Second Opinions on Good Faith Estimates
Rhonda Porter on 03 25, 2007
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A few weeks ago, one of the Realtors I work with, Suzy Seller, contacted me to see if I could help her client with an out-of-state mortgage. Ima Rusty (names are changed to protect the innocent), was moving to Arizona to retire and perhaps see the sun. Ima had gone to her “local bank mortgage company” since they had provided her mortgage for her home in Washington, for her financing on her new home. For some reason, Ima was not feeling very confident with her lender after two weeks into the transaction.
Since I stick to lending in Washington State, I offered to review Ima’s good faith estimate for her. The rate was fine and the closing costs all seemed in line…everything looked great until I noticed that on the Federal Truth In Lending, the box that states there “may be a prepay” was checked. According to Ima, their credit is perfect. She was completely unaware of a prepayment penalty. After I encouraged her to contact the Loan Originator to ask if there is indeed a prepayment penalty. Maybe the box was marked in error? Here’s what Ima told me:
I was able to speak with our loan officer and arrange for the documents to be changed to reflect appropriate changes to allow prepayment of up to 20% of the loan amount within a 12 month period without penalty or fees thereby reducing the monthly payment. I am satisfied that we’ve covered the areas which were of major concern and as far as I can see, we’re “good to go”.
He bamboozled her into thinking she did not have a true prepayment penalty. He did not make any changes to her documentation…this is a boiler plate prepayment penalty. I proposed one last question for her. “What if you decide to sell the property next year”. After all, what if after the Rusty’s move to AZ, they miss our rain and our four seasons? That’s when she discovered that the prepayment penalty was for three years.
Ima Rusty decides this is a bad deal. After confronting the Loan Originator, the Rusty’s decide they want out. The Loan Originator was unwilling to waive or reprice the loan without the prepayment penalty. I have a hard time believing this was their only option. Especially since the prepayment penalty was not explained (it was disclosed…only by sneaking it on the TIL) to the Rustys upfront.
I often review Good Faith Estimates to check on the rate, closing costs and prepayment penalties. When a rate looks too good to be true (something I cannot come near offering), I encourage the borrower to see if they can lock it in and to have the LO provide a written lock confirmation. I also advise borrowers to see if the Loan Originator will guarantee the closing costs (Section 800) on the good faith estimate. A consumer should bring their Good Faith Estimate to their signing appointment to compare the closing costs with those on the HUD-1 Settlement Statement. If a Loan Originator starts back peddling when asked these questions, I suggest that the borrower should do the same.
Second opinions on Good Faith Estimates are FREE and any Mortgage Professional should be happy to provide this without running your credit.
By the way, Ima Rusty use to work for an attorney…
I did send [Big Bank Mortgage] an email message which included reference to fair lending practices (not specifically predatory lending laws)…. I have been in touch with the Attorney General’s office and they seem to feel there’s some indication of senior exploitation in this case. If we want to proceed with an investigation they are willing to do so…. Meanwhile, I’ve cancelled the [Big Bank Mortgage] loan and requested cancellation of our line of credit.
About the Author: Rhonda Porter
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23 Responses to “Second Opinions on Good Faith Estimates”
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Tell Ima Rusty to “threaten” with a complaint to the AZ DFI http://www.azbanking.com
Why deal with that originator? There are so many other options to them in AZ.
Brian, this is buyer I tried to refer to you. She has since decided to stay in WA for now. She contacted me to refi her home since she hates Big Bank Mortgage…her current rate is fine and her ARM isn’t set to adjust for a few more years…I suspect she’ll move to AZ by next winter and hopefully, YOU will have a new client.
I just sent her an email asking for an update. I’ll refer her to AZ DFI when I hear back from her.
Consumers need to have access to an estimated final HUD 1, in order to compare it against the Good Faith Estimate before they step into the closing room to sign. How could consumers possibly be able to find out if they’ve been taken advantage of if they do not have adequate time to compare and then to take their paperwork to an attorney for review, if they so choose?
Rhonda,
I really like the idea of a consumer receiving more than one Good Faith Estimate when applying for a mortgage loan. This is what the forms were designed for in the first place: To give the consumer an opportunity to compare costs and shop before making a decision on a lender.
Consumers, if a mortgage lender encourages you NOT to shop around, this is a big red flag for you to get another Good Faith Estimate from a different lender.
Rhonda, what do you think about my suggestion? I value your insight on this.
I review HUDs for my clients prior to signing. I want to make sure that if they bring my GFE with them, it matches the HUD. Consumers can ask the Escrow Officer to send them a copy. Tim will probably confirm that often times, escrow is getting docs so close to the signing time, they may not be able to always do that. And, a HUD looks so different than the GFE. With time being an issue, you’re getting into longer lock periods or possible extensions, both which cost money, if the borrower wants more time to review the HUD. I send a pre-closing letter out to clients to let them know if they want a copy of their loan docs in advance, to please let us know. My clients also know that I’m reviewing the HUD for them.
In fact, although GFEs have the same info on them, they can really vary in appearance from lender to lender.
Jillayne, you and I start sounding like broken records with the shopping lenders issue. Here’s a link to how I think borrowers should shop for a lender: http://www.mortgageporter.com/reportingfromseattle/2007/01/how_to_pick_a_l.html
And…be sure to block out enough time to do it in one sitting if you’re obtaining GFE’s since rates change and…remember boys and girls, if it’s not locked, it’s not your rate.
Rhonda,
Great article. I think the most important thing that I emphasize to my customers is that the GFE and the TIL are two of the most easily manipulated documents in the mortgage industry. The GFE can give such a false sense of security because it looks official but is usually woefully incomplete.
I always recommend that borrowers go beyond the GFE and TIL and request a rate lock confirmation and a copy of their full approval. Getting a copy of the rate lock is such an important step in the process, and you’re right, if an originator doesn’t want to share a copy of the lock that should be warning number one.
What I try to explain to borrowers is that there are certain fees that accompany every loan because every loan needs these items: appraisal, title, escrow, recording, etc. If they look at a GFE and those items are missing they have an incomplete GFE and that should be another red flag that the relationship they have with that originator is not off to an honest start.
Thanks for the honest commentary.
Thanks, UK and Morgan! I’m sneaking out side now since we have a “spot” of sun and we’re suppose to have ran and chilly weather for the next few days.
The nice weather is a blessing. I’m finishing some transplants this afternoon and during my break took another look at RCG.com. The Good Faith estimate bothers me because it is an estimate. The conversation I had yesterday was about another one of those promises made by a loan originator. I don’t know when, where, or how the loan originator designation started, but many of these people are under trained.
My client was promised 5.75% interest on a 100% loan. The originator promised the rate and filled out a good faith estimate. My client has two BMW payments. His credit score has gone from 680 up to 720 by doing some credit repairs we have been working on. He and his girlfriend are refinancing a purchase made eight months ago and in the process will be removing a third borrower from the original loan.
The two of them were asking my opinion and I don’t think the Good Faith Estimate, even though it is in writing, will reflect the final loan documents. In my opinion the Loan Originator is sucking my clients into a process that will be woefully manipulated.
With my transactions I insert into my Purchase and Sale Agreements that “the closing date will be on or before such and such a date.” By doing this the loan processor can be moved along to provide loan documents in advance of closing if the buyer and seller should so choose. If during the loan process something seems suspect I advise the processor or Loan Officer that my client wants to see loan documents or a confirmation of terms in the event they should want to move the loan.
The vast majority of loans just go along without a hitch. What I’m responding to are the number of loan originators who I believe are simply lead generators. The lender has no exposure in most cases. Once the originator is caught in a series of misrepresentation the lender apologies profusely and tells me the originator has quit or been fired. I’ve never really followed up, but suspect that fired originator is back at work in a different zip code the same day.
David, 5.75% sounds AMAZING. If you check my Friday rates, that would be what I quoted for a 30 year fixed, 80% ltv at 1% discount. That rate is “barely” available (by Monday, we may be at 5.875%). I’m not sure what the new LTV would be if they just bought it 8 months ago.
When I use to do signings (back when I was in title/escrow), I remember an LO who attended thte signing and when the client questioned the GFE, he circled the word ESTIMATE. I wonder why he didn’t circle GOOD FAITH?
The Good Faith Estimate is only as good as the LO who is providing it. Like Morgan mentioned above, it is an easily manipulated document and if your clients are working with a schmuck…then the GFE is worthless (no different than a worthless preapproval letter).
I would ask you clients if they have a lock confirmation and a copy of their loan approval. And, they should mention to the LO that they plan on taking the GFE with them to closing and see if the LO will guarantee his closing costs. If not, your clients should bail out and do so soon.
[...] Original post by Rhonda Porter [...]
[...] Faith Estimates By Jim Duncan I have been working on a post about Good Faith Estimates (GFEs) for some time now, and Rhonda Porter at RCG wrote a great post about the same subject lastweek. When you are seeking to purchase a home, the lender should give you a Good Faith Estimate showing what your estimated closing costs will be. [...]
Rhonda, perhaps I’m too subtle but, what I find is that some buyers shop for a Good Faith Estimate until they find some one who tells them what they want to hear. The couple I’m referring to did not like what my recommended lender had to tell them so they “shopped.” The young man felt he could do better because of what he reads on the internet. He’s quoting to me statistical data based on some articles he’s read.
Bottom line is that the numbers are the numbers are the numbers. His situation isn’t going to change no matter how many people he talks to. The fees are also set in stone. The Loan Originators have no problem removing the fees only to have them show up on the HUD. The internet, in my opinion, is making things ten times worse. I can go to any trusted site today and find a lender ad. There’s flashing lights and promises. Long articles get published about what might happen if the statistics follow a trend.
I’m responding because my wife and I are selling a house. It’s supposed to close tomorrow, but it’s not. I knew when we signed the Purchase and Sale the loan they were promised wouldn’t go smoothly. I warned the Loan Originator, who is a very nice young man working for a reputable company, that the loan needed to close on time. I monitored the process over the weeks and was given promises. The bottom line, to me, is that I know the lender is asking the buyers for more money to close. No one wants to say that, but it’s standard operating procedure today. Many loans go along without a hitch, but there is that percentage you can smell are going to go sideways.
I blame the Real Estate agent. She works for a big company who is doing business with a big company lender who are throwing deals together with a hope and a prayer. Promises are being made that may be true for some people, but not for others. Sure, I can walk into a lender today and get a loan to buy a house. I have no credit, income, or money, but I can buy a house. That doesn’t happen for everybody, but it can happen.
I’m just saying that “shopping” for a loan doesn’t mean better.
Hi David, I hope your purchase closes soon. I’ve written post in the past on RCG about shopping lenders. I’ll always go back to using someone who has been referred to you and not blindly shopping. There are too many smooth talkers out there, as you know. I know I’ve lost buyers, like yours, where I was truthful and upfront with them…so they went elsewhere. Shopping rates is deciding who is going to handle one of your largest financial investments yet you don’t get that rate UNLESS your locking it when you’re shopping. It’s a fools game.
Loaning should be done with all considerations. As much as possible, discover every truth about your transactions and the strings that are attached. It will be difficult to stand your ground if you’re not careful.
True Gina. I’m often surprised how many borrowers are not provided a GFE from a lender who has quoted a mortgage interest rate.
[...] Don’t forget to ask the LO to email or fax the Good Faith Estimate and Federal Truth in Lending to you as soon as possible (this means you will need to provide them with your email or fax information). Ask the LO if they guarantee their closing costs. Let them know you like to bring your GFE to your closing appointments to compare it the estimated HUD-1 Settlement statement. Step 5: Review the good faith estimates. (Are we having fun yet?) Lines 800 – 823 are the closing costs associated with the rate. If your transaction is a purchase, there are also title and escrow charges (these charges exist with a refinance as well). The title and escrow fees (section 1100) on the good faith estimate are just that, an estimate since the companies who will be providing that service will be set forth on the purchase and sale agreement. You do not need to shop by what the lender is showing for reserves (prepaid interest, taxes and insurance). These are not closing costs and the amounts of reserves are set based on when your first mortgage payment will be due. Some loan originators might reduce the amount of prorated interest to try to make their closing costs look less. (Unless I know when you’re closing, I show 15 days of prorated interest on my good faith estimates. I’d rather be higher with my estimates to start with and have you happy with me at closing). Again, you’re really most interested in comparing the cost show on lines 800 – 823 in relationship to the interest rate (not the APR) on the Good Faith Estimate. When I’m working with a “rate shopper” I’m happy to help review the good faith estimates (in fact, if I’m being shopped, I’d rather just have the other estimates faxed or emailed to me and I’ll confirm if I can better the rate or closing costs). [...]
[...] This is just another example of why you should get second opinions on your Good Faith Estimates. Especially if you’re being steered to use a lender who essentially works for the Seller/Builder. If you are considering the “builder bait”, do get a complete good faith estimate to compare to what your Mortgage Professional is offering before you get “hooked” by the credit. [...]
Hi,
I would like to buy a condo and put 10% down. How do you access a 30 yrs fixed my community loan, currently 5.75% rate, vs regular 30 yrs fixed rate of around 6.25% (for example bank of usa has no closing cost and PMI now). Or is it better to get two mortgages to avoid PMI. My community has PMI, yet it is deductible at least for 2007.
Thanks
Min,
Is there any possibility that you will be able to pay off 12% to get to 20% down and get rid of the pmi in the next few years? If you have no PMI you can’t get the rate back down that 1/2 of a % without a total refi, which is costly. If you are planning to carry the 90% LTV for many years,then only getting a guarantee of deductibility for 2007 doesn’t do a lot for you.
The last client I had did the two loans because they fully intended to, and had the ability to, pay off the send loan within a year to 18 months.
Hi Min, I actually did a post recently here at RCG regarding LPMI, PMI and piggy back mortgages. There are examples of how the rates compare: http://www.raincityguide.com/2007/05/11/lpmi-pmi-and-8020-mortgages%e2%80%a6oh-my/
Your rate is going to be determined a great deal by your credit score with the my community and lpmi products. There is also Fannie Mae Flex which could also be one loan with or without buyer paid mi.
There’s buyer paid (lower rate w/mi) and lender paid mortgage insurance (rate should only be approx. 0.25 – 0.375% higher with 10% down). And there are pros and cons with each scenario.
As far as which route you should take with your financing depends on several factors. Ardell’s touched on one of them.
1. How long do you plan on staying in this home?
2. How long do you plan on retaining this mortgage?
3. Do you forsee coming into cash to paydown the second (if that’s what you want to do with your cash).
4. Do you have other long term financial goals with your funds?
5. Your income will also determine which programs you qualify for. My Community has income limits; Flex does not.
Definately get a second opinion to compare BOAs product (or any lenders) apples to apples. Often times, “no cost” means “higher rate”. Here’s another post I did for RCG regarding GFE’s: http://www.raincityguide.com/2007/03/25/second-opinions-on-good-faith-estimates/
Min, I had an answer go into RCG’s stealth spam trap…I’m hoping someone will fish out my response to your question soon.
Thanks, Ardell! Min, I just checked rates and 5.75% will cost you in points. If you haven’t locked that rate in yet, talk to your Loan Originator to see if the rates have changed.
[...] Some LOs may hide a prepayment penalty on the Federal Truth in Lending (a prepayment penalty does not show the Good Faith Estimate). [...]