I recently received this question from a Rain City Guide reader:
I wanted a GFE from my lender… but am told I can only get one if I lock in the rate. Is this legal?
- borrower’s full names
- monthly income
- social security numbers to obtain a credit report
- property address*
- estimated value of the property
- loan amount
- any other information deemed necessary by the loan originator to complete an application
The above items are how HUD defines a loan application. One item that can be a bit tricky for consumers and loan originators alike is the property address. Yes, a mortgage origiantor can issue a Good Faith Estimate without a property address, however IF they do, it’s at a substantial risk.
From HUD’s RESPA FAQs (April 4, 2010 edition) 33:
…a GFE issued without a property address, the future receipt of the property address is not a changed circumstance that would allow the loan originator to issue a revised good faith estimate.
This means that the Mortgage Loan Originator would be on the hook for fees that are outside the specific tolerances set forth in the HUD’s Good Faith Estimate if a MLO issued the GFE without a specific property address. I think this is something that HUD needs to take a serious look at this if they truly want the Good Faith Estimate to be a shopping tool for consumers–otherwise, the “shopping” process can only take place after the borrower has identified their next home.
An application includes information the loan originator requires the borrower to submit in anticipation of a credit decision. If a loan originator issues a GFE, the loan originator is presumed to have received all six pieces of information.
A mortgage loan originator CAN issue a good faith estimate without the rate being locked. Going from a “float” (unlocked) to a locked rate constitutes a “changed circumstance” which allows the MLO to re-issue a good faith estimate. In fact, the GFE must be reissued withing 3 business days of the locked loan and any interest rate dependent changes may be reflected on the revised GFE.
HUD’s RESPA FAQ 31:
…a loan originator may not require a borrower to sign consents to verify employment, income or deposits as a condition of issuing a GFE as such a requirement may inhibit borrowers from shopping for the best loan by leading borrowers to believe that they are committed to obtaining a loan from that loan originator.
If you have provided all the information stated above to complete an application, including a property address, your mortgage originator must either issue a good faith estimate within three business days or deny your application. If they do not, they are violating RESPA.
Doesn’t surprise me. Everyone said that new form was going to be a fustercluck. No one wants to go through the headache of the new GFE if the borrowers aren’t reasonably committed and still shopping around. I see all kinds of Gfe like forms… no one sends out the real GFE until the rate is locked from what I am seeing. Not saying it is right, but that is the reality.
Russ, the other day, my clients who are making an offer on a home gave me the home address and I gave them a Good Faith Estimate. I’m 99% sure that if I have all 6 points, I must issue the GFE or cancel the loan w/in 3 biz days. Now I could try waiting to see if the offer is accepted in that time…but I believe that
1) if they don’t buy that home, it will constitute a “changed circumstance” (which is why HUD should just go ahead and allow TBD addresses to be a “cc”) and
2) locking in a rate IS a changed circumstance.
If an LO has all 6 points and is refusing to provide a GFE because the loan is not locked, they’re violating RESPA… and HUD’s nice-nice time for LOs to adjust ended last month.
I definitely agree with you, but there are some practical real world problems that I am seeing.
Sometimes you don’t know everything that needs to be on the GFE even if you have those six pieces of information. Transfer taxes, title insurance, etc. We are being told here that we have to include seller transfer taxes, owners title insurance, etc. No LO wants to stick their neck out and be held liable for things we don’t even control until all information is on the table. Often times that is beyond three days. Especially if you really want to be accurate, otherwise the GFE is just wasting paper.
Just because you have all that information, the consumer may not even be shopping you requesting a GFE. Think about refinance applications. They may be deciding if they even want to bother, not really shopping around. The vast majority of consumers don’t understand or even care about the 3 day rule. You have past clients calling you about refinances and technically you have all six pieces of information from the minute your phone rings. However, there also times when you don’t even know what your fees will be nor does the client know what they want. I can’t tell you how many times I get borrowers who are unsure if they want to pay points, no points, some points, closing costs, etc. It winds up being very iterative, yet if I issue the GFE too early, it can make it difficult to be accomodating to those borrowers.
The rule’s intent is good like most of these regulations, but they often lack in the ability to follow them to the letter in the real world.
Russ, I agree. I still think HUD should have designed the GFE w/2 boxes: prelimnary (for shopper/tire-kickers) and guaranteed so that a shopper could say, I like my preliminary GFE, can you guarantee it?
Currently the GFE has no wiggle room for errors… the other day, I almost missed an owners title policy at a cost of $2000. In WA state, the buyer doesn’t pay for this fee either… it would have cost me dearly (2000 – 10% tolerance) and not benefited the buyer in anyway.
I’ve had an LO contact me working in other states who have missed an FHA upfront funding fee–her buyer knew it and was okay with the LO re-issueing a corrected GFE…but I’m not sure HUD would technically allow it. On a $300,000 loan amount, this would cost the LO $6750 less the 10% tolerance.
At a seminar, I heard of one LO who is totally padding their fees to make up for any errors…I think that’s a poor excuse for doing business as well…
I had a HUD where I put the $89 tax service fee in the wrong section of the GFE…so even though I property disclosed the fee, because it was in the wrong spot, I wound up having to pay for it (or it went towards my tolerance).
This document is very frustrating…it takes longer to produce because I’m double and tripple checking it.
Today, since I’m doing a lot of rate quotes and lock due to our current low rates, I’ll probably be waiting to work up my GFEs until after hours.
Hi, I am a new buyer … with a question regarding the GFE. I am brand new to this world, so I apologize if this is a dumb question.
I read that I should shop around to a few banks and get a GFE to see who can give the best deal. I was pre-qualified by my personal bank but my Loan Officer denied me a GFE. She stated she cannot give me one until my offer is accepted for a home.
How am I supposed to shop around for the best deal, if they won’t give me a GFE until I’ve found a home & been accepted? My intent of the shopping around is to be ready when the home comes along.
Shanna, your question is excellent and you’ve just first hand discovered one of the major flaws with HUD’s Good Faith Estimate that was required effective 2010. A LO can issue a Good Faith Estimate without a property address–however we’re not allowed to issue a new one once you have a property address.
Here HUD spent all this time, effort and tax-payer dollars to create this document designed for you to shop lenders–yet if a LO issues one–we are liable for certain differences in fees. Issuing a Good Faith Estimate with a “to be determined” address is a significant risk that most will not take.
Once you have a property address, your LO should be able to issue a Good Faith Estimate.
In the meantime, mortgage originators should be able to offer you some sort of “rate work sheet” which HUD is allowing, which does not carry the same liability for mortgage originators–this can help you “shop”.
I almost got burned. Borrower buying an REO. The contract says the borrower has to pay the transfer tax even though the seller customarily pays it. I am sure if this got to closing, they would have said I have to eat the transfer tax if it weren’t disclosed on my initial GFE as a borrower cost even though there is no reasonable way I may have known that at the time the GFE was issued. I just caught it because I have been adamant about getting fees from attorneys and title companies BEFORE a GFE is issued…
Russ, that stinks… will you issue a good faith estimate without a purchase and sales agreement or property address?
Nope. Too much liability if something changes that could affect how I would price the deal. For instance, I have had deals where the client says they are buying in Suburb X… Suburb X does not have transfer taxes. However, they actually wind up buying in Suburb Y which does have buyer transfer taxes. If I issued the GFE off Suburb X with no transfer taxes, would I then be liable for transfer taxes in Suburb Y where they actually wind up buying.
The bottom line is that no one is going to expose themselves to the liability associated with issuing a GFE too early. The best any consumer is going to get these days is a worksheet until they are actually under contract.
For consumers, this obviously is problematic, but I would also say consumers need to get out of this “best deal” mentality as well and really learn how mortgage finance operates. There is so much more that goes into getting a mortgage than an interest rate and with guidelines constantly changing every hour, consumers really need to focus on finding a LO from the start who can get the job done and not worry about .125 or even .25% in rate. A good LO will get a competitive rate.
Of course, this goes back to what I was trying to get Jillayne to see in the other thread that consumers simply care about their rate and nothing else… which is why they are constantly “shopping” for the best deal which in their minds means lowest interest rate and fees even if this approach is completely irrational. however, their monthly mortgage payment is what they see, so that is all they are going to care about.
Thanks for that info! I was unaware of the LO’s perspective regarding fees, etc.
As I mentioned, I’m one of many first time home buyers in the market today that are taught to “shop” and look for the best rate. I am trying my best to be cautious of all factors, but it is somewhat difficult to figure out what factors are important. Many LO’s aren’t always as helpful and educational as they should be and websites all have their own personal perspectives.
Russ, since you mentioned that buyers are too worried about rates most of the time, are there other things we should be concerned with, instead, that are more important to the overall loan.
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