How is the home loan "Good Faith Estimate" used these days?

Factual Questions
1

Mrs. Satyagrahi and I are shopping for a home loan and have tried to do our homework. We’ve read through a few books, we’ve researched online. The books and general info online tell us that, when comparison shopping for a loan, the first question to ask is "Are you willing to provide a Good Faith Estimate?

The GFE is a document intended to clearly state the rates, fees, and terms of a prospective loan in a standardized format so that a potential customer can compare what’s being promised. Here’s the blank form. (My apologies to those who don’t like pdf’s.)

As it happens, the form was changed in January of this year. It is now binding on the lender for some, not all, info. This was done to protect the customer, clearly.

Unfortunately, in practice, the lenders we’ve spoken to (mostly mortgage brokers, actually) refuse to provide a GFE until you actually submit a full, formal loan application…at which time, the GFE becomes rather pointless. Here’s an article from the Washington Post describing the situation.

So here, finally, are the bottom-line questions:

Are all the brokers we’ve spoken to scammers to some extent?

If we keep looking, are we likely to find one that complies with the intent of the law? If not, I suppose we should we give up and just go with the flow, hoping not to be screwed.

MODS: I’m rather hoping for a straightforward General Questions answer to this but, based on the conflicting reports we’ve been getting, it might be more appropriate in GD or IMHO. I’ll accept your judgment.

2

The article you linked sez:

I seem to remember that the law at the time I bought my last house required a GFE at least 48 hour before closing. It’s not intended to be a tool to compare lenders, it’s so you know what you’re going to pay at settlement. If you don’t like what it says you usually have a contingency to cancel the settlement due to unacceptable financing, although the lenders are betting that nobody wants to do that, and they’re usually right. Many times the lenders come to the settlement table with higher fees than quoted on the GFE, or additional “junk fees” that they buyer shouldn’t pay but often does under the pressure of being at the settlement table.

3

From the Wikipedia article:

So…you get the GFE only after you make the full, final loan application and pay the upfront fees such as cost of credit report, etc. And you make this application, pay these fees, three or four times, with different lenders, so that you can compare offers?

I’m sorry but this doesn’t make sense to me. What am I missing here?

4

What you are missing is that the intention of the GFE is not to allow to make comparisons while shopping for a lender. It is intended to be a quote of fees so you know what you are going to have to pay at settlement.

5

Yeah, that’s the final GFE. I haven’t worked in the mortgage industry for a few years now, and obviously things have changed since then, but at least in 2006, when I quit my hated job, a brokerage/lender had to send an initial GFE within 3 days of taking the application, and then another GFE shortly before close.

The initial GFE was subject to change, because sometimes things come up in the process of the financing that are unanticipated, so it’s good to estimate higher costs than you really expect on your initial GFE. That way, when it turns out you have to get a second appraisal or pay for a chain of title, your customer won’t be pissed you’re suddenly tacking on fees.

As for how the GFE is being used these days…well, I’m no longer in the mortgage industry, so I can’t say for sure, but I would assume that brokers/lenders don’t want to go to the trouble of making up the GFE if people aren’t serious and really are just shopping around. In ye olden days of 2004-2006, when I was working for Countrywide, it was no biggie to have three people in my office whose sole duty it was to ensure that GFEs got sent out on time because even if 90% of those applications never came to anything, there was still enough money rolling in to pay those three salaries, plus the service for the appraisal estimate, plus paying for a credit report. Now, probably not so much.

Instead of shopping and getting dicked around by brokers, ask your friends who did their mortgages and use one of their recommendations. I knew some real morons working in that industry and I would not get financing for a house unless I had some evidence that they know what they’re doing.

6

Why are you paying upfront fees on a loan application? When I bought my house last year, I called my bank, told them I was interested in buying a house, and wanted a pre-approved loan before I started looking at houses. They faxed over an application, I filled it out and sent it back, and thirty minutes later, they’re on the phone offering me more money than I wanted to spend. No fees. I knew I could spend up to X amount on a house, which made shopping easier.

Also wondering if you might be confusing a GFE with Truth in Lending Act disclosure forms…

7

OK, I’m on board with it now.

There is still the question of why the new GFE (see the OP) has a third page with convenient columns for comparison shopping among lenders…but I’ll let that pass. It’s just not being used that way.

What the lenders are giving you in advance now is called an Initial Fees Worksheet. This lists their expected costs and junk fees they will charge at closing…and is totally non-binding. It’s quite legal to lowball the costs on this worksheet and then double them on the GFE after the borrower already feels committed by having made an application with associated cost and effort. I would guess that many borrowers just bite the bullet under those circumstances

After some detailed reading of the RESPA FAQ sheet, I find that the upfront fee for a loan application is limited to whatever the lender wishes to charge you for pulling a credit report. In most cases, I’m hearing $100…for each name on the loan. So, my wife and I will be paying $200 upfront for each loan application we might wish to make.

Oakminster, a pre-approval is different from making the final application. The pre-approval continues to be without charge. And I understand the convenience of just calling your bank and letting them handle everything but, in that scenario, it’s also quite possible that you could have gotten a better deal by shopping around a bit.

So, we’ll go forward with our comparison shopping but, to some extent, it will be limited to what we can pick up through “tells” when we talk to brokers or loan officers. It does begin to feel a little like playing poker: You make your best guess based on odds and tells and then hope it works out… :slight_smile:

Everyone, thanks for your input!

8

After I posted that, I remembered that I got a VA loan, which may have also rendered my situation different from yours. In any event, good luck with the house hunting. :cool:

9

My wife and I are in the process of getting a construction loan for a new home we are building. I receive a Good Faith Estimate just a day or two ago. I haven’t paid the bank one penny even for a credit report. I also just received a copy of my credit score (so obviously the bank did run a credit report).

So what upfront fees are you referring to? Our construction loan is a two part loan, initially a construction loan that then rolls into a conventional loan. Prior to even discussing the construction loan portion with us, the bank wanted to make sure we would qualify for the permanent loan. So our initial application was a standard loan where we filled out a standard application listing our debts, jobs, etc. From that I assume they pulled a credit report but as far as I know we weren’t charged for that.

We are dealing directly with a bank and not a broker–maybe the broker is the one charging upfront fees?

10

If you look at the actual regulation, 24 CFR 3500.7(4), what the lender can do is: “The lender may, at its option, charge a fee limited to the cost of a credit report.”

That means it is not whatever the lender wishes to charge for a credit report, but what it actually costs the lender. $100 per person is simply unreasonable for the cost of a credit report.

I would recommend contacting the HUD RESPA Office or state or local consumer affairs or banking regulators to address this.