The new GFE for January 2010

Here’s yet another change to the mortgage industry.  Starting on January 01, 2010 there is going to be a new GFE (Good Faith Estimate) for borrowers to understand.  We are going to try and review the changes with you so you get a better understanding of why the new GFE is here and explain what everything means.

Click here to see a sample (does not reflect your actual loan scenario)

The new GFE and the relationship between the HUD-1 and the Good Faith Estimate

To further protect consumers, the RESPA reform establishes tolerance levels for changes to costs laid out in the GFE so that no consumer will have to pay a wildly different amount for their actual closing costs than those previously detailed in the Good Faith Estimate.  Three separate categories of the tolerance levels were created.

Category I: Charges that cannot change from the GFE to the HUD-1;

1. Borrower’s origination charge
2. Credit or Charge for interest rate selected
3. Transfer Taxes

Category II: Charges that can increase in aggregate no ore than 10%;

1. Title Services
2. Lender’s title insurance
3. Appraisals
4. Credit Reports
5. Tax Service
6. Flood Certification
7. Mortgage Insurance Premium
8. Recording Charges

Category III: Charges that can increase with no cap;

1. Initial Deposits for escrow reserves
2. Daily Interest Charges
3. Homeowners Insurance
4. Lender Required services where the borrower shops for and selects their own third party provider
5. Services the borrower chooses to have that are not required by the lender

The GFE may be revised and reissued (in which event there could be increases in the charges) prior to settlement due to certain “changed circumstances”.  The HUD defines these circumstances as acts of God, war, disaster or other emergency; information about the borrower or transaction that changes or is found to be inaccurate after the issuance of the GFE (e.g., credit quality, loan amount, property value or other information); newly found information that was not previously relied upon as well as other possible circumstances.

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