As we have all learned, the mortgage crisis was fueled in part by people agreeing to mortgages that they ultimately could not afford. In some cases, people didn’t understand or know that their mortgages could result in large payment increases after just two or three years. Others did not recognize the total costs that come with homeownership. And others paid higher loan origination and closing costs simply because they did not know about other affordable options.
Americans have long struggled with the complexities of shopping for home mortgages. Now Uncle Sam is trying to help.
A new Federal rule took effect 1/1/2010 that now requires mortgage lenders and brokers to give consumers better estimates of the multiple costs they incur when taking out home loans ( mortgages). The new rules mandate a standard three-page Good Faith Estimate (GFE) that urges consumers to shop around for the best loan and helps them compare costs from different lenders.
The rules, announced by the Department of Housing and Urban Development ( HUD) in November 2008, are an update of the Real Estate Settlement Procedures Act, a 1974 law known as Respa.
One recurring difficulty of shopping for mortgages is that the lender with the lowest rates often isn’t offering the best deal. High fees can wipe out the benefits of low rates, and little-noticed features such as prepayment penalties can burn borrowers. Even for savvy consumers, it is hard to compare different combinations of rates, "points" (paid in exchange for a lower rate), fees and other terms. Lenders often sprinkle in lots of confusing charges, such as processing and messenger fees. Dickering over the smaller fees could distract borrowers from the bigger picture of total costs.
To address those problems, the new estimate form requires lenders to wrap all the fees they control into one "origination charge."
Good Faith Estimates have been around for decades, but there was no standard format. Under the new rules, lenders and mortgage brokers will be required to give consumers the estimate forms within three days of receiving a loan application.
Lenders aren’t allowed to increase the origination fee from the estimate. Some other charges not included in the origination fee, such as title services and recording charges, can increase by as much as a combined 10% from the estimate. Estimates for other charges, such as homeowner’s insurance and other services provided by third parties selected by the borrower, aren’t subject to such limits.
Title insurance typically is the largest fee, and the new forms let consumers know they don’t have to accept the insurer suggested by the lender.
HUD has estimated that the revised requirements will save $700 for the typical consumer, partly because of the greater ability to shop intelligently.
Some lenders and brokers may struggle in the coming weeks to cope with the new rules, warned Vicki Bott, a deputy assistant secretary at HUD. "It’s a huge operational change for the industry," she said.
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What are the important facts you should be aware of in having conversations with homebuyers? Below are some important points to know: 1. All fees paid to the lender are now consolidated on one line on the GFE, including processing fees, origination fees, etc. These charges are no longer itemized for the buyer to review. These charges also cannot change from the original estimate without a material change in the loan requested. 2. In the event fees are being charged to get a lower rate, these are to be broken-out and itemized for the borrower’s ease of comparison to other loan programs. Basically, it give options for different rates and points. 3. Estimates fees from government recording charges and third party settlement providers we suggest are to be itemized and the lender is held accountable to a maximum tolerance of 10% for any cost overage. In the event the actual charges exceed the amount listed on the GFE by 10% or more, the lender will be responsible for making up the difference. 4. Estimates for services that the buyer can shop for and do choose can change at settlement without the lender being held accountable. This can include title charges, homeowner’s insurance, and initial deposits for escrow accounts. 5. A new HUD Settlement Statement will compare costs disclosed to the client, and the actual costs at settlement. As you can see, this puts a lot of pressure on loan officers and lenders to have accurate disclosures from the beginning of the process. As always, I will strive to provide your clients with an accurate estimate of closing costs and funds to close. I understand that by referring me, I am a reflection of you and your team, and my goal is to create the best experience possible for your clients….and get additional referrals for both of us! You can get some additional information on the new GFE and how it is disclosed to the client with the updated HUD Settlement Cost Booklet. Just click on the following link: http://www.hud.gov/offices/hsg/ramh/res/Settlement-Booklet-January-6-REVISED.pdf Call or email me if you or your clients would like more information on this subject. John Womeldorf John@MrWilliamsburg.com 757 254 8136 |
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