The New Good Faith Estimate (GFE): Some Glaring Omissions

by Rich Vetstein on February 2, 2010 · 9 comments

in Closings, HUD, Massachusetts Real Estate Law, Mortgages, RESPA

Lenders have been using the new Good Faith Estimate for a little over one month now. Gauging from the vociferous complaining in the lender blogosphere, it is an understatement to say that many lenders believe HUD really blew it with this new form. One would think that the new 3 page GFE would provide everything a borrower needs to know about what she’ll pay at closing, yet the new GFE inexplicably fails to provide at least 5 critical pieces of information for home buyers:

  • the total monthly mortgage payment (including escrows, taxes and insurance)
  • total cash needed to close
  • escrow amounts for real estate taxes, hazard insurance, and PMI
  • seller paid closing costs
  • Loan-to-value ratio/down payment

The GFE’s failure to provide this essential data about the loan is why one mortgage lender called the new GFE “the single worst government form dumped on the real estate industry.”

Surely, every borrower wants to know their total monthly mortgage payment month and how much cash they’ll need to bring at closing. Borrowers also want to know ahead of time how much the tax and insurance escrows will be since they have to pay several months in advance at the closing. Since the new GFE doesn’t provide this important information, lenders are filling in the gaps with their own custom made loan worksheets.

Some have complained that these worksheets are a work-around the new rules, but lenders have an obligation to provide borrowers with the full financial picture of the loan. The criticism is unfair, in my opinion, if the intent is to fill in the informational gap of what the GFE fails to provide.

The new GFE may be an overall improvement to the hodge-podge of good faith estimates previously used by lenders, but it’s certainly not the Messiah that HUD billed it out to be.

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  • Anthony Machado

    My view is that if you’re in the market to purchase a house, you might fall into two basic categories: somebody who has a vague idea of what a “GFE” even is, and who showing the completed form to [new version or old] would be meaningless without some substantial Wikipedia and Google research on their part or a very patient mortgage broker or realtor, and who a simple “this is what you gotta pay each monf” is gonna be more than adequate to satisfy. And apparently – if your experience is really that the new form has made such little difference – who are in good enough financial standing to not care whether they are getting ripped off with exorbitant closing fees [or more likely/unfortunately, are simply ignorant completely of the fact, at their own peril]; so you might be in that category, OR, might fall into the category of somebody who more or less gets, or has sought out information to understand the various individual fees/costs that add up to the final closing cost, and who might not have thousands of extra dollars to spend on needlessly higher fees where cheaper alternatives are available, and to whom individual fee amounts like title insurance and underwriting/processing of a particular lender actually truly really MATTER. So as someone who sees himself in the latter category, I’m thrilled that the new GFE form was created and that there was even enough governmental focus/awareness of this issue to realize that a new one was direly needed. Never mind that the glaring omissions can be filled in through simple addition [again, I realize not all buyer’s will fall under this category, and I don’t necessarily fault them for it so long as it’s not an issue of laziness, as everybody is different; but not understanding the value of the form and thinking that all buyers are in that first category is a mistake].

    And just as a little corollary to this issue, I was amazed at the stuffy, tone-of-being-insulted responses I would get from lenders upon asking questions like “what approximately would you charge for x and y fee?”, as if to say “why don’t you just let me worry about that Chief, you worry about this dotted line…” As if I am not the one who has the option of dozens of mortgage-lending companies, as if I’m not doing them the favor by considering them

    Generally when I see an issue like this, it always astounds and infuriates me that the reform was even necessary, that people/business’s better nature didn’t preclude the need for it; but that’s vastly naive thinking and my general lingering impression is that people and organizations will always act primarily and maybe only in their own interest. So government regulatory organizations should definitely air on the side of more transparency/protection against predatory practices. I see the battle as less of the evils of government vs the evils of private industry [and certainly it exists in both], and more of a bitter, year after year struggle of too-few and too-inept government officials attempting to protect common people against self-interested predatory/callous practices of private organizations. It’s a constant game of cat and mouse. Now, whether all members of such organizations [like individual brokers, underwriters, realtors, etc.] deserve such a high amount of vitriol is a very, very different matter, and I have come into contact with more than a few whose service and assistance I am very satisfied with. But to me it’s very foolish to be so aghastly surprised as to why a new HUD form like this would be released, and condemn the attempt, and argue that we ought to just trust lending organizations to sort things out on their own. Rather than air on the side of protecting the average citizen
    So, that’s my two cents. /rant

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  • How is it possible to get in touch with “the” creator of the new GFE form and program? The process, while good intentioned, is not user friendly to either the home buyer or the lender.

    • Joe, Brian Sullivan of HUD has commented on this post. See above. You should contact him, although there was a number of folks with industry input ultimately responsible for the new HUD, I am sure.

  • Brian, I take issue with your comment that it helps borrowers shop, on the contrary it makes borrowers want nothing to do with the form. Lets be honest about the form – it makes it harder for a borrower. Having a lender show costs that he/she would never have to pay, is confusing and hurtful to borrowers that are not financially savvy. The fact that the lender has to disclosed as costs to the buyer items such as a survey, owners title policy, transfer stamps, termite inspections, etc (all costs paid by the seller in Illinois) simply shows that the creators of this form have no idea what borrowers actually need or want. This form was a pet project of politicians that did not listen to their own “test” studies by consumers.

    One more thought is the form is not a good faith estimate of costs…it is more a recap of all fees paid or that might be paid (even if the don’t exist in this transaction) by both buyer and seller with no clarification as to who is responsible for paying them…a real good faith estimate would give the borrower an accurate representation of what their costs would be at closing. It would allow for the borrower to see the costs and who was paying them.

  • Really good thoughts all but let’s remember what the purpose of the Good Faith Estimate is. It’s intended to allow consumers to shop for mortgage loans on an apples-to-apples basis. It makes it extremely difficult for consumers to do this comparison shopping if you include all of the estimated fees in a their loan closing that are not associated with the loan itself. Having said that, there’s nothing to prevent a lender or broker from disclosing these other costs to the borrower. Again, the GFE is a shopping document for loan comparison and was never intended to be the primary document to disclose the required cash to close.

    • Thanks for the comment Brian! It’s nice to see that you folks at HUD are “listening.”

      What’s HUD’s stance on lenders using their own worksheets to supplement the GFE and its failure to provide the basic information mentioned in my post?

  • Another excellent post.

    The new GFE is a nightmare.

    I have been in Mortgage Banking for over 8 years and never once had an issue with a GFE I have sent out. And why would I now? Just like you said Rich the new GFE actually lacks very important information for a current Borrower or potential Homeowner. This comes down to your relationship with your Banker. 617.771.5021

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