Problems Arising From New 2010 Mortgage Good Faith Estimate (GFE)

We’re about 3 weeks into the New Year and the new 2010 GFE, (Good Faith Estimate) and already we’re seeing loopholes that are being exploited by banks and lenders. While HUD’s intention in the redesign was to put an end to ‘bait and switch’ tactics of old, some banks and lenders have already found a way to continue the unethical practice of low ball offers initially and then playing ‘Jack My Price Up’ somewhere between your application and the closing table.

How is this happening? It’s quite simple, actually. The GFE that consumers have grown used to seeing for the past several years is no longer called a GFE, but an Initial Fee Estimate sheet, or Initial Fee Sheet. Aside from the new label across the top of the page, it is a carbon copy of last year’s GFE. Everyone, especially experienced borrowers are likely to gloss over the page title and continue on the interest rates, payments, and closing costs being shown.

 Because the new 2010 GFE is now binding, If a lender issues low ball closing costs or an impossible interest rate they are now legally responsible to pay the difference in fees, or buy down the interest rate to the original quote. Because the Initial Fee Sheet is not binding, most banks and lenders are requiring that mortgage consultants deliver these when first quoting a potential borrower instead of the new GFE.  

Now for the hustle; you’ve decided that the lender showing the lowest rate and lowest closing costs is who you’re going with. Lost somewhere among the 20+ pages of your initial application, the new and tough to grasp 2010 GFE appears. You’ve done your homework already, and believe you have your interest rate and closing costs nailed down and that from here on out the process is no more than a formality. Somewhere between the questions about whether or not you’re a terrorist, (Patriot Act: fighting terror one home loan at a time) pages to sign about how your credit is determined, and if you’d like for your lender to share private information or not, the new GFE is signed and goes unnoticed; ‘Bait and Switch’ complete.

 Again, if you’re beginning to shop for a new loan, you should expect to see an initial fee worksheet given to you to compare against other banks and lenders, and if you’re shopping for even a short length of time, you can realistically expect that your interest rate could change through honest means. (See: Should I Lock?  to learn why interest rates are moving from day to day.)  While most of the fly by nights and ‘bad apples’ that were seeing dollar signs during the housing boom have returned to beauty school or hamburger construction, there will always be a couple of bad eggs in the omelet that make warning articles such as this necessary.

At the end of the day, it’s your money; and it’s your job to protect yourself. You can do so by closely comparing the initial fee sheet against the actual Good Faith Estimate. Depending on your situation, some fees can and will change, as could your origination or interest rate. However, a little common sense can go a long way. If you notice a new $1000.00 dollar administrative or processing fee that wasn’t shown on your initial fee worksheet, be certain to ask about it. If you’re not satisfied with the answer you receive, it may be time to get a second opinion.