Washington Report: Good Faith Estimate Mortgage Disclosures

HUD has a blunt message for home buyers, lenders, Realtors and anyone else involved in real estate. Despite what you may have heard to the contrary, on January first the federal government expects everyone to be using the new consumer-friendly Good Faith Estimate mortgage disclosures and the new HUD-1 settlement statements.

The only exception, HUD spokesman Brian Sullivan told Realty Times last week, is if a mortgage application was made in 2009 and the transaction is closed in 2010.
The issue here is important to consumers because the new GFE and HUD-1 provide numerous protections the old forms did not.

Tops on the list: They make it extremely difficult for loan officers to “low ball” the estimated fees and charges on the mortgage and then later hit homebuyers with surprise increases at closing.

Under the old rules, if the estimated fees up front from the lender were $2,000 but the total on the settlement sheet came to $3,000, the homebuyer would have to come up with the difference. That was a huge pain … and it was abusive.

But starting January 1, the lender or broker will be subject to what are known as “tolerance” limits for certain types of fees. Any charges over the limits will have to be eaten by the lender or broker.

For example, if a loan officer tells you the origination and processing charges will be $800, he or she won't be allowed to charge you any more than that at settlement. There will be zero tolerance for increases on these fees.

Other types of charges, such as for title insurance and settlement services, generally won't be allowed to come in more than 10 percent above the upfront estimate -- unless you the borrower chooses the title company and it's not on the mortgage company's list of recommended firms.

In response to industry complaints that some mortgage firms will not have their systems up to speed to comply with the new rules as of January 1, HUD Secretary Shaun Donovan issued a statement indicating that the department would show “restraint” in enforcing the regulations during the first 120 days of the new year.

But last week, following mortgage and real estate trade publication reports that the department has postponed the January start date to April 30, HUD's Sullivan told Realty Times that “restraint” doesn't mean that lenders can avoid using the new GFE and HUD-1 forms.

All consumers making loan applications on or after January 1 must receive the new forms at application and at closing.

“It's as simple as that,” said Sullivan.

Published: November 30, 2009
by Kenneth R. Harney