New HUD Mandated Mortgage Good Faith Estimate Form Provides New Layer of Confusion for Home Buyers Regarding Broker Compensation, Transparency
While a newly mandated HUD ‘Good Faith Estimate’ form may have been created to “provide borrowers an easier means of comparing loan offers…” mortgage brokers like Mike Sanborn of Saint Lawrence Mortgage argue the new form simply does not provide needed transparency or answers to the borrower’s most important questions – How much am I actually spending? How can I be sure I got the best deal possible?
Everett, WA (PRWEB) January 14, 2010 — With the apparent intention to simplify a home buyer’s experience when comparing lending options and costs, the Department of Housing and Urban Development, HUD, on January 1, 2010, released a new universal Good Faith Estimate (GFE) form which mandates all loan originators use the new three-page GFE form. Mortgage brokers like Mike Sanborn of Saint Lawrence Mortgage in Washington State, quickly observed that the previous form his company used was one page and provided greater clarity for the home buyer.
The form is HUD’s latest development in the Real Estate Settlement Procedures Act, RESPA, (12 U.S.C. 2601) which, regulates real estate transfers involving a “federally related mortgage loan” by requiring, among other things, certain disclosures to borrowers.
HUD’s website states, “The intent of the standardized GFE and HUD-1 is to provide borrowers an easier means of comparing loan offers, and to determine that they are getting the loan at settlement that they were offered in the GFE.”
“My previous GFE form was an easy-to-read one-page document that provided borrowers a line-item breakdown of every cost or fee by name,” said Sanborn.
“Borrowers could see the MERS fee, WIRE fee, broker fee, underwriting fee, processing fee, among others. Now, despite the additional two pages of information in the new form, there is no line-item breakdown of costs and fees. It doesn’t even incorporate the basics people expect at a glance, such as taxes and insurance. Instead borrowers get a lump sum and have to figure it out themselves.”
Sanborn, a member of the Upfront Mortgage Brokers Association (UMBA), noted that the new form is not only too long and confusing, it also allows a greater potential for unscrupulous mortgage brokers to take advantage of borrowers because its design specifically misrepresents the total adjusted origination charge, a key figure which enables a borrower to understand estimated settlement charges. Learn more at http://www.saintlawrencemortgage.com.
“Let’s just say it could be very easy to persuade the borrower to ignore that amount,” said Sanborn.
“There are generally two ways for a mortgage broker to be paid for originating and processing a loan. Borrowers may pay an upfront fee for loan origination and processing and the lending institution may pay a percentage of the loan amount, or yield spread, to the broker.”
“The new HUD mandated GFE makes it easier to hide the yield spread compensation because it actually misrepresents the yield spread as a credit back to the borrower. At the very least the new HUD GFE takes focus off of complete transparency – and does not squarely break numbers down for borrowers.”
In addition, Sanborn says the lack of line-items leaves mortgage brokers holding the bag when it comes to explaining fees without being able to direct them to the specific line item.
“I’m a flat fee broker,” says Sanborn. “I tell my clients upfront exactly how much my fee is for originating a loan. Now I have to come back to the client with a muddled GFE which makes it appear as though I have raised my fee – because they only get to see the one lump sum amount. There are different fees there going to different people.”
Sanborn said he feels compelled to provide an additional form with the mandated HUD GFE so that borrowers will have a detailed line-item breakdown of all their costs.
About Saint Lawrence Mortgage:
Saint Lawrence Mortgage is a member of the Upfront Mortgage Brokers Association and is committed to honest, upfront and objective consultation to all clients. In 2004 Saint Lawrence Mortgage, LLC pioneered the flat fee/wholesale rate program so borrowers do not pay more to borrow more. http://www.saintlawrencemortgage.com.
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Posted on January 15, 2010
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