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3 tips for using the mortgage GFE
By Holden Lewis • Bankrate.com (Excerpts) Highlights
The training wheels have been taken off the GFE, or good
faith estimate, of mortgage costs. Here is what you need to know about the
new way of comparing mortgage
fees. The GFE is a document that lenders must provide to anyone who
applies for a home loan.
For years, the estimated mortgage closing costs on the GFE were nonbinding --
and, often, inaccurate. That changed in 2010. Now the GFE has to provide an accurate,
bottom-line mortgage cost. The feds gave lenders slack the first four months of
the year. Starting May 1, the feds expect each mortgage fee to be estimated
accurately. Following are three tips for using the new GFE: Make sure what you get is really a GFE
Under the new rules, the lender
has to provide a GFE within three days of receiving a loan application. Some
lenders get around this requirement by handing out "work sheets"
instead of GFEs. The difference? Fee
estimates on a work sheet don't have to be accurate. By contrast, a GFE has accuracy requirements. A fee underestimate
-- even if it's an honest error -- could cost a lender thousands of dollars. Obviously, lenders nervous about underestimating fees might feel
some temptation to overestimate fees instead. "That was the original reaction that we saw in the
marketplace," says Tim Dwyer, president of EntitleDirect.com, a discount
title insurance company in
However, fewer lenders now overestimate fees "because they
know they are losing loans in doing so," Dwyer says. Use the GFE as a shopping tool
Making the GFE accurate was a
means to an end. The regulators' real goal was to encourage consumers to
comparison-shop. The final
page of the three-page GFE has a "shopping cart" that encourages
borrowers to "compare GFEs from different loan originators." "Our advice was, is and always will be that consumers should
shop, whether it's something significant, like title
insurance, or something perhaps more minor, like pest inspectors,"
Dwyer says. Tony Farwell -- CEO of Closing.com, an online marketplace for real
estate closing services -- agrees that it pays to shop. "Most people think these service provider rates are very
tightly grouped together, but in fact there's tremendous variance in what you
can save on a closing without having to sacrifice the quality of the
provider," says Farwell from his La Jolla, Calif., office. Know what the GFE doesn't include
The GFE doesn't contain all the
information you need. "It omits cash to close, which is pretty fundamental if
you're a borrower," Farwell says. The old GFE estimated the size of the check that the borrower
would bring to closing
-- the "cash to close" to which Farwell refers. The new GFE doesn't.
Some lenders provide this estimate in a supplemental work sheet. In this case,
a work sheet is a good thing -- so long as it's offered in addition to, and not
in place of, the GFE. Michael Moskowitz, president of New York-based mortgage lender
Equity Now, says the most important thing is to spend time analyzing the GFE
and comparing offers. "It's their house, let them spend the next hour reading
it," he says. "Let them put something else aside and force themselves
to read it." Posted:
May 24, 2010 |
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