We’ve had three months to work with the “new” good faith estimate designed by HUD. We had an even longer period of time to review this document, however in a mortgage originators defense, I will say that until you can use this GFE “in real practice”, you don’t truly know the nuances. With all the updates to the RESPA FAQs, I’ll argue that HUD’s in the same boat!
On March 18, 2010, HUD posted a new presentation “RESPA 2010 – Implementation Consistency”. I recommend watching the video with access to the slides. Vicki Bott, Deputy Assistant Secretary for Single Family Housing with HUD, covers the information more indepth than if you were to watch the slides alone. During this presentation, it sounds like we should have a newly revised set of FAQs for HUD soon. I’ve actually lost count on how many times it’s been updated…and a part looks forward to the revisions since I have hopes that some of the glaring issues will be addressed and remedied.
Here’s an email I recently received from a mortgage originator:
I have a question that I have been searching the internet for and was wondering if you might know the answer? … I have a rural development loan that I took an application for last week. I didn’t realize before I disclosed to the borrowers that the 2% up front mortgage insurance fee did not populate into my good faith estimate. The borrowers are aware that there is a 2% up front funding fee but since it wasn’t on my originally disclosed good faith, is there anyway to correct that? I mean, it isn’t like I am adding a fee that goes in my pocket or anything, it is a fee that is associated with the loan itself, for anyone who gets a government loan with a funding fee or upfront mortgage insurance.
First of all, I am in no way an expert on the Good Faith Estimate and I’m not a replacement of a mortgage originators compliance department or managers. This LO needs to immediately contact her manager and compliance officers at this point. Emailing a mortgage blogger isn’t going to resolve her issue.
HUD does have what is called a “restrained enforcement” period which is the first four months of this year, which is touched on during this slide show. I have no idea if this mortgage originators mistake would qualify her to call a “mullagan” or if she is obligated to pay the difference between the 2% loan fee factored into the 10% accumulative tolerence bucket. If so, she’s paying to have this loan close…it’s a very expensive mistake that most mortgage origintors cannot afford to make. On a $300,000 mortgage, the 2% fee is $6,000. According to HUD’s powerpoint (slide 5):
“Restrained enforcement…is intended to provide lenders and HUD time to understand the implementation gaps and interpretation inconsistencies and resolve them while providing RESPA benefits to the consumer…. Guidance will be rolled out to the industry regarding specific areas of restrained enforcement.”
I’m hearing that most lenders will not allow re-issue of a good faith estimate once they’ve received it. Mortgage originators are having to pay for upfront FHA mortgage insurance premiums (soon to be 2.25% of the loan amount) even though it was not a case of bait and switch–the borrowers knew about it and it was simply a human error. Good faith estimates can only be modified if there is a qualified “changed circumstance” which must be documented.
Our company is currently using Encompass 360 for our loan operating system and I can tell you that it’s been a lot of effort to make sure that loan fees not only populate, but actually show up in the section they need to be. The 2010 good faith estimate basically puts fees into 3 sets of buckets with different tolerances on how much those fees can change. The funding fee referenced in the email above is subject to a 10 accumulative tolerence. Assuming the rest of that mortgage originators estimate is perfect, she may be responsible for $5,400 ($6000 less 10%) assuming this is a bona fide transaction.
Mortgage originators must be very careful when issuing a good faith estimate. We cannot rely on our loan operating systems to spit out the correct information in the specific spot required. Here’s what I’m doing when I’m working with a client and the good faith estimate:
- I prepare a work sheet first — IF the consumer has not yet identified a property. NOTE: HUD says this is acceptable unless it’s a refinance and you know the property address…ya’ better issue that GFE. (Check out the new HUD video).
- I’m using on-line rate calculators from my preferred title company (who also guarantees their rate quotes).
- Once I have the 6 points of information as deemed by HUD, I create a good faith estimate. LO’s–the only other choice you have is to “deny” the “application” if you do not issue a GFE within 3 days of receiving the 6 points.
- Review–review–review that GFE before you provide it to your client. If you need to, buddy up at your office and help each other be a second set of eyes.
- Especially watch out for FHA Upfront Mortgage Insurance Premiums, VA and USDA Funding Fees (which go on Block 3 of the GFE) and the Owners Title Insurance Policies for purchases (Block 5). Also watch for excise tax if you need to disclose that in your area. (HUD addresses excise tax and owners policies in the recent video).
Most fees aren’t that huge…. I’m finding that I’m typically off very slightly between my good faith estimate and HUD-1 Settlement Statement. A little precaution will really pay off, my fellow Mortgage Professionals.
Last but not least, if you’re not getting the training you need, seek it out for yourself. Seek many–do not rely on your employer or their educators. Are they going to cover your 2% funding fee mistake? Learn from many different educators and formats…visit’s HUD’s RESPA webpage often! …this is what I recommend if you’re committed to sticking around this industry as a mortgage originator.
Good luck!
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Yup, everyone still has issues. The problem is that the GFE doesn’t allow for FLEXIBILITY. Getting a mortgage and buying a home has many moving parts and it is impossible for any one to know every detail. This is why no LO is issuing GFEs until they know they have a deal and all the facts before them. Even then there are still challenges.
I heard recently of a bank telling an LO he couldn’t pass on an extension fee to the borrower even though it was the borrower’s fault the lock was blown.
The end result now is that it costs consumers more. Between HVCC and this new GFE, I bet it costs at least $1000 more to originate a mortgage than it did previously. Guess who is paying for it? Consumers. The whole point of this stupid new form was to help consumers shop for mortgages, but all it has done is raise their costs….
The GFE has not proven to be a good “shopping tool” for consumers either since adding a new address from a “TBD address” is not considered a “changed circumstance”.
From HUD’s slide #9 of their newest ppt (linked above in the post):
“RESPA does not prohibit providing a GFE without a property address, but there is risk to the lender due to limitations of using a “changed circumstance“.
A mortgage loan originator could not adjust their costs when a borrower has identified a property–if the MLO issued a GFE for the purpose of the buyer to shop with a TBD address–they are bound by the difference (tolerances) between the estimated and the bona fide cost.
As far as an extension is concerned, I’m pretty sure that if it’s borrower caused, it is a changed circumstance–the key will be documenting it and IF the lender will accept that. As you said, Russ, some banks/lenders are putting their foot down and not allowing ANY changed circumstances.
HUD’s current RESPA FAQs are vague regarding this issue (under the Changed Circumstance section):
8iii) Q: The borrower does not proceed to closing quickly upon final approval or does not act diligently in providing information to the lender.
8iii) A: The particiular facts of each situation must be examined to determine if the facts constitute a changed circumstance.
Rhonda:
The issue is that banks don’t want to be liable. It is easier to just so no changed circumstances versus actually using some common sense to evaluate the circumstance at hand. Consistent with how mortgages are underwritten…
Not really GFE specific, but I had a bank tell me I had to refund my client’s appraisal fee. It was a brokered loan and I issued a TIL. Collected borrower’s credit card information and DID NOT CHARGE for the appraisal. My assistant gets a call from the bank requesting the borrower’s credit card information so the appraisal can be ordered. She complies…
A week later, we get a call from the bank saying we have to refund for the appraisal because the borrower didn’t get the banks TIL prior to charging for the appraisal.
So the bank wants me to know when they send out their own TIL, yet they actually didn’t even have coordinated internally that their appraisal department knows when they can and can’t charge for an appraisal. Remember, they called me to charge for the appraisal!!! WTF?
We spend more time worrying about if something is filled out in Blue ink or Black ink. When we can send something out or if we have dotted an “i” versus actually underwritting loans and really evaluating credit risk.
This my friends is why the housing market is in the toilet. Too much government involvement and not enough common sense. Think long and hard about health care. We can’t get mortgages right, no way in hell Healthcare is going to go smooth. Just saying…
Russ, I couldn’t agree more!
With Congress (our government) it boils down to the banks as well… the banks have our elected officials ears thanks to their lobby power/campaign contributions. It’s no wonder so much is pointed in their favor.
Lots of struggles with the GFE/HUD for sure, but…Hallelujah!!!! HUD FINALLY (4/2/10) addressed the issue of Transfer Tax on the FAQ and it’s for the better! Now we can all have the SAME answer! 🙂
GFE – Block 8
1) Q: What is the definition of “transfer taxes
Wendy, I thought of you when I read that addition to the FAQs 🙂 I wish they would have addressed the question above…I was hoping for more direction on if a LO made a mistake, and the borrower is aware, can they reissue immediately? Kind of like the 5 second rule if you drop something on the floor.