Good Faith Estimate 2010

We just finished training for the 2010 versions of the Good Faith Estimate (GFE) and HUD1 or closing statement. It is going to be choppy getting accustomed to the new forms. And it means we will need to do things differently moving forward.

I just completed my first estimate using the new form. There are times when I scratch my head and wonder if the King is really naked, this is one of those times. The two questions home buyers have asked on every application I have ever prepared are not answered on this new form:

1) How much will my total payment be?
2) How much money will I need at closing?

Those figures are shown in the application but not on the GFE. Is that not strange?

A couple of other very odd changes include no disclosure of seller paid contributions (again it is in the application but not GFE) and inclusion of fees paid outside of closing such as pest control, home inspection and realtor administration fees. Heads up realtors, if your company charges the buyer an admin fee it needs to be on the GFE. There will not be any adding of fees at the closing to the borrower’s side of the HUD1!

Something else I found very odd, the transfer tax is going to be on the GFE. In our area that is assumed to be a seller expense but it must be shown on the buyer’s GFE. Wonder why that particular item is carved out of the seller’s list and not others like deed prep? Strangest of all, the closing cost are not itemized on the new GFE, one lump sum figure. How bazaar.

All of this is going to slow down the process, closings can not occur until 10 days after the disclosures. Some changes will require a new disclosure and that can delay a closing for another 10 days. A loan approved today will no longer be able to close today, a situation I had last week. The new process that goes on behind the curtains is multiple signatures that everything is in compliance. In the past this step was limited to only one person prior-to-close, will now be three or four people and could take up to 48 hours to complete! All of this could be very inconvenient for scheduling moving trucks and utilities.

We will not be able to issue a GFE before we pull credit, this is a huge change. It makes sense because credit scores can impact the fees or rate. Once a closing cost is disclosed it can not be changed so lenders will not send out an estimate until they have the six basic items needed at application. These include: Borrower’s name, SS#, property address, monthly income, valuation of the property and proposed loan amount. Many homebuyers are not going to like this at all. Can’t you give me an estimate? Nope! Basically not until you give up all of your information.

Here is the good, the bad and the ugly; it really is going to help the consumer by eliminating the bait and switch tactics used by many lenders - which has always been one of my pet peeves with the industry. It is going to be bad for mortgage brokers because they are required to disclose information mortgage bankers like us are not. If I understand the math correctly it is going to make their fees look much higher which is going to be confusing to the consumer and as a result bankrupt many brokers.

Rates Continue to Improve

It is a very strange market. A few days ago I commented that interest rates are nearing the bottom and that is still my position. But here we are two days before a four day weekend and rates are still improving. The markets are going to be closed Thursday and Friday and normally that alone would push rate higher.

My primary goal is to help buyers and sellers close transactions as quickly and smoothly as possible. Doing that is good for our local economy. Rates as low as they are today are creating all types of opportunities for both buyers and sellers.

Consider this, if you check out the rates on my application site you will find and FHA 30 year fixed under 5% without points. Click Here

FHA allows the seller to contribute funds for the buyer’s closing cost (payable at closing from the sale proceeds). This is a huge marketing tool that could give a seller a distinct advantage over other properties listed for sale. Consider a home selling for $200,000, a buyer could purchase with only 3.5% down or $7,000, roll the up front mortgage insurance premium into the loan amount making the loan $196,377. Based on today’s rate of 4.875% it is possible for the seller to provide a start rate of only 2.875% fixed for the first year, 3.875% for the second year and then 4.875% for the remaining 28 years!!! Cost to the seller for this example would be two points or $4,084. That is much better than a 5% reduction in the sale price, the seller would net almost $6,000 more and the buyer receives awesome payments.

STOP!! He said something other than "fixed rate" - no I didn’t. The example is a fixed rate of 4.875% for 30 years, it is temporally bought down for 2 years. And it works very well if the buyer is qualified for the payment based on the highest rate. I have closed about a kazillion of these loans over the years.

In our example above the APR is 5.843% assuming a note and payment rate of 4.875%, fixed for 30 years.