The government decided that a one-page Good Faith Estimate (GFE) was not adequate for the home buyer. Consequently, they have done a Real Estate Settlement & Procedures Act (RESPA) reform changing the original act that became law in 1974. This reform was supposedly done to benefit consumers (for a longer explanation of RESPA click here 🙂
The concern with the original GFE was that unethical loan officers and Mortgage Brokers were not completing the form properly. Leaving off known fees which the buyer in responsible for at closing. Anyone who has purchased a home knows that the GFE rarely matches the HUD-1 settlement.
Mortgage Brokers are able to produce a GFE however they see fit. At the beginning of my career as a Mortgage Broker I created a template for each loan transaction – a beginning point, if you will. This template is only as good as the figures that are plugged into it. Figures for lender’s fees, legal fees, title fees, state fees, county fees, survey fee, insurance, etc. are always subject to change. For this reason I update my template quarterly which enables me to be as accurate as possible. I strive to make my GFE as close to the HUD-1 settlement as possible. Legally, I was not required to update the template until January 1 of 2010 when the RESPA reform took effect.
The GFE you will now see is a binding contract between a Mortgage Broker and the client. In the old days (December, 2009!) an origination charge meant the fee paid to the Mortgage Broker for originating the loan. In January 2010 for the convenience of the consumer to shop the loan, several fees were bundled together. They are now broker originator fees, all lender fees and broker processing. Those new origination charges have zero tolerance and may not differ from the final HUD-1 settlement statement. For title fees and government recording charges, the creators of this bill recognized that there might be some variance in these fees and allowed a 10% difference at closing. If there is a change- the Mortgage Broker pays!
To sum it up, this will be a most interesting first quarter. My prediction is that you will hear a great deal more about this both from the national and local media in the next few months as the first of these loans under the new RESPA reform begin to close. Questions?