Good Faith Estimate changes
GFE proposed changes
The Department of Housing and Urban Development has proposed major changes to the 30-year old mortgage settlement rules. The centerpiece of the new Real Estate Settlement Procedures Act rules would be creation of a standard good faith estimate (GFE) disclosure of settlement charges, which lenders are required to give borrowers who inquire about the rates and terms of a home loan.
HUD says standardizing the GFE will provide a more open disclosure of the key elements of a loan that will help borrowers make better comparisons among their loan options. They are hoping the new process will also address an issue that some mortgage borrowers have faced: being confronted with charges or loan terms at settlement that were unexpected.
The new GFE will require that, along with the interest rate and monthly payment, the disclosure states clearly whether that interest rate and the principal balance can increase and by how much, and whether the loan has a prepayment penalty or balloon payment. Yield spread premiums, which affect the interest rate charged must also be disclosed on the GFE. Total estimated settlement charges will be prominently displayed on the first page of the new GFE for ease of cost comparisons. HUD proposes to specify which charges can and can’t change at settlement and by how much. The familiar HUD-1 form will also change to help compare the charges on the GFE with actual costs.
HUD proposes that settlement agents read a “closing script” to borrowers at settlement, detailing the terms of the loan and comparing the GFE with the actual costs. HUD says consumer tests have shown that the new procedures helped borrowers to choose the lowest cost loan more than 90% of the time. This is without a doubt the most over-regulated industry in the U.S. More red tape, more disclosures, more babying the entire group because of the few “victims” hurt by bad brokers. Hopefully the changes implemenented will make sense and allow capitalism to prevail and not the government overregulation and dumbing down of everything.
© 2008, Real Estate Information Services, Capitol Assets, Choice Real Estate, Inc. & Choice Real Estate of VA, Inc., & Choice Finance®
April 11th, 2008 at 10:32 am
Hud’s specific changes to the Good Faith Estimate and the Hud-1 Settlement Statement are massive.
Hud’s stated principles that guide these changes:
“1. Borrowers should receive loan terms and settlement cost information early enough in the process to allow
them to shop for the mortgage product and settlement services that best meet their needs;
2. Costs should be disclosed and should be as firm as possible to avoid surprise charges at settlement;
3. Many of the current problems arise from the complexity of the mortgage loan settlement process. The
process can be improved with simplification of disclosures and better borrower information;
4. Increased shopping by borrowers will lead to greater pricing competition, so that market forces will lower
prices and lessen the need for regulatory enforcement
5. The key final terms of the loan a borrower receives should be disclosed to the borrower in an
understandable way at closing; and
6. HUD will continue to vigorously enforce RESPA to protect borrowers and ensure that honest settlement
service providers can compete for business on a level playing field. ”
and hope their new framework will
“(1) Improve and standardize the GFE form to make it easier to use for shopping among settlement service
providers;
(2) Ensure that page one of the GFE provides a clear summary of loan terms and total settlement charges so
that borrowers will be able to use the GFE to comparison shop among loan originators for a mortgage loan;
(3) Provide more accurate estimates of costs of settlement services shown on the GFE
(4) Improve the disclosure of yield spread premiums to help borrowers understand how they can affect their
settlement charges;
(5) Facilitate comparison of the GFE and the Hud-1/Hud-1A Settlement Statements (Hud-1 settlement
statement or Hud-1);
(6) Ensure that at settlement, borrowers are aware of final loan terms and settlement costs, by reading and
providing a copy of a “closing script” to borrowers;
(7) Clarify Hud-1 instructions;
(8) Clarify HUD’s current regulations concerning discounts; and
(9) Expressly state when RESPA permits certain pricing mechanisms that benefit consumers, including
average cost pricing and discounts, including volume-based discounts. “