A new standardize Good Faith Estimate (GFE) and HUD-1 came into effect January 1st as a result of the financial markets near collapse of poor performing mortgages.  As a result, HUD changed the way closing costs ( now called settlement fees) are disclosed to the borrower. The goal of HUD(they designed the new forms) was to provide more simplicity, clarity, transparency and certainty of mortgage costs to the consumer with this new GFE, help the borrower avoid costly and harmful loans and find the lowest costs.  HUD has standardized the GFE information for all states. Now, HUD specifies which types of charges can change, which can change 10% and which cannot change at all. The final version of the GFE must match the HUD-1 within the different tolerances levels. If they are exceeded, the borrower must be refunded any amount over the certain tolerance levels by the mortgage originator. 

As with the TIL/APR disclosure, the new GFE misses the mark. It reduces the transparency of fees(bundles charges for broker and banker and title charges) and lacks clarity of actual closing costs and down payment needed to buy a home. Unlike the APR/TIL disclosure, HUD had  grounded reasons to create a standardize GFE with key loan terms and closing costs. Too many consumers did not know  their closing costs because the GFE was unclear with the loan terms or the preparer was not detailed enough to include all costs,such as, owner's title insurance or city/county transfer taxes.  

 As stated, the new GFE will not provide an estimate of cash to close for a buyer. It is the summary of the settlement charges mandated to be disclosed by HUD to help to compare loan offers. Because it is a national document, it does not account for fees customarily paid by the seller(owner's title insurance, city and county transfer taxes). Every GFE must include an estimate for a Owner's Title Insurance policy regardless of local customs. Per HUD, the GFE is a disclosure of charges the borrower is likely to incur in connection with the loan.  If the seller does pay for the Owner's Title Insurance, county/city transfer tax or escrow fees,  then the final HUD-1(final closing document with all of the actual costs)will offset the charge with a credit from the seller. Unfortunately, the new GFE does not have an offset. The city and county transfer taxes, escrow fees and other misc. small fees(my interpretation) need to be disclosed and will have a seller credit per contract or local customs on the final HUD-1. The new GFE of settlement charges will greatly exceed the actual settlement fees per your contract or county customs .

 In addition, the new GFE has disparities in how compensation is disclosed for mortgage brokers and bankers.  A brokered loan must continue to disclose YSP (yield spread premium). YSP is a compensation to the broker from the lender for bringing in a loan.  A direct bank or mortgage banker does not disclose compensation, such as, service release premiums (RSP) when the loan is sold. If a YSP is involved, it will be paid to the borrower to reduce  the origination charges by mortgage broker with the same net results as a bank or mortgage broker. It is important to look at section A-Your adjusted Origination Charges for most accurate comparison of the Origination Charges when comparing the new GFE.  

This new requirement of holding the originator responsible for closing costs was part of my offer to all clients prior to it being mandatory. My closing estimates were accurate to within a $100. The timing and procedures of the new GFE are a little cumbersome. I am in the process of finalizing a "cash to close" worksheet to sum up the customary settlement charges and the down payment which will add clarity and transparency to the purchase.  In addition, it will describe the terms for an adjustable rate  and interest only loan mortgages missing in the new GFE.  It is business as usual in an unusual financial market!