As a Borrower, How Do I Shop For a Mortgage Loan If I Can’t Get a Good Faith Estimate From My Lender?

When HUD made the much-talked about changes to the Good Faith Estimate (GFE) effective January 1,2010, it rolled out with several major flaws.  The most noticeable and problematic being that lenders will not prepare a GFE for a new home buyer until the buyer has a property address for the home they want to buy.  That means while you are shopping for the home of your dreams, you will be hard-pressed to find a lender willing to give you a GFE.  Why?  Because under the new guidelines, your Loan Officer, to a certain extent, will be held accountable for any differences in fees noted on the GFE when compared to the actual HUD closing document that shows final fees.  Being held “accountable” means the shortage  or difference will come from the Loan Officer’s paycheck.  That is a pretty heavy burden.  

There are many closing fees that are based on the property value and location.  Without that information, the Loan Officer’s hands are tied.  Once a borrower applies for a loan and provides the minimum information required to deliver a GFE, we must provide the GFE within 3 days of the application date.  The fees can be revised only  if/when we uncover what HUD refers to as “Changed Circumstances.”  Unfortunately the addition of, or change to a property address is not a valid changed circumstance that permits the change of fees on the GFE.

Here it is in HUD’s words:   ”Lenders are bound by the fees disclosed in the GFE, except in the case of a changed circumstance, which allows fees to be changed and the GFE to be reissued.”    But what exactly qualifies as a changed circumstance?    

Per RESPA, a “changed circumstances” is defined as:

1. Acts of God, war, disaster, or other emergency;
2. Information particular to the borrower or transaction that was relied on in providing the GFE and that changes or is found to be inaccurate after the GFE has been provided. This may include information about the credit quality of the borrower, the amount of the loan, the estimated value of the property, or any other information that was used in providing the GFE;
3. New information particular to the borrower or transaction that was not relied on in providing the GFE;  or
4. Other circumstances that are particular to the borrower or transaction, including boundary disputes, the need for flood insurance, or environmental problems.

“Changed circumstances” do not include:

1. The borrower’s name, income, property address, estimated property value, loan amount needed, or any information contained in a credit report obtained by the loan originator prior to providing the GFE, unless the information changes or is found to be inaccurate after the GFE has been provided; 
2. Mortgage market price changes

So, what type of changed circumstance would allow for a revision to the GFE?

1. The mortgage program (Fannie Mae/ FHA) or the mortgage insurance program changes but the mortgage originator did not have notice of those changes prior to the GFE being issued.
2. The property address provided by the borrower is not correct.
3. Parties are added or removed from title.
4. The loan does not close by the closing date in the original purchase agreement provided.
5. Additional appraisal, pest or other inspections required.

Not being able to get a Good Faith Estimate is a HUGE cog in the wheel in the home buying process and presents the ultimate catch-22.  After all, borrowers want to see what costs to expect, yet we need to know what property in order to project these costs.   Meanwhile, the real estate agent is waiting for a pre-qualification letter.

On the flip side, there’s a big borrower benefit to the change in the guidelines.  Prior to the new guidelines, it was far too common for the borrower to receive a “Bad” Faith Estimate that was completely out of sync with final closing costs.  This can no longer happen.  If it does, the lender is liable for any increase in fees not tolerated by RESPA.

So, what’s the best course of action for a borrower?

First, find a qualified mortgage loan expert to help you – not based just on a rate quote.
Provide him/her with your info (income, assets, employment, etc.,) so you can get a preliminary qualification and credit verification.
Discuss your mortgage options.
Once you have selected a home, your mortgage consultant can give you an official Good Faith Estimate.

I can work with you through this process if you are seeking a new mortgage loan.  Just jot a note or call.

Until my next post . . .

Tagged as: Good Faith Estimate (GFE), Purchasing a New Home