IRS and Homebuyer Tax Credit: obtaining a”signed” Final Settlement Statement

This is tax time.

Sometimes escrow offices wonder if we are CPA firms during tax time.   Our office has received numerous phone calls from clients that are in need of their “signed” Final Settlement Statements.   Lynlee wrote a quick post on our blog with an IRS link addressing what the IRS may need from borrowers to claim the tax credit.

As always, please contact your CPA or tax professional for specific details regarding claiming the homebuyer tax credit.

We contacted a CPA and they responded:

“we generally have found that the Final Settlement Statement (with NO signatures) are acceptable.”

Why?  Because in Washington State (and other escrow states) Final Settlement Statements do not have signatures from borrowers.   Final Settlement Statements are mailed to clients after a transaction is closed.  Estimated Settlement Statements are signed at escrow prior to your transactions being closed.

New vs Old Good Faith Estimate Continued…

NOTE:  This is just my interpretation of the new GFE and I am only a mortgage originator and blogger. This post is just based on my opinion.   Please check with your compliance department at your mortgage company to learn about the GFE requirements.

Previously, I reviewed page 1 of the 3 page good faith estimate which will be required for all residential mortgages effective with applications as of January 1, 2010.   We’re moving on to page 2 of the new good faith estimate and comparing it to the old Good Faith Estimate that I (and many) have used.

The current good faith estimate, which is to be retired at the end of this year, provides a line itemization of closing costs.  

Section 800 of the dear old good faith estimate for the most part contains what the new good faith estimate is now on page 2 of the HUD’s Good Faith Estimate.

What used to be line itemed in Section 800 of the old GFE is now for the most part, lumped together under “Your Adjusted Originated Charges” less third party fees. When you look at the current (soon to be retired GFE); I’m basing this on lines 801, plus lines 811 – 814 even if the seller is paying the fees…by the way, there is no place on the new Good Faith Estimate that shows the seller credit…but if you don’t disclose the funds for closing, I guess HUD feels that point is moot!

Block one of the Good Faith Estimate cannot change–once a GFE is issued, unless it qualifies for a “changed circumstance” or the GFE “expires”, the Mortgage Originator is bound.   A “changed circumstance” is not as easy as it sounds…and warrants a post of it’s own.   They must be documented on only the fee impacted by the changed circumstance is allowed to be modified.  Mortgage originators should be prepared for banks/lenders to balk at your explanation of the changed circumstance–expect to have to “eat the cost” difference if the bank doesn’t “buy it”.

Quick reminder, this post is just to compare a specific FHA scenario based on a current and the new GFE–so if a LO has discount points or YSP, this would look different and it will take a follow up post to review it.

The next section on the new GFE is “Your Charges for All Other Settlement Services“.


Block 3 of this section are items the lender selects and that the borrower cannot. Since this scenario is an FHA loan, it includes the FHA upfront mortgage insurance. This section is subject to the 10% tolerance in aggregate “bucket”. On my old GFE, comparing estimate to estimate, these specific fees would be found on lines 803, 809 and 902.

Block 4 is for the lenders title insurance policy and the escrow fee/settlement services. They’re now lumped together. It doesn’t matter if it’s the same company or not. If the borrower selects a provider from the list provided by the lender, it’s subject to the 10% tolerance. If the borrower deviates from the list, there is no limit to how much the fees can adjust. If the lender does not provide a list, there is zero tolerance from the good faith estimate to the HUD-1 Settlement Statement. I suspect that some big banks will use this to try to capture title or escrow business. On my old GFE, these fees were shown on lines 1101 and 1108.

Block 5 is a doozie. HUD does a great job contradicting themselves with whether or not the owners title insurance policy fee needs to be disclcosed here. In Washington State, this is typically a fee charged to the seller. Yet it really appears as though HUD wants this cost disclosed to the buyer EVEN IF THEY’RE NOT PAYING IT. This fee is not on the old GFE.

Block 7 are the recording fees and is shown in section 1200 of my GFE. Even recording fees that the seller typically pays may be disclosed here. This is shown in section 1200 of my old GFE.

Block 8
is for “excise tax” and it’s my understanding that the only county in our area where the buyer actually pays a portion of excise tax is San Juan County. If I’m wrong–please correct me!

Old/existing Good Faith Estimate below shows the items the lender requires to be paid in advance (prorated interest, 1 years home owners insurance for a purchase and the upfront FHA mortgage insurance) and the left and what is required to start the reserve account.  NOTE:  this is my personal GFE (generated from Encompass).


Block 9 discloses what is charged to start your escrow reserve account (line 1001 and 1004 on my old GFE).

Block 10 is the prorated interest based on the day the loan is closing (line 901 of my old GFE).

Block 11 is the estimated (in this case) annual home owners insurance premium which is disclosed on line 903 of my old GFE.

If you add the “adjusted origination charges”  (Box A)  to the “your charges for all other settlement services” (Box B), you come up with a “total estimated settlement charges” (which also includes the owners title insurance policy which is not paid for by the buyer in these parts).    Again, this does not factor in any seller credit–the only credit factored into the new GFE is in the form of YSP (yield spread premium).


I’m going to miss you, Old Good Faith Estimate!   The two things home buyers ask most from the lender (after what’s your rate) is “how much is my payment going to be” and “how much money do we need for the down payment and closing costs”.   HUD’s new GFE answers neither.

reblogworld, Baby!

I can’t tell you how much I’m looking forward to participating at RE Blogworld in LasVegas this week.  I feel like I’m inrebw_final “nerd-vana”…in a good way, really!   I’m going to be on a panel with Jay Thompson, Derek  Overbey and Jeff Turner moderated by Matt Fagioli.  We’re going to be the “first track” on Thursday, October 15,  covering Using Social Media for Real Estate.    And if the bantering I’ve witnessed via emails together is any indicator of what our panel should be like…it’s going to not only be informing…it should be entertaining as well.    I’m totally honored to be included with this group and to be taking part in this event.

Social media has done so much for me and my career.  I absolutely love writing for the consumer and being able to work for people I “attract”  (and my past clients) instead of having to use “cold” methods such as post cards to strangers, up-calls or paying for “leads”.   I’m looking forward to learning more ways to fine tune and streamline social media.

I hope to write a post while I’m at Blog World…I’ll have to see how things go.  Odds are that you may not be seeing rates from me on Friday.  Because I’ll be in Vegas, Baby!  🙂

It’s September 17, 2009 and I still originate mortgage loans…

For those of us to whom this statement applies there are a few obvious questions that immediately come to mind:  Why am I still working in this God-forsaken wasteland of an industry?

  • A) Nobody else is hiring in this booming economy,
  • B) I wanted to move to Nome Alaska but I couldn’t trade my upside down mortgage for a thatched roof yurt and a dog sled, or
  • C) The positive image of my career as portrayed by CNN makes me feel like a rock star.

Seriously, for the love of God Why!?

2009wampconnectIn all seriousness those of us that remain are not that different than survivors of a natural disaster. The clouds dissipate; the water level recedes and her we are – the survivors of the storm.  Not unlike the analogy the first thing that a ‘survivor’ must do is identify the resources that one needs to rebuild and restore one’s life. It is with this in mind that I invite you to WAMP’s Connect event coming up in Bellevue on October 5th and 6th

The Connect event offers each of us the opportunity to come together and meet all of the other survivors face to face. We’ll be able to reflect on what ‘once was’ and still more importantly the ‘what is’. As is the case in any disaster, the landscape we live in professionally is dramatically different than where we’ve been. The resources are certainly more limited – remember the days of quoting ‘hundreds of lenders and programs’? Now it’s more like ‘five lenders and programs’ – and we’re all using the same five!

Fewer programs and tougher guidelines are the realities of the aftershock and yet another reason to learn what others are doing to be more efficient and succeed in this new landscape. The Connect Event also offers the knowledge of how to seed your landscape for tomorrow. New technologies and lead sources like the Zillow Mortgage Marketplace, social network marketing (can you tweet for dough?), and the brace of brave new lenders that have sprung up alongside the resilient and steady familiar faces; they’ll all be represented at the Connect Event. The Connect Event will be nothing short of a meeting of survivors learning how to forge their professional landscapes for tomorrow – so don’t miss out!

There are very few lifeboats in this economy. There have been far more casualties than survivors. Come and be counted among the living. Come to Connect and learn how to forge a better tomorrow for yourself and for the industry you work in. Face it – If we don’t see you at Connect we’re going to suspect that you traded the house for the dog sled and the yurt – Don’t be ‘gone missing’

Are you going? REBarCampSeattle and more…

logoThere are a ton of great Seattle real estate events in the near future with RCG contributors playing a huge part, so last week I asked RCG contributors to let me know which events they were going to be participating in and I thought I’d give a quick summary…

REBarCamp Seattle, 9/8 (tomorrow!):

  • A gathering of passionate real estate professionals. A casual, open, and fun way to learn about cutting edge real estate marketing ideas.
  • RCG Contributors attending include: Rhonda Porter, Ardell DellaLoggia, Galen Ward, and Cortney Cooper

SCKAR Event, 9/22:

  • How how to use Social Media panel discussion with Rhona Porter, David Gibbons and Matt Heinz.  Moderated by Claudia Wicks.

Lenders Connect (WAMP), 10/5:

  • 18th Annual wholesale lenders conference
  • Rhona Porter, Jillayne Schlicke (speaker)

REbarcamp Bellevue, 10/6:

  • Rhonda Porter (organizer!), Ardell DellaLoggia

Washington State Association of Realtors Convention, 10/12 & 10/13:

  • Jillayne Schlicke (speaker)

Also, if you check out the event conversation on FB, you’ll see that there’s also a variety of courses being taught by RCG contributors in the near future!

And If you’re gonna be at any of these events, let us know to look out for you!

The Fed’s new GFE Helping to Insure Consumers Get ‘It’?

[Editor’s Note: I’m excited to publish this guest post from Adam Stein on changing role of good faith estimates. He’s a long-time local mortgage professional with Cascade Pacific Mortgage. ]

ftc screengrabThe FTC study reported on the proposed new Good Faith Estimates early on in 2005. Armed with a very thorough and unbiased study the FTC went on record, early and often, and clearly stated the FTC’s position on (then) HUD’s proposed revised Good Faith Estimate:’ DON’T DO IT!’ It seems the FTC’s findings clearly showed that consumers failed to be able to choose what loan was in their best interest when comparing rates and fees. [here’s the FTC’s Facts for Consumers: Looking for the Best Mortgage: Shop, Compare, Negotiate] So much was the confusion caused by the new Good Faith Estimate that over sixty percent of the consumers could not identify the best loan for them when comparing Good Faith Estimates generated by mortgage brokers and mortgage bankers. HUD, not to be outdone, quickly came to their own rescue with their own ‘not-so-unbiased’ study. HUD, supporting their own, quickly produced a study stating that the consumer really does understand the new disclosure (Really?).

And so the battle over RESPA reform has been waged for the better part of the last ten years. At one point the Secretary of HUD attempted to ‘slip RESPA reform under the mat’ by submitting the proposed rule just hours before Congress went on recess. Those who would have been impacted by the rule change clearly and accurately viewed this effort as ‘under handed’ as much of the required ‘commentary period’ passed by without any representative government in session to discuss the proposed RESPA reform. That effort failed in the end. The banking special interests, however, have finally figured out how to get a Good Faith Estimate through the rule making process under the guise of ‘what you can’t buy in an administration you’ll just have to do yourself’. Enter the Federal Reserve Board.

While the FRB sounds like a branch of the Federal Government it really isn’t. The Federal Reserve is a codified, private sector, coalition of the nation’s largest banks and finance companies who collaborate and advise government on key financial issues. The Federal Reserve Board also is empowered to regulate the Truth-in-Lending Act (TILA) and promulgate rules as required. Is it any wonder that the new Good Faith Estimate, vilified by the FTC for creating consumer confusion, creates a bias towards Good Faith Estimates that are generated by banks over those prepared by mortgage brokers?

My concerns are twofold: if the consumer can’t properly identify the best loan they will pay more; if mortgage brokers appear less competitive due to the disclosure of indirect compensation the mortgage broker channel will be reduced if not eliminated.

Mortgage brokers were initially the scapegoats of the ‘mortgage meltdown’. More recently, however, the broader aspects of derivatives and the role played by Wall Street and the nation’s largest investment banks have come to light. I find it ironic that now, after the creators of toxic assets have been exposed, that the FRB will promulgate rules that make their disclosures deceivingly more appealing to consumers. In the end the rule will hasten the consolidation that is already occurring in this battered real estate economy. There will be fewer choices for the consumer to choose from, moreover; when the consumers do choose their mortgage over sixty percent will choose higher rates and fees thanks to the new disclosures. Way to go FRB – You have successfully reduced, if not eliminated, competition in the mortgage marketplace and virtually guaranteed the mortgage shopping consumer will get it ‘in the end’.

How About a ‘Disappointment Index’ for Real Estate

Tim just posted an interesting set of stats on Redfin, titled Biggest Discounts, and one of them particularly caught my eye.  His primary topic was the difference between Final Listing Price and Sold Price and how that varies by area.  But what caught my eye was the final chart that showed discounts from Original Listing Price to Final Sale Price.  This hit right on a topic I have been thinking about for some time, that I had mentally labeled the Disappointment Index.  In a very real sense, it represents the difference between what a Seller hoped to get for their home, and what they actually got after perhaps many months and many price reductions. 

Presumably a Seller, in consultation with their agent, has consciously decided what they want to ask, and get, for the property, and has some expectation that that might happen. So to the extent that they start with that expectation, then a subsequent completed sale for less is a disappointment.  And a 15% disappointment on a $500,000 house would be a big disappointment  – $75,000 not showing up in your bank account would be a very big disappointment indeed.

So here’s the question: why are these discounts so big? 

Are the agents not able to estimate market value and expected selling price any better than that?  Or are the Sellers not listening to their agents and overriding them? 

At what point does the listing agent walk away and let the Seller find a more compliant agent to list the house at a visibly above-market price?  Or does the agent take the listing and hope to work it down over a span of time, perhaps several months.  

Maybe this Disappointment Index is higher right now because both Sellers and agents are having trouble adjusting to current prices levels that are significantly lower than a year or so ago.  But it certainly does impede sales by leading to longer times on market, and lower buyer confidence in what the price really should be.

Collaboration: The important DNA in any small business

Collaboration:  Do you have this DNA in your small business?  Is it part of your mission statement or mantra?

This is not so much an insight into how a successful real estate transaction comes to fruition as much as it is a testimony of what makes any task, job, objective or goals conclude with a positive outcome.  Whether you are in the military and command a small unit of soldiers or, what I commonly describe the role of  a Realtor as,  “the Conductor

Mortgage Disclosure Improvement Act: New Waiting Periods on Mortgage Transactions

In an early post, Ardell wrote about the significance of a buyer being able to close quickly…new regulations may put a damper on that.   With mortgage applications taken after July 30, 2009, waiting periods will go into effect with regards to when and how disclosure forms are provided to the consumer.   The Mortgage Disclosure Improvement Act (MDIA), which modifies the Truth in Lending Act (TILA), was originally going to become effective on October 1, 2009, however the effective date was moved up two months which may catch some real estate professionals by surprise.

Here are some of the details:

Good Faith Estimate and Truth in Lending Disclosures….required waiting periods.

Under MDIA, early disclosures are required for “any extension of credit secured by the dwelling of the consumer.”    Three business days from application, the consumer must receive an initial Good Faith Estimate and Truth in Lending (unless the borrower is denied at application).   

The earliest a transaction can possibly close is seven days after the initial disclosures have been issued by the lender (delivered in person, mailed, emailed, etc.).    This is assuming no re-disclosure is required.

Re-disclosure (waiting periods after the early disclosure and corrected disclosures) of the GFE/TIL are triggered if the fees and charges are more than 10%; if the APR is more than 0.125% or a change in loan terms.   Three business days must pass in the event of re-disclosure.   Re-disclosing is nothing new, it typically happened at closing–this will no longer be acceptable.    Mortgage originators “should compare the APR at consummation with the APR in the most recently provided corrected disclosures (not the first set of disclosures provided) to determine whether the creditor must provide another set of corrected disclosures”.   Double check those APRs prior to doc!


“The Commentary added by the MDIA Rule expressly provides that both the seven-business-day and three-business-day waiting periods must expire for consummation to occur.  The seven-business-day waiting  period begins when the early disclosures are delivered to the consumer or placed in the mail, and not when the consumer receives the disclosures.  The three-business-day waiting periods begin when the consumer actually receives or is deemed to receive the corrected disclosures.  If corrected disclosures are mailed, the consumer is deemed to receive the disclosures three business days after mailing.  If a creditor delivers corrected disclosures via email or by a courier other than the postal service, the creditor may rely on either proof of actual receipt or the mailing rule for purposes of determining when the three-business-day waiting period begins to run.”

Consumers have the right to waive or shorten the MDIA if “a consumer determines that an extension of credit is needed to meet a bona fide perosnal financial emergency”.  

No monies may be collected from the borrower with exception to a “bona fide and reasonable” credit report fee until they receive the initial disclosures.   This may cause a delay of when an appraisal is ordered.  Most lenders require an upfront deposit to cover the cost of the appraisal.    The collection of fees rule may also cause potential issues if a borrower is doing a certain type of lock (some with float down or extended lock periods require an upfront deposit).   NOTE:  HVCC requires the borrower receive a copy of the appraisal at least three days prior to closing.

Tim Kane can attest that there is nothing worse than a borrower learning at signing their final loan papers that the fees are significantly higher than what was originally disclosed.  I’d like to think that all mortgage originators redisclosed WHEN modifications to the transaction/fees take place…obviously, this has not been the case.  

DFI covers MDIA here

Re-disclosures could become a “holy hand grenade” to quick closings.

Lower Interest Rate – Escrow Timeframe

1) How long is Escrow?

The correct answer is it can be as long or short as the buyer and seller want it to be. However a long escrow timeframe can cause an escrow to fail, because it can create a situation where the buyer no longer qualifies for the mortgage. Just because the buyer qualified when the offer was submitted, doesn’t mean the buyer will continue to qualify on the day the lender is supposed to fund the loan so the escrow can close.

A lender assumes a given interest rate when they qualify the buyer. If that interest rate is different for the reasons detailed below, at time of close, the buyer may not qualify at that changed interest rate.

2) Why do most agents write a contract to close in 30 days or less?

Dan Green of The Mortgage Reports wrote a post today explaining why a shorter escrow timeframe equals a lower mortgage interest rate. His post explains that a 60 day lock “costs more” than a 30 day lock, often in terms of higher interest rate vs. higher cash costs to close.

In order for the buyer to get the rate they think they are getting, they have to be able to lock that rate for no longer than 30 days. While the buyer is not required to lock that rate, it should at least be a possibility. If a buyer looks at a rate quote of 5%, they often are not told that assumes a rate lock period of no more than 30 days. So if they sign a contract to close in 60 days, and then try to lock the rate in the first week of their contract, they will find the rate to do that is higher than the rate they were quoted the day they made the offer.

The rate can change in a few hours without the issues noted in this post. But even if the rate does not change at all, the rate will be higher if you try to lock it through a 60 day closing vs. a 30 day closing.

The honest lender who asks “what is your proposed closing date” and gives you a “60 day lock rate quote” will be higher than the lender who assumes a 30 day lock. Be sure the lenders are using the same parameters when quoting you a rate prior to making an offer, so that you are comparing apples to apples. In this scenario the most trustworthy lender could appear to have a higher rate, when they are being most honest about the potential for rate if you lock for 60 vs. 30 days.

3) How does the closing date timeframe, chosen at time of offer AND ACCEPTANCE, impact the buyer and seller in other ways?

Buyer A gets a pre-approval letter the day they are submitting an offer. The lender pre-approves the buyer for a $300,000 mortgage at 5%.

Seller B accepts the buyer’s offer BUT asks for a 90 day closing, as the home they are moving to is new construction, and won’t be completed for 90 days.

Buyer A accepts the seller’s counter-offer as to closing date.

30 days later the buyer sees interest rates rising and wants to lock the rate. The lender quotes the “lock rate” and the buyer is confused. “I see the rate on your website is 5%. Why are you quoting me 5.25%?” Lender explains that a 60 day lock vs. a 30 day lock adds 1/4 of a % point to the mortgage interest rate.

Here’s where it gets REALLY complicated…if the buyer doesn’t qualify to buy the house if the rate is 5.25% vs. 5%, he can’t lock it. If he chooses to wait until the closing is within 30 days before he locks the rate, the rate could be at 5.5% at that time. If the timeframe for the finance contingency protecting the buyer’s Earnest Money expires prior to that time (and almost all do), the buyer is painted into a corner by circumstance.

Moral of the story is often a buyer CAN let the seller have 90 days to close if they are renting month to month. But a buyer must consider the impact of the interest rate floating out for 60 of those 90 days and/or the cost of locking for more than 30 days at time of contract.

Today, it is near impossible for a seller to stay in the property for more than 60 days from time of offer and acceptance. You can close in 30 days and let the seller stay or rent back from the buyer. BUT the buyer’s lender will not allow that seller to rent bank for an extended period. If the buyer is qualifying at an “owner occupied” interest rate, they will impose a maximum number of days that the buyer can rent it to the seller. Beyond that time period the buyer’s lender will consider it an “investment” mortgage, and higher investor interest rate and higher downpayment requirements, vs. an “owner occupied” purchase money loan.

The “ifs, ands or buts” that happen in a split second during negotiations, can change the “assumptions” made at the time the buyer received their preapproval letter. The lender is often not “in the room” while these negotiations take place, or consulted for every tiny change in close date or rent back terms. They most often don’t see those “changes” until the buyer and seller both sign the contract as finally negotiated.

These small changes can put the buyer’s Earnest Money “at risk” of loss. The agent is the “protector of the buyer’s Earnest Money”, as related to changes in contract terms during negotiations. Yet how many realize the changed position the buyer is put in when the seller counters for a longer close date?

We see thousands of articles on “How to choose an agent?” Perhaps asking the agent “what happens if the seller wants to close in 90 days, or wants to rent back for 90 days?”, is a better question than “How many homes have you ‘sold’ this year?” The cost of closing is VERY important to the buyer. Not closing at all, due to changes no one played out to the likely eventual worst case scenario, affects both the buyer AND the seller.

Agents don’t “sell” houses. Agents represent the buyer OR the seller AND the transaction as a whole, as it appears at time of offer…AND as it changes during negotiations and escrow.

Handing a contract to escrow and waiting for a commission check is no longer an option. Changes in lending BACK TO the old tried and true rules of the game, requires agents to be on their toes all the way to the day escrow closes…or doesn’t close.

Why are so many escrows not closing these days? Everyone asks that question. Truth is the skills needed by an agent have changed dramatically back to old school…and agents still think “it’s the lender’s job” vs. theirs.