Good Faith Estimate (GFE) Old vs. New

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1 Good Faith Estimate (GFE) Old vs. New The U.S. Department of Housing and Urban Development (HUD) issued the Real Estate Settlement and Procedures Act (RESPA) Final Rule, which will take effect January 1, Included in the Final Rule are new disclosure forms in an attempt to simplify the mortgage process. However NAMB, joined by other industry representatives and Congress, fear that the Final Rule in its current form will further confuse consumers. There are two major flaws on the new GFE: 1) it does not disclose to the consumer the TOTAL amount needed to close the loan; and 2) it does not disclose to the consumer the TOTAL monthly mortgage payment. These flaws allow this form to be manipulated by any loan originator to confuse the consumer into thinking they have found a better loan. To better illustrate these potential problems, attached please find both the old and the new GFEs used for the exact same loan application 1. NAMB has circled and labeled amount fields to show the discrepancies in disclosures. 1.) Non-disclosure of TOTAL amount needed to close the loan The new GFE leads a borrower to believe the Total Estimated Settlement Charges (figure 1a) is the total amount needed to close the loan. Nowhere on the new GFE does it disclose to a borrower the required downpayment, which is needed to disclose the TOTAL amount needed to close the loan. Compared to the new GFE, the old GFE discloses to the borrower the Total Estimated Funds Needed to Close (figure 1b), by including the required downpayment. This is a $50,000 discrepancy in proper disclosure to the borrower. This could be especially confusing on lower down payment options. The new GFE fails to include anywhere on the 3-page disclosure the purchase price; it only includes the initial loan amount (figure 2a). The old GFE does disclose to the borrower both the purchase price (figure 2b) and initial loan amount (2c). What if the loan officer makes an error and inputs a wrong sales price? How would the borrower know there was an error during their shopping process? This will undoubtedly confuse the consumer at closing when the amount disclosed on the GFE does not match the TOTAL amount actually needed to close the loan. This could result in delayed closings, loss of interest rate and possible damages against the borrower by a seller. 2.) Non-disclosure of TOTAL monthly mortgage payment The new GFE discloses to the borrower a monthly payment (figure 3a) only including principal & interest, which is $365 lower than what will actually be charged. The old GFE discloses under Total Monthly Payment (figure 3b) the TOTAL monthly payment including principal & interest plus hazard insurance and real estate taxes. How will a consumer be able to accurately decide whether or not they can afford a monthly mortgage payment? Although you may discuss this verbally with a borrower at application unless it is in writing borrowers will ultimately be confused and shocked at closing. Because of the new GFE, beginning January 1, 2010 the borrower will enter closing believing they will pay 1) a less amount upfront; and 2) a lower monthly mortgage payment than what is actually required by them. The purpose of a GFE is to clearly define the cost to purchase or refinance a home. By comparing the old GFE to the new GFE, it is NOT NAMB s position that the old GFE is the most optimal option for consumers. On the contrary, NAMB believes the old GFE should be reformed to provide transparency and simplicity for the consumer to have a better understanding of the disclosed information. However, in its current form, the new GFE will only further harm the consumer by causing confusion, misunderstanding, and distrust at a loan closing. 1 The old and new GFE examples are completed for the purchase of a $250,000 home. The loan product chosen was a 30-year fixedrate conventional mortgage. The borrower will pay a 20% downpayment equaling $50,000; therefore the initial loan amount is $200,000.

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