Is the New GFE an Improvement?
Filed under: Mortgage Financing, Politics & Government
Happy New Year, everyone!
As usual, we’re ringing in the new year with a lot of unfinished business (health care reform, financial institution reform, and so on). One thing that was finally settled, however – after years of debate — was the federal government’s changes to the Good Faith Estimate and HUD-1.
Not so fast. It’s hard to find people in the real estate business, particularly mortgage brokers, who are happy with the changes. Wes Cordeau of Houston wrote to me in response to an article in REALTOR® Magazine:
“Unfortunately, the new GFE does not address two points of major importance: 1) How much to close and 2) How much is the monthly payment? In fact, the new GFE addresses closing costs in such a way as to confuse the borrower immensely, because it addresses the costs as ‘Total Settlement Charges” and does not include some important offsets, yet makes us include items that are historically paid by the seller. On page 1, it addresses the monthly payment in two sections–one concerning only principle, interest, and mortgage insurance and the other addressing only payment of escrows for taxes and property insurance. This is more confusing to the consumer! Everyone in this business understands that taxes, insurance, and HOA fees can can add hundreds to the monthly payment, yet they’re not addressed clearly in the GFE.
The fact that a three-page document has 42 pages of explanatory handouts and 51 pages of FAQs (four per page) tells me that this is the most ill-designed form I have ever seen!”
Although I haven’t experienced the forms as a consumer, having listened to Phil Schulman’s 90-minute explanation at NAR in San Diego (worth the time; you can access it at REALTOR.org’s RESPA page), I agree with Wes that the “simplified” forms raises as many questions as answers. Yes, the language is generally more clear, but I wish HUD had done some focus groups with consumers and real estate practitioners before they gave the forms the green light.
What do you think? Are the new GFE and HUD-1 an improvement over what we had before? Or are they going to cause new problems and delays at the closing table? What changes would you recommend?
Note: REALTOR® Magazine on Jan. 13 completed a video walk-through of the new GFE and HUD-1. Watch the how-to video to get a better understanding of how the forms are to be filled out.
My first clients viewing the new GFE just called after several emails. They are completely confused and thank goodness the banker recognized the pitfalls of the new document and sent the clients a 1003 with PITI and cash to close laid out or we’d still be on the phone. Let me add that Mr. Buyer has a doctorate and Mrs. Buyer a bachelors.
This form is “under” simplified. A complete mess. Did NAR have any input on this with HUD?
I’m VP with C&F Bank and have sat through 20 webinars/webcasts and we certainly know how to operate with this new form and understand how to do them, BUT- they are the most ridiculus new documents to come around in years. It does not show amount of money they need to close, nor does it give you the full payment anywhere on the form (only P&I)- It will take hours to explain to borrowers, and to beat all- the form does not require borrowers to sign-
Happy to meet with any real estate company or individual to explain and display-
960-9960 or email above- Thanks
Hi Stacey,
Thank you for offering this forum for a comment on this issue. I’ve been in the Real Estate Business since 1997. I began my career as Buyer’s Agent, and have spent the last 12 years, priding myself on my ability to help Buyer’s in the Real Estate market with this incredibly complicated, but absolutely facinating thing we do every day. There are so few “true” Buyer Agents out there and I’m sad that our industry hasn’t thoroughly embraced this concept more. Had consumer’s sought the services of such individuals prior to making the commitments to bad loans early on, I really believe far more of the magnitude of our housing slump, could have been avoided. I also think that it should have been professionals of this part of the industry that should have been consulted, prior to spending thousands of hours and tax payer dollars to come up with a system that only helps to bring more confusion to an already confusing process. This new system makes absoulutely no sense for these radical changes. This is not the way consumers look at estimates. If you’ve ever had someone bid a job for you, this type of estimate you would not accept in any way shape or form. For example… If you asked a home repair guy to do an addition to your home and he handed you an estimate that said material “x” amount of dollars, Labor “x” amount of dollars, you might understand what he’s saying, but you would have no clue of what he’s actually doing. And if he started saying, well on this line of the material I can go up 10% on before I finish the job, but on this part of the material, it all must be the same, and then these parts of the labor aren’t even included on the job at all. You would want to pull your hair out trying to decifer what the heck he just said. We have all grown accustom to an itemized, detailed estimate. Then I can compare apples to apples. I had no trouble working on my client’s behalf with the old GFE, that was completely itemized and gave me the ability to shop for the best deal! This new system doesn’t really give me the ability to see what’s really going on behind the boxes.
However, with all that said, I’m thrilled that HUD and RESPA got together to force mortgage brokers to disclose their Yield Spread Premium. It’s been far too long over due, letting the public know that the interest rate they received had a direct effect on the pocket of the guy who was selling them the loan and them having no idea it was going on. Some good things did come out of these new changes.
Once again, thank you for the opportunity to comment on this subject. Good luck to all of the Realtor’s out there and I wish everyone a successful 2010!
Sincerely,
Mark Burrier
Legacy Realty, Inc.
501-450-7303
Let the delayed closings and resulting cancelled sales begin…..
Mark,
HUD stands for Housing and Urban Development – RESPA stands for Real Estate Settlement Practices Act. One is a government institution, the other is an act enabled by a government institution. How they could “get together” is beyond me. It’s a little important to note that mortgage brokers have been required to disclose their Yield Spread Premium since before you became a “buyers” agent. Let me know your next “buyers” estimated funds for settlement on the new GFE.
I just read the comments and I have been in the business for some time now and I have done appraising (tough times there right now too), I am a Real Estate Broker (short sales and REO properties are driving me crazy!), and yes I do have my lending license (yep, some states actually require you to have a license to do lending too!)….
With that said, I do not want to pick on anyone but Mark you pointed out that some good things came of this and one thing in particular is that the yield spread premium needs to be disclosed…it is all great, if the “playing field were equal”…just like with Agents and the standard across the board with the flexibility to go negotiate with your client… Well Mark the big banks have pulled the wool over your eyes SIR…why……..
THEY TOO GET PAID ON THE BACK END BUT GUESS WHAT… THEY DO NOT HAVE TO DISCLOSE SO YOU STILL DO NOT KNOW WHAT YOUR CLIENTS ARE ACTUALLY BEING CHARGED TO GET THEIR LOAN DONE AND BECAUSE OF THIS IT WILL COST EVERYONE MORE IN THE LONG RUN WHY….THINK ABOUT IT…
JUST LIKE IN REAL ESTATE…EVERYWHERE YOU GO YOU WILL GET THE SAME PRICING AS STANDARD AND WHETHER YOU LIKE IT OR NOT THAT IS INDUSTRY STANDARD FOR THE YIELD SPREAD PREMIUM TO BE 2% and another 1% on the front but I can not charge the one percent well why is my interest different from bank A and bank B… well Bank A charges me and Bank B charges me and I don’t know how much they get hence there are different rates or this is an adjustable — an entirely new story well the rates and everything look the same, but guess what because the banks don’t disclose and don’t have to their YSP….your clients 5/1 ARM margin is 4% wait until it adjust and see if they are HAPPY WITH YOU OR YOUR LOANER OFFICER THEN and BTW, all the YSP were disclosed and were the same, sometimes competition is good why….
I only ever did loans where the front and back combined I only made 1% and I didn’t always get the deal, why, not because I was not cheaper but there are so many other things to consider beyond YSP THAT YOU ARE SO WORRIED ABOUT…that people need to know if they really want the BEST DEAL… BUT THE BEST DEAL IS ONE THAT MAKES THE CLIENT HAPPY PERIOD.
SO GOOD LUCK TO YOU AND NOW FINALLY KNOWING THE YSP OF BROKERS THAT MAKE UP A SMALL PORTION OF THE SHARK TANK OF THE LENDING WORLD…BIG BANKS NOW TOTALLY RULE BECAUSE OF THE THOUGHT PROCESSES LIKE KNOWING THE YSP….
SAD
Regarding Comment by Mr. Burrier.
Your statement regarding the disclosure of “Yield Spread Premiums” by Mortgage Brokers is far over due.
Mortgage Brokers have been disclosing their YSP for many years now, not as a cost to the borrower but paid by the lender. This is another poor choice of words by the Government. Mortgage Brokers didn’t make the Old GFE.
In fact the Mortgage Broker is making a fee from the lender for a rate that may be over par. What your missing here is that the Mortgage Bankers are doing the same thing, they just aren’t required to disclose it. Is that fair to the consumer? Not in my book! If I as a Mortgage Broker have a customer who previously shopped a Mortgage Banker and they told that customer their current rate is 5.5% and then they come to me and my rate is 5.25% and I can make some additional money from the lender for a YSP, I think that borrower is going to come out on top as long as my fees are inline with the mortgage banker.
I grant you over the years I’m sure a lot of abuse has taken place regarding YSP, and the government reacted to this abuse by putting a ceilling on the amount either a broker or banker can make on a given transaction several years back. Remember because the government doesn’t require the banker to disclose doesn’t mean they aren’t making a YSP or Overage as they call it. I have worked both sides of the fence and beleive me it was the norm, and the banks don’t hesitate taking their percentage of the commission earned by their employee, which I might add is usually a higher amount than the employee makes.
It’s easy to come down on the Brokers because you see the fee. What I beleive to be a real crime is that they don’t make the bankers disclose YSP as well. I can usually on any given day offer my customers a better rate than most bankers offer, even if I’m using that same lender for my loan. Brokers rates are provided to them on a wholesale basis. Another words the rates are usually discounted because the wholesale lender isn’t having to cover the overhead that a retail establishment would have to cover. So, in most cases we can offer our customers a lower rate with complarable fees and we can make a few additonal dollars to cover our overhead and the customer walks out of the door with a better loan.
Regarding the RESPA changes…….I think the tax payers paid for a very ill conceived mess that will never, as it stands today, explain to a borrower without reservations what is going on with their transaction.
I hope I help to explain both sides of the coin, they are always two sided.
I’ve been working as a loan officer for over 25 years had have worked for every type of lending company – from the biggest lender on the planet to a two-person mortgage brokerage. I find the comments interesting, and a few totally misinformed. I’m not going to comment on the yield spread or servicing release issue; I’m going to contain my comments to two specific areas.
First – the form itself: It’s a disaster. It doesn’t tell the buyer what their total costs are, which costs they need to pay or what their total payment is going to be. So just what does it do? It confuses buyers. The problem here is that since the form doesn’t give the information buyers want, lenders must use some other forms to give buyers this information. Basically the new GFE is no longer a GFE – so everyone is scrambling to come-up with some way of letting buyers know just what’s going on. The result is that the GFE will get buried in all of the other disclosures that make-up a loan application package. My guess is most buyers will never even read it!
Second – the guarantee: Under this new law the lenders need to guarantee some fees, and be within 10% on some other fees. Now I understand why people want this – there is nothing more frustrating that having fees change at the last minute. (See my blog for a detailed explanation on this issue: http://sacrelender.com/?p=7) The problem here is that some of the fees that require 100% accuracy and most of the one that can only be off by 10% are not controlled by, charged by, or collected by the lender. The result here is that lenders will be very hesitant to give anyone a GFE unless they can verify all of the other service providers’ fees.
If you don’t get a GFE from a bank who can you report this to?
I have talked to many in the lending industry and everyone is presenting the GFE differently. Because the GFE doesn’t have payment, cash to close and an itemization of the fees, many lenders have created there own form to communicate this info. I worried that this unstandardized document will be the form clients use to shop for there mortgage and not the GFE. Some internal rules to the GFE like not being able to change the fees within 10 days of issue make it hard to adjust to markets and different cost options (ie. no point, 1 point, etc) borrowers who think they can shop for the best rate and take until the last 2 weeks to commit will be disappointed since there are so many overlayers of regulations. I only see more pain in the coming months as we adjust.
Yes as a broker I can also say I have sat through many seminars and webinars. The issue isn’t only decifering it for borrowers, but that many of those filling out the new GFE will come accross APR differences, which must be disclosed and when populated to the TIL will be incorrect…
Brokers have always had to disclose YSP it was on the old GFE…
Many times we will have to hand over the old GFE with the new GFE so as to help the borrower understand.. But the issue I see is where HUD tells a borrower to seek an Agent and sign a purchase agreement without yet sitting down to see what they qualify for.. Not to mention we as Brokers can no longer hand out pre-approvals… Nor will brokers be handing out the New GFE as easily as done before..
Borrowers who wish to buy will have a harder time comparing brokers as we will not be issuing GFE’s as carefree as before…. Thanks to HUDs new regulations….
Our firm is a full service law firm that operates a title and closing division. Here in Rhode Island, the majority of real estate closings are handled by law firms and that model works just fine overall. We are active in providing education seminars for mortgage brokers who now need to be licensed under the SAFE Act.
An earlier commenter wrote that “The problem here is that some of the fees that require 100% accuracy and most of the one that can only be off by 10% are not controlled by, charged by, or collected by the lender. The result here is that lenders will be very hesitant to give anyone a GFE unless they can verify all of the other service providers’ fees.” To that comment, I wish to add that even prior to the changes to RESPA, whether you are a real estate closing attorney, a loan originator or a realtor, you should already have been in close communication with each other in order to ensure a smooth orderly transaction. We are all in the same business, and all of us only get paid when the transaction closes. As a result of RESPA, some lenders have decided to solicit input from attorneys with whom they conduct title and closings, and through that, have arrived at uniform fees. In that way, a lender can definitely control charges that appear on the GFE. Same thing for recording charges, tax stamps, etc. It is easy to find out what these items cost simply by communicating with those companeis with whom you work.
If there is a problem with the new GFE, it is that is doesn’t provide some of the informaton a borrower needs, and, the majority of borrowers are likely to still not understand it.
We also expect to see further rules from HUD as to the use of rogue forms that attempt to provide borrowers information that the GFE doesn’t contain. Certainly, after some time, HUD may even revise the GFEs to make up for some of its definciencies, but it is still too soon to tell how it will play out.