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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