The Good Faith Estimate

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1 Module 3 Module 3 The Good Faith Estimate

2 Explanation: This pdf is only a copy of the module slides. To proceed through the course, you must read and click through each slide.

3 The Good Faith Estimates (GFE) A mortgage loan originator must provide, in a clear and concise form, a good faith estimate of the amount of settlement charges the borrower is likely to pay. The GFE must include all charges that will be listed in section L of the HUD 1 Settlement Statement. It must be provided no later than three business days after receipt of the written application ( (a)(1)). The lender must provide the GFE to the loan applicant by hand delivery, by placing it in the mail, or, if the applicant agrees, by fax, e mail, or other electronic means ( (a)(2)). If the application is denied before the end of the three business day period, the broker is not required to provide the GFE.

4 The Good Faith Estimates (GFE) (Continued) For brokered loans, if the mortgage broker is the lender s exclusive agent, either it or the broker shall provide the GFE within three business days after the broker receives or prepares the application. When the broker is not the lender s exclusive agent, it is not required to provide the GFE if the broker has already done so, but the funding lender must ascertain that the GFE has been delivered ( (a)(5)(b). In the event an application is received by a mortgage broker who is not an exclusive agent of the lender, the mortgage broker must provide a good faith estimate within 3 days of receiving a loan application based on his or her knowledge of the range of costs. As long as the mortgage broker has provided the good faith estimate, the funding lender is not required to provide an additional good faith estimate, but the funding lender is responsible for ascertaining that the good faith estimate has been delivered ( (a)(5)(b). The funding lender is obligated by the mortgage broker s good faith estimate of settlement charges. If the application for mortgage credit is denied before the end of the 3 business day period, the mortgage broker need not provide the denied borrower with a good faith estimate. ( (b)(3)(i).

5 The Good Faith Estimates (GFE) (Continued) Standardized Good Faith Estimate A Good Faith Estimate (GFE) is a detailed break down of the cost of the loan, including all fees and charges. Lenders have, for many years, created their own formats for the GFE and prospective borrowers have often attempted to use the GFE as a tool to shop for a lender. In many cases this has proven to be difficult for the consumer because there was no consistency with the GFE forms. Each lender could use its own version of the GFE often presenting different information in a different manner. For example, one loan originator may call a fee a processing fee; another may call that same fee an administrative fee. Same cost charged to the consumer however; different categorization was frequently used to confuse the consumer. On January 1, 2010, a nationwide standardized Good Faith Estimate became mandatory. It is now required that lenders provide a standard GFE to all prospective borrowers. The GFE forms are designed to give borrowers a clearer picture of their mortgage costs, and to eliminate certain abuses within the lending industry. Lenders must use a standardized, three page form. The consumer can now match loan estimates, line by line, to find similar fees and charges in an effort to obtain the mortgage loan that best meets their needs.

6 The Good Faith Estimates (GFE) (Continued) Instructions for Completing the GFE Page one of the GFE contains six sections: Download GFE Here

7 The Good Faith Estimates (GFE) (Continued) Section 1: Purpose, Shopping for Your Loan, Important Dates Purpose Describes the GFE as an estimate of the consumer s settlement charges and loan terms. This section also provides information on additional resources available, such as, HUD s Web site HUD s Special Information Booklet on settlement charges and Truth in Lending Disclosures. Shopping for your loan This section advises the consumer that only they can shop for the best loan for them. Using the shopping chart on page 3 will allow the consumer to compare all the GFE s they receive and determine what lender best fulfills their requirements. Important Dates The mortgage loan originator must disclose the effective dates, of the GFE, to the consumer. Box number one provides the date the interest rate stated on the GFE is good through. This could be any period of time. The interest rate quote could be good for a day, week, year or even 10 minutes. There is no required minimum or maximum period of time.

8 The Good Faith Estimates (GFE) (Continued) Section 1: Purpose, Shopping for Your Loan, Important Dates Box number two reflects the expiration date for all other settlement charges disclosed on the GFE. These charges, according to HUD, should be available for a minimum of 10 business days ( (4) (c)). For example, if today is July 14, then the expiration date the mortgage loan originator would populate in this section would be July 28 Boxes three and four address the locking the interest rate on the loan. Box three states that the consumer must go to settlement within X days to receive their locked interest rate. Box four informs the consumer that they must lock an interest rate at least X number of days before settlement. Mortgage loan originators must be careful to clearly state the time frame locks may be accepted and confirmed by the lender. What days and what time of day, will requests for locks be accepted (business day, before 5pm). Locking in a loan on Sunday at 1am may not be an option.

9 The Good Faith Estimates (GFE) (Continued) Section 2: Summary of Your loan Download GFE Here

10 The Good Faith Estimates (GFE) (Continued) Section 2: Summary of Your loan The consumer is given specific information on their initial loan amount, term, initial interest rate, and the initial monthly amount owed for principal, interest and mortgage insurance. The mortgage loan originator must disclose if the interest rate can rise during the term of the mortgage loan. In addition the mortgage loan originator must answer yes or no whether the loan balance can increase, and if so, by how much. Other disclosures include statement detailing prepayment penalties and possible balloon payments.

11 The Good Faith Estimates (GFE) (Continued) Section 3: Escrow account information Download GFE Here Escrow account information is disclosed to the consumer. Consumers are informed that some lenders require an escrow account be established to hold funds for paying property taxes and hazard insurance premiums, due at a later date. The escrow funds may be in addition to the consumer s monthly amount owed. The consumer is also told that if they elect not to have an escrow account, they are responsible for these charges when due.

12 The Good Faith Estimates (GFE) (Continued) Section 4: Summary of your settlement charges Download GFE Here The mortgage loan originator must summarize the adjusted origination charge and the charges for all other settlement services, which are detailed on page 2 of the GFE.

13 The Good Faith Estimates (GFE) (Continued) Page Two of the GFE has two main sections Download GFE Here Box 1 Our origination charge. The mortgage loan originator must disclose to the consumer what will be their total origination charges for this transaction. Origination charges include, but are not limited to, origination fees, discount points, buy down fees, or commitment fees. Charges such as processing, underwriting, administration, document review, loan delivery and funding fees must be disclosed as part of the total origination charges.

14 The Good Faith Estimates (GFE) (Continued) Box 2 Your credit or charge (points) for the specific interest rate chosen. The consumer is given three options to choose from: Option 1 The borrower paid option. The first box or line in box 2 states The credit or charge for the interest rate of % is included in Our Origination charge. If this option is chosen, the mortgage loan originator is offering a par quote to the consumer. Box 1(Our Origination Charge) contains no discount points. Other charges such as origination, processing, underwriting fees are included in box 1. For example, if the par rate is 6.50% plus $3,500 in origination charges; the mortgage loan originator would enter a zero in box number 2. The total adjusted origination charges would be $3,500.

15 Where Are We Now? The Good Faith Estimate (GFE) Section 1, box number two reflects the expiration date for all other settlement charges disclosed on the GFE. These charges, according to HUD, should be available for a minimum of: a. Three business days b. Ten business days c. There is no required minimum or maximum period of time. d. 30 calendar days. The estimate for all other settlement charges in the Important dates section of the GFE must be available for at least ten business days.

16 The Good Faith Estimates (GFE) (Continued) Option 2 Lender paid option. Under this scenario, the consumer would receive a credit from the lender. For example, if the mortgage loan originator offers a rate of 7.00% the consumer would receive a credit. In this option, $3,500 would be marked in box 1(Our Origination Charges), the second option box would be checked and the consumer would receive a credit of $3,500 for the 7.00% interest rate. The mortgage loan originator would enter a $3,500 in box 2, and adjusted origination charges would be 0.

17 The Good Faith Estimates (GFE) (Continued) Option 3 Buy down option. Under this option the consumer may lower their monthly payment by paying discount points. For example, if the mortgage loan originator offers an interest rate of 6.00% at 1discount point ($1,000); the consumer will pay this amount at settlement. The mortgage loan originator would enter $1,000 in box 2. This would be added to the amount in box 1($3,500 Our origination Charge). The $4,500 total would be entered in box A (Your Adjusted Origination Charges). Only one of the above boxes may be checked; a credit or charge cannot occur together in the same transaction. When box1 and box2 are calculated the sum is entered in box A and then transferred to page 1 of the GFE at the area designated at the bottom of the page.

18 The Good Faith Estimates (GFE) (Continued) Section 2: Your Charges for All Other Settlement Services Download GFE Here

19 The Good Faith Estimates (GFE) (Continued) Box 3 Required services that we select Mortgage loan originators must disclose a list of the services they require the consumer to pay for. The consumer may not select the service provider. These service providers include Appraisal, credit Report, Flood Certification and attorney services. The mortgage loan originator must list these service providers and their fees (under charge) in box 3. Box 4 and 5 Title services and lender s title insurance and Owner s title insurance. Mortgage loan originators will enter into these boxes the costs the consumer can expect to pay the title company for title insurance: mortgagee policy (box 4) and mortgagor s policy (box5). A dilemma exists regarding who really selected the title services provider. Did the mortgage loan originator select the title company or did the consumer shop for these services? If the consumer did, in fact, shop for these services than that fact should be entered in box 6. According to HUD, there is no distinction between an originators recommendation and a consumer shopping for title services. Title insurance fees, according to HUD, may be entered in boxes 4, 5 or box 6.

20 The Good Faith Estimates (GFE) (Continued) Box 6 Required services you can shop for. The mortgage loan originator lists the required services that the consumer may shop for. As stated above, if the consumer is not using the originators recommended affiliated title company then an estimate by the originator of what a consumer would typically pay is entered. Other services entered in box 6 may include Attorney fees, inspection fees and other third party services the consumer elects to use. Boxes 7 and 8 Government recording charges and Transfer taxes. Box 7 discloses government recording charges and box 8 details the amount of any transfer taxes by local or state agencies. The GFE mandates a zero tolerance for transfer taxes and only a 10% tolerance for recording fees.

21 The Good Faith Estimates (GFE) (Continued) Download GFE Here Box 9 Initial deposit for your escrow account. The mortgage loan originator must disclose the consumer s initial escrow account deposit. These items might include property taxes, mortgage insurance premiums, hazard insurance premiums and HOA fees.

22 The Good Faith Estimates (GFE) (Continued) Box 10 Daily interest charges. Pre paid interest charges are entered in box 10. Interest charges are calculated on a per diem basis. The originator must determine the estimated closing date and calculate the per diem interest until the end of the month. Box 11 Homeowner s insurance. The estimate of the consumer s homeowner s insurance annual premium is entered. The total fees from boxes 3 11 are added together and entered into box B. This figure is then transferred to page 1 and added to box A for a collective total of estimated settlement charges.

23 The Good Faith Estimates (GFE) (Continued) Page Three has three main sections Download GFE Here

24 The Good Faith Estimates (GFE) (Continued) Section 1 Understanding which charges can change at settlement. This section is also known as the tolerance chart. HUD created this chart as a means of getting the GFE as accurate as possible, for the consumer, and still be within the confines of RESPA law. There are three components of the chart. First component These charges cannot increase at settlement. The fees listed in this component cannot exceed the amounts quoted on the GFE ( (e)). The GFE and the HUD 1 must match to the penny. These fees include: our origination charge, credit or charge (points) for the specific interest rate chosen (after it s locked), the adjusted origination charges (after the loan is locked) and transfer taxes.

25 The Good Faith Estimates (GFE) (Continued) Second component The total of these charges can increase up to 10 % at settlement. These charges for services either required or recommended may only increase by 10% at settlement per Regulation X (e)(2). These fees include title insurance and government recording fees are disclosed in this component. Charges detailed on the GFE may not increase by more than 10% on the HUD 1. If a mortgage loan originator s charges exceed the 10% allowance, the title agent must notify the originator, and the originator would make an adjustment to correct the figure or provide funds to satisfy the underestimate at the closing table. A second option would be to close the transaction and utilize HUD s 30 day cure period to reimburse the consumer for the overage. Third component These charges can change at settlement. The charges listed in this component can change at settlement. As listed on the GFE these charges are true estimates of the consumer s settlement costs. Charges in this component include: Title services, chosen by the borrower, homeowner s insurance, initial escrow deposits and per diem interest charges. These charges are, what they are, as detailed on the HUD 1 with no liability on the mortgage loan originator to be within any tolerance set by HUD.

26 The Good Faith Estimates (GFE) (Continued) Section 2 Using the tradeoff table Download GFE Here

27 The Good Faith Estimates (GFE) (Continued) Section 2 Using the tradeoff table This section is an attempt to provide the consumer a means by which they may evaluate the three financing options offered to them on page 2 of the GFE. The Trade Off Table is intended to demonstrate to the consumer how discount points, interest rates and closing costs may be adjusted to provide the best possible scenario for them. Included in this section is a statement informing the consumer If you would like to choose an available option, you must ask us for a new GFE. HUD would require the mortgage loan originator to keep their offer for settlement costs available for 10 business days so the consumer may shop various originators. Mortgage loan originators are not required to complete this section; it is optional.

28 Where Are We Now? What service does not belong in Block 3, Required services that we select? a. Flood certification b. Appraisal c. Up front MIP d. Lender s Title policy Block 3 of the GFE contains the charges for all third party settlement services (except title services) for which the loan originator requires and selects the provider of the service. Examples of these charges for services generally include but are not limited to, appraisal, credit report, tax service, flood certification and up front mortgage insurance premiums.

29 The Good Faith Estimates (GFE) (Continued) Section 3 Using the shopping cart Download GFE Here

30 The Good Faith Estimates (GFE) (Continued) Section 3 Using the shopping cart The shopping cart organizes and compares four different mortgage loan originators loan offers. HUD believes the consumer will find the chart helpful in their search for the mortgage loan originator best suited to provide them a mortgage loan. The chart is divided into several categories to assist the consumer: loan originator name; initial loan amount; loan term; initial interest rate; initial monthly amount owed; rate lock period; can interest rate rise; can the loan balance rise; can monthly amount owed rise; prepayment penalty; balloon payment and total estimated settlement charges. The GFE may be re disclosed as there are changed circumstances as defined in Regulation X during the processing of the loan. Interest rate changes, amount borrowed or change in mortgage programs are examples of the types of circumstances which change during the mortgage loan process. If a new GFE is presented to the consumer, a new 10 business day offer period would start from the date of the re issued GFE.

31 Lessons Learned with the Good Faith Estimate (GFE) FAQs Q: Can a loan originator e mail a GFE to a borrower? A: Yes; as long as the borrower consents and the other specific requirements for consumer disclosures under the Electronic Signatures in Global and National Commerce Act (ESIGN) are met, a loan originator may e mail, fax, or send by other electronic means the GFE (and other RESPA disclosures, such as the HUD 1/1A). See section 101(c) of ESIGN, 15 U.S.C. 7001(c); also see 24 CFR The loan originator may also continue to deliver the GFE to the borrower by hand delivery or by placing it in the mail, as provided by RESPA. Q: Can items be listed as Paid Outside of Closing or P.O.C on the GFE? A: No, the totals included in the column on page 2 of the GFE must be the sums of the prices or fees, by category, for all settlement services that are required to be shown on the GFE. Where individual components of these totals are required to be itemized, each third party settlement service must be identified and the estimated total price or fee to be paid for that service must be stated to the left of the column. The standardized GFE form does not allow information to be included on any part of those totals that would be paid outside of closing. Such information would not help borrowers to shop for loans and would not facilitate comparison of the charges on the GFE with the charges on the HUD 1. Source:

32 Lessons Learned with the Good Faith Estimate (GFE) Q: May a loan originator alter the GFE by adding signature lines to the GFE? A: No. However, loan originators may develop practices and procedures to document the consumer s acknowledgement of receipt of the GFE. Loan originators may not refuse to provide a GFE based upon a consumer s refusal to acknowledge receipt of the GFE. Acknowledgement of receipt of a GFE, by itself, does not constitute an expression of an intention to proceed with the loan covered by the GFE. Q: Can a worksheet be provided to a customer for a rate quote if the consumer does not want to provide the information necessary to generate a GFE? A: Yes, however loan originators should ensure the following: (1) to eliminate consumer confusion, a worksheet should not look like a GFE and should not lead the customer to believe that it is a GFE; (2) a loan originator should NEVER use a worksheet in lieu of a GFE; and (3) as stated in previous guidance, under RESPA regulations, when a loan originator receives an application or information sufficient to complete an application, the loan originator must issue a GFE.

33 Lessons Learned with the Good Faith Estimate (GFE) Q: If at the time a GFE is issued it is known that the seller will pay settlement charges typically paid by the borrower, how are the charges disclosed on the GFE? A: All charges typically paid by the borrower must be disclosed on the GFE regardless of whether the charges will be paid for by the borrower, the seller, or other party. Q: When does a GFE expire? A: If a borrower does not express an intent to continue with an application within ten business days after the GFE is provided (or such longer time period specified by the loan originator), the loan originator is no longer bound by the GFE. Q: When do loan originators have to provide the borrower with a written list of identified providers? A: When a loan originator permits a borrower to shop for third party settlement services, the loan originator must provide the borrower with a written list of settlement services providers at the time of the GFE, on a separate sheet of paper.

34 Lessons Learned with the Good Faith Estimate (GFE) Q: If a seller typically pays for the Block 5, Owner s title insurance, does the charge still have to be shown on the GFE? A: Yes, an estimate of the cost must be shown in Block 5, Owner s title insurance for all purchase transactions regardless of who is selecting or paying for it. Q: Are loan originators required to complete the Tradeoff table? A: The loan originator must complete the left hand column ( the loan in this GFE ) of the Tradeoff table with the information pertaining to the loan as shown on page 1 of the GFE. The loan originator, at its option, may also complete the remaining sections in the Tradeoff table with the same information showing an alternate loan with a higher interest rate and one with a lower interest rate, if the loan originator has those loans available and would issue a GFE based on the same information provided by the applicant. The alternative loans must use the same loan amount and be identical to the loan in the GFE except for the interest rate and closing costs.

35 Lessons Learned with the Good Faith Estimate (GFE) Q: In the Important dates section of the GFE, where it states The interest rate for this GFE is available through, does the loan originator have to leave the interest rate open for a specific amount of time, like 10 days? A: There are no restrictions on the amount of time the interest rate must remain available. The interest rate can be available for any period of time that the loan originator chooses, including for example, a period of time within one day or for several days. Q: If a lender does not offer a rate lock, how should Lines 3 and 4 in the Important dates section on the GFE be completed? A: If the lender does not offer a rate lock, then Lines 3 and 4 of the Important dates section should state Not Available or NA.

36 Lessons Learned with the Good Faith Estimate (GFE) Q: Where on the GFE do I disclose an escrow waiver fee? A: An escrow waiver fee is a type of loan level price adjustment and may be part of the calculation of Block 2 on the GFE. Alternatively, if the escrow waiver is known at the time of application, the charge for the escrow waiver can be included in Our origination charge disclosed in Block 1. Q: Where should a VA funding fee be disclosed on the GFE? A: Fees specific to government loan programs, such as a VA Funding Fee, should be disclosed in Block 3, Required services that we select. Q: What Block on the GFE should contain a charge from the borrower s employer or banking institution for the verification of employment (VOE) and the verification of deposit (VOD)? A: If the loan originator knows at the time it provides the GFE that there will likely be a charge by the borrower's employer or banking institution for the VOE or VOD, the amount of that charge should be estimated in Block 3 of the GFE.

37 Lessons Learned with the Good Faith Estimate (GFE) Q: Should the name of the individual loan originator or the name of the loan origination entity go in the Name of Originator box at the top of page 1 of the GFE? A: The name of the loan originator entity (such as ABC Loan Originator) must go in the box at the top of page 1 of the GFE. In addition to the name of the entity, the name of the individual loan originator may also be added. Q: Are attorney s fees charged to prepare loan documents for the lender considered part of the charge for origination services disclosed on Block 1 of the GFE? A: Yes, attorney s fees charged to prepare loan documents for the lender are considered part of the charge for origination services disclosed on Block 1 of the GFE and should not be separately itemized.

38 Lessons Learned with the Good Faith Estimate (GFE) Q: When an FHA loan is paid off, a borrower may have to pay interest on the loan from the day of payoff until the end of that month. Does this mean that a loan originator should check Yes to the question Does your loan have a prepayment penalty? A: No. This is not considered a prepayment penalty. By letter dated September 29, 2009, the Federal Reserve Board of Governors stated to HUD that lenders which use the monthly interest accrual method required by FHA... would not be required to treat the interest charged from the date of prepayment until the next installment due date as a prepayment penalty for any purpose under Regulation Z. Q: Where on the GFE do I disclose an escrow waiver fee? A: An escrow waiver fee is a type of loan level price adjustment and may be part of the calculation of Block 2 on the GFE. Alternatively, if the escrow waiver is known at the time of application, the charge for the escrow waiver can be included in Our origina on charge disclosed in Block 1.

39 RESPA GFE Changed Circumstances Mortgage loan originators and lenders are bound, per Regulation X ( (5) (e),within certain tolerances ( (5) (e), to the settlement charges and terms provided to the borrower on the GFE. If changed circumstances result in an increased cost to the borrower that exceeds the tolerances for those charges, the mortgage loan originator may provide a revised GFE to the borrower. Changed circumstances are defined in as: Acts of God, war, disaster or other emergency Information particular to the borrower or transaction relied on in providing the GFE is found to be inaccurate or changes after the GFE was provided, including information about the credit quality, the amount of the loan, the estimated value, or other information used to provide the GFE New information regarding the borrower or transaction that was not relied upon for issuing the GFE Other circumstances, including boundary disputes, the need for flood insurance or environmental problems

40 RESPA GFE Changed Circumstances (Continued) The loan originator cannot regard, as a changed circumstance, the following Section (b)(2) The borrower s name The borrower s monthly income The property address Estimated value of the property The mortgage loan amount Any information in the credit report generated prior to issuance of the GFE, unless the information has changed or found to be inaccurate Market price fluctuations

41 RESPA GFE Changed Circumstances (Continued) Examples of changed circumstances are provided in RESPA (f): Changed circumstances affecting settlement costs If changed circumstances result in increased costs for any settlement services such that the charges at settlement would exceed the tolerances for those charges, the loan originator may provide a revised GFE to the borrower. If a revised GFE is to be provided, the loan originator must do so within 3 business days of receiving information sufficient to establish changed circumstances. The revised GFE may increase charges for services listed on the GFE only to the extent that the changed circumstances actually resulted in higher charges. Changed circumstances affecting loan If changed circumstances result in a change in the borrower s eligibility for the specific loan terms identified in the GFE, the loan originator may provide a revised GFE to the borrower. If a revised GFE is to be provided, the loan originator must do so within 3 business days of receiving information sufficient to establish changed circumstances.

42 RESPA GFE Changed Circumstances (Continued) Borrower requested changes If a borrower requests changes to the mortgage loan identified in the GFE that change the settlement charges or the terms of the loan, the loan originator may provide a revised GFE to the borrower. If a revised GFE is to be provided, the loan originator must do so within 3 business days of the borrower s request. Expiration of original GFE If a borrower does not express an intent to continue with an application within 10 business days after the GFE is provided, or such longer time specified by the loan originator, the loan originator is no longer bound by the GFE.

43 RESPA GFE Changed Circumstances (Continued) Interest rate dependent charges and terms If the interest rate has not been locked by the borrower, or a locked interest rate has expired, the charge or credit for the interest rate chosen, the adjusted origination charges, per diem interest, and loan terms related to the interest rate may change. If the borrower later locks the interest rate, a new GFE must be provided showing the revised interest rate dependent charges and terms. All other charges and terms must remain the same as on the original GFE. New home purchases In transactions involving new home purchases, where settlement is anticipated to occur more than 60 calendar days from the time a GFE is provided, the loan originator may provide the GFE to the borrower with a clear and conspicuous disclosure stating that at any time up until 60 calendar days prior to closing, the loan originator may issue a revised GFE. If no such separate disclosure is provided, the loan originator cannot issue a revised GFE.

44 Combined Mortgage Loan Disclosure The Dodd Frank Wall Street Reform and Consumer Protection Act directs the Consumer Financial protection Bureau (CFPB) to propose a single integrated model disclosure that combines the disclosures required by the federal Truth in Lending Act ( TILA ) with the good faith estimate. The CFPB has announced the "Know Before You Owe" project, an effort to combine two federally required mortgage disclosures, the Truth in Lending Act (TILA) disclosure and the Real Estate Settlement Procedures Act (RESPA) Good Faith Estimate (GFE), into a single, simpler form that makes the costs and risks of the loan clear and allows consumers to comparison shop for the best offer. On October 17, 2011 the CFPB Mortgage Disclosure Team published the following statement on the CFPB website:

45 Know Before You Owe: What s next Written by CFPB Mortgage Discloser Team Four times since May, we have asked you to take a few minutes to help us create a simpler mortgage disclosure form. Each time, you told us what you liked and disliked, and what you thought was effective at communicating important loan information. From what to include (like total payments, a signature line and certain closing information) to design details (like black tabs and grey shading), your feedback has been invaluable. You have sent us more than 24,000 comments that have given us a clearer understanding of what works, what doesn t, and what else you d like to see. Thank you for helping us make Know Before You Owe such a success. Last month, we changed what we asked you to do. Instead of comparing two different designs, we asked you to compare two different loans using the same design. We wanted to see if the design enabled you to tell us which product you would choose for yourself or recommend to a customer. Your comments showed us that the design is helping you find the information you want to make your choices, and that is encouraging.

46 Know Before You Owe: What s next This week, we re testing a revised design with consumers and industry in Albuquerque, New Mexico. We re giving you a break for this round, but we want you to see what you ve helped us achieve, so take a look at the newest prototype. We re comparing a fixed rate and an adjustable rate loan, so you can see how this prototype would work for both. We are happy to keep our conversation going, so if you d like, respond to this post in comments or send us an with your thoughts. So far, we ve been testing a disclosure that combines the Truth in Lending form and Good Faith Estimate that you get after you apply for a mortgage loan. But what about at the other end of the transaction? When you close your mortgage, you get a new form that discloses the final terms and costs. Well, we d like that disclosure to be just as clear and effective as the application disclosure will be, thanks to you. So, stay tuned because soon we will be sharing a prototype closing disclosure and asking for your feedback.

47 Where Are We Now? Per Regulation X a Changed Circumstance is defined as all of the following except: a. Acts of God, war, disaster or other emergency. b. New information regarding the borrower or transaction that was not relied upon for issuing the GFE. c. Other circumstances, including boundary disputes, the need for flood insurance or environmental problems. d. Market price fluctuations. Changed circumstances are defined in as: Acts of God, war, disaster or other emergency Information particular to the borrower or transaction relied on in providing the GFE is found to be inaccurate or changes after the GFE was provided, including information about the credit quality, the amount of the loan, the estimated value, or other information used to provide the GFE New information regarding the borrower or transaction that was not relied upon for issuing the GFE Other circumstances, including boundary disputes, the need for flood insurance or environmental problems

48 Know Before You Owe: What s next And, stay with us throughout this process, because this isn t the last you ll see of the application disclosure. It needs to work together with the closing disclosure, so we ll be asking for your feedback on both in the future. We created Know Before You Owe in May so the people who will use these forms could help us make them better. Please continue to help us as we move into this next effort. Make sure you know about the next opportunity to weigh in. Sign up to receive notifications about Know Before You Owe. And again (we can t say it enough): thank you.

49 Case Study PINYON & YUCCA Combined Mortgage Disclosures What do You Think? Click Here to Open Case Study

50 Case Study PINYON & YUCCA Combined Mortgage Disclosures What do You Think?

51 Case Study PINYON & YUCCA Combined Mortgage Disclosures What do You Think?

52 Case Study PINYON & YUCCA Combined Mortgage Disclosures What do You Think? 1. What do you like or dislike about the disclosures? Enter Your Answer Here Click Here to compare your answer Answer Making mortgages easier to understand for prospective borrowers has been a long term priority for the mortgage industry and these initial prototypes take a step in that direction. One of the challenges this effort inevitably faces is trying to strike the right balance between simplification and providing as much information as possible to help borrowers make the most informed choices. Previous attempts at revising the forms have struggled with this paradox and this is going to be a focus of everyone involved in this effort.

53 Case Study PINYON & YUCCA Combined Mortgage Disclosures What do You Think? Answer Continued: Likes Down Payment Detailed. Total Estimated payment now includes estimated taxes and insurance. Estimated cash to close detailed. Applicant signature added to GFE. Combines several disclosures into one disclosure (TIL, GFE, Appraisal) Details Seller and Lender Credits Dislikes The consumer may feel overwhelmed by all of the information. Comparisons Section calculation not defined. Consumer given information regarding Annual Percentage Rate (APR), Total Interest percentage (TIP), and Lender Costs of Funds (LCF) however no detail how figures were calculated.

54 Case Study PINYON & YUCCA Combined Mortgage Disclosures What do You Think? 2. Would you choose this disclosure for yourself, or recommend it to a consumer, as a tool for shopping for the best lean/lender? Enter Your Answer Here Answer Click Here to compare your answer As an originator, this form certainly is more simplistic than the current disclosure. The proposed disclosures do a far better job of this than the existing disclosures. The borrower who applies for an adjustable rate mortgage (ARM) sees the complete set of ARM features that will affect the rate and the payment on future rate adjustment dates. This allows the borrower to use on line calculators to explore what will happen to the interest rate and monthly payment under various hypothetical scenarios of future market interest rates. The disclosures also present the results of one such scenario a worst case, showing the highest possible rate and payment, and when they would occur.

55 Case Study PINYON & YUCCA Combined Mortgage Disclosures What do You Think? 3. What do you think will be the consumer s response to this disclosure? Enter Your Answer Here Click Here to compare your answer Answer People are going to be confused by these forms w/ the lumping of fees. People need to see that = 5. Why make it more complicated than it is? Most consumers are not industry experts and are not math wizards. The sheer volume of disclosures guarantees that most consumers will never read them or try and understand what information is being disclosed or why they should be concerned.

56 Where Are We Now? The Dodd Frank Wall Street Reform and Consumer Protection Act directs the Consumer Financial protection Bureau (CFPB) to propose a single integrated model disclosure that combines the: a. TILA & ECOA Disclosures b. FCRA & FACTA Disclosures c. TILA Disclosure & GFE d. GLBA & TILA Disclosures The CFPB has announced the "Know Before You Owe" project, an effort to combine two federally required mortgage disclosures, the Truth in Lending Act (TILA) disclosure and the Real Estate Settlement Procedures Act (RESPA) Good Faith Estimate (GFE), into a single, simpler form that makes the costs and risks of the loan clear and allows consumers to comparison shop for the best offer. On October 17, 2011 the CFPB Mortgage Disclosure Team published the following statement on the CFPB website:

57 Case Study PINYON & YUCCA Combined Mortgage Disclosures What do You Think? 4. Will the consumer find the disclosure useful? Enter Your Answer Here Click Here to compare your answer Answer Merging 2 disclosures into 1 does not inherently make it less confusing for consumers. Borrowers will get half way down the page and lose all attention due to information overload. The inclusion of "see details on the back" insinuates there will be even more verbiage that isn't displayed.

58 Module 3 End of Module 3 The Good Faith Estimate Proceed to the Module 3 quiz

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