The Department of Housing and Urban Development (HUD) under RESPA revised the Good Faith Estimate, HUD-1, and HUD-1A through regulation adopted in 2008 which became effective January 01, 2010. The Real Estate Settlement Procedures Act (RESPA) is a consumer protection statute, passed in 1974. The purpose of the act is to help consumers become better shoppers for settlement services and to eliminate kickbacks and referral fees that unnecessarily increase the costs of certain settlement services. RESPA covers loans secured with a mortgage placed on a one-to-four family residential property.These include most purchase loans, assumptions, refinances, property improvement loans, and equity lines of credit. RESPA requires borrowers to receive disclosures at various times.  A Good Faith Estimate is required to be delivered within three (3) days of giving six required items:

1. Name
2. Social Security Number
3. Monthly Income
4. Property Address
5. Property Value (Estimate)
6. Loan Amount

Fees disclosed on the new Good Faith Estimate are grouped into three categories:

• Fees that cannot increase from the initial estimate to closing
• Fees that may vary as much as 10 percent from the initial estimate to closing
• Fees that may increase without limit, because the lender has no control over them or may be difficult to predict in advance.

Fees in the no tolerance group:  lender fees, mortgage broker fees, processing, underwriting, and discount points.

Fees in the 10% variance group:  appraisal, recording fees, credit report, flood certification, tax service, mortgage insurance, and guarantee fee.  Title closing and title insurance are included in this group when selected from a provided list by the borrower.  Any single fee could vary by more than 10%, the combined total of the fees in this group may not increase by more than 10%.

Fees in the unlimited increase group:  homeowner’s insurance, per diem interest, and setting up the initial escrow account.  Title closing, and title insurance are included in this group when they are not selected from a list provided by the lender.

The New Good Faith Estimate – The Positive:

As a customer you have a minimum of 10 days to shop for various settlement services.  The Good Faith Estimate is now lo longer an “Estimate” but an Etched in Granite Guarantee of Fees charged by the Mortgage Broker and Lender.   This very fact will eliminate any companies still that would attempt to bait and switch consumers by offering low fees, and then increasing at closing.  The format of the new Good Faith Estimate may not be modified from the version prescribed by HUD, this will make it easier for consumers to compare GFE’s from one lender to another.

The New Good Faith Estimate – The Neutral Items:

The overall costs for closing a loan have not decreased, and none of the items have went away, and no new items have been added because of the new Good Faith Estimate.  The borrower will be asked to provide a commitment to the loan and to moving forward prior to locking in the rate and terms.  If the borrower does not provide their commitment to moving forward with the loan by the end of the shopping term, minimum 10 days, then the lender no longer has to honor the terms.  If the terms do happen to change during the process then this will trigger another 10 day grace period.A very important part for the customer to pay attention to is how long the interest rate being offered is good through.  Because of MDIA (Mortgage Disclosure Improvement Act of 2009) the APR at closing cannot be off by more than 1/8%, if it is it must be re-disclosed and have a 3 day waiting period.  So, the interest rate will need to be locked in at least 5 days prior to closing with most investors requiring 10 days.  Interest rates are very fluid so guaranteeing an interest rate for any lenght of time is very difficult, since the interest rate could change.

The New Good Faith Estimate – The Stuff that was forgotten:

The Lender and Broker are responsible for the accuracy of fees that are typically paid for by the seller, ie. Owners Title Policy.  A seller’s closing cost concession is not shown on the new Good Faith Estimate.  The proration of taxes is not shown.  Proration of taxes is a credit given to the buyer, when taxes are paid one year after assessment, since the new buyer’s first bill would be for a time period when they were not living in the property.

The two most important pieces information everyone wants to know when purchasing a home:

• What is my total monthly payment.  The Principal, Interest and Mortgage Insurance is included, but not the Taxes and Insurance.  Sure everyone can just add the cost, but wouldn’t it make more sense to just include the total payment, it was on the old Good Faith Estimate.  With a USDA Home Loan you don’t have to worry about the added expense of mortgage insurance.
• How much money will I need to close.  If your using a USDA Home Loan this doesn’t become as much of an issue, but still something you want to know.

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Because of timelines with RESPA and MDIA it is important to work with a knowledgeable mortgage broker to ensure that closing deadlines are met.

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Related posts from Indiana's USDA Home Loan Expert:

1. What Goes On At Loan Closing
2. There’s an Escrow for That
3. The Tax Man Cometh: As A Homeowner You Can Give A Lot Less
4. What’s a Credit Score Got to Do With It?
5. Home Buying Process for a First Time Homebuyer