
Finally, even fees that the buyer normally doesn’t pay can be disclosed on the GFE as a charge to the buyer. Title insurance is one of those charges. Your sales contract might very well point out that the seller pays for title insurance, not the buyer, but the lender is still required to disclose that fee as a potential cost to you.
When you receive your GFE from your lender, it’s time to pick up the phone and discuss these items to make sure you’re clear on who pays what. If you don’t, you might simply decide to find another lender that doesn’t charge so much in fees. If you do that, you might be throwing away the best interest rate, only because the loan officer is complying with the new federal guidelines.
Blanche Evans is CEO of Evans Emedia, Inc. and publisher of The Evans Ezine. As an award-winning journalist, Blanche has been named one of the "25 Most Influential People In Real Estate" by REALTOR Magazine, and twice recognized as one of the industry's most "Notables."