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.