Views Of The GFE 2010 or Did They Say GOOD Faith Estimate?

I suppose that depending on your position in the process of obtaining a mortgage there are many views that one can take with regard to the new Good Faith Estimate that came into effect 1/1/10. I thought it might be interesting to look at this excercise through the eyes of the different role players in this mortgage game.

Through the eyes of the Consumer:

The consumer is King or so I always thought. The consumer is confused, too confused to complain. The new GFE2010 disclosure, at the end of the day, does not give a line item detail of costs associated with obtaining a mortgage. The consumer has been given less information except for the addition of a yield spread premium (rebate), formerly used by honest brokers to offset the cost for the rate he would deliver. Now the consumer sees a disclosure with much higher costs. Yet the arithmetic ends up virtually the same albeit more confusing for the consumer. I as a consumer before this new disclosure would have seen on the old Good Faith Estimate a line by line detail of the broker's fees, the lender's fees, the appraiser, escrow and title. It showed who received the fees and it showed who paid them. Now the one thing that I can see coming out of this is that it'll make it harder to bait and switch the consumer at the last minute. Oh wait, this new GFE 2010 has a change of circumstance box, that can change the rate at the end of the transaction.

As a consumer, I want protection, not confusion. Whoever put this new GFE 2010 together just expanded what was 1 page into 4 pages that seems to tell me less.

Through the eyes of an escrow officer:

As an escrow agent, it's my job to reconcile the numbers and make sure that everyone gets credited and debited correctly on a real estate transaction. To do this I complete a HUD-1 which is a final closing statement. We're 3 months in to using the new and "improved" GFE 2010 and I have not been able to balance a HUD-1 correctly on the first try yet. Now we have these zero tolerance sections and 10% tolerance sections that need to balance. The lenders have me moving numbers around from credit to debit and from buyer to seller and vice versa. It is confusing me and I am a professional, at least I was. The lender gives us a Truth In Lending (TIL) and the broker gives us a GFE and I in turn reconcile the HUD-1. The strangest thing is that on the last purchase that I closed, the contract clearly showed that the seller was to pay the transfer tax and the Owner's Title policy, yet I was forced by the lender to charge this to the broker, because the broker did not disclose this amount to the borrower, who wasn't paying it anyways.

Boy, it used to be simpler then it is now. We knew who paid what and reflected as much on the closing statement. What used to take me 2 hours can now drag on 2 days, for the same fee.

Through the eyes of the lender:

Well, as the lender in today's mortgage industry, I am running scared. I don't want to cross the government, which has made life hell for us with over-regulation. Rather then policing the existing regulations which already adequately protected the consumer, they have installed themselves into our industry with red tape and more costs and no true understanding of process. Now I have to work with Big Government, so we're doing our best. First we had to change our system internally to make sure that we sell loans to Fannie and Freddie that comply with the new rules. We are now the compliance cops because we are making these loans to the consumer but selling to the GSE's (Government Sanctioned Enterprises). Our customer service has suffered because of our own confusion. This new format has specific instructions from RESPA (Real Estate Settlement Protection Act), that I can clearly see are wrong and yet I have to comply or Fannie and Freddie won't buy the loans. Too much Government. That's what I see.

Through the eyes of the Government:

Our economy has been slaughtered by the real estate market. Behind the real estate market is the financing of real estate. Residentially speaking the consumer was a lamb being led to slaughter. We the government don't make mistakes, so we must find those fallible dark areas and bring them to light. It was not we the government who implemented such a loosening of the credit strings that started this avalanche. Our recent socialist views of housing for everyone with no risk to them and don't forget the Healthcare plan we just shoved up your asses. Sorry, as the government I shouldn't have phrased it so honestly. My apologies. But back to the point, we as the government must appear to be working, so we have brought about the HVCC (Home Valuation Code of Conduct), which really helped ruin a few carreers. Oops sorry again for actually lowering the quality of the product, while getting a few of our buddies paid as Appraisal Management Companies er, unnecessary middlemen. We, the government are excited about the new MDIA (Mortgage Disclosure Improvement Act) set forth by our guys at HUD through RESPA. That's been stealth like in our approach.

Here, we've improved the disclosure process that the broker must use on the consumer. It's 4 pages now instead of 1. And it totals everything up now. See this big number. That's the number that matters. You don't really need to know how we got there and who got paid what. We didn't want to confuse you with our political words or twists, so we added pages and spread out less information. Oh yeah now we've taken the broker's rebate income from him and gave it to you. That's why the number is so big now. The broker used to disclose this to you, but since it was so easy to hide, we took it away rather then cap it. We didn't realize it until it was too late, but the lenders already capped the rebate so the consumer didn't get too screwed. The fact is, us government types don't like the working stiffs. We like big banks. They pay us alot of money. We really didn't feel the need to regulate the banks as heavily as the brokers. We've spent alot of taxpayer money trying to figure out all these new regulations rather then enforcing existing rules. We, the government need to continue to figure out how best to justify why we're here. We'll get more involved and coninue making non-sensical laws. That justifies us.

We have perfected the process of making imperfect systems less perfect or more imperfect, politically speaking. However you want to twist it!

And finally through the eyes of a broker:

I certainly understand that there are bad brokers out there that take advantage of their client. But I always gave full disclosure of all fees that a borrower paid to obtain a mortgage on our previous Good Faith Estimate. A line by line detailed cost breakdown was important to my client. It also included the rebate paid by a wholesale lender that was formerly broker compensation. This rebate was a negative fee that related to a higher rate. So if I offered my client a higher rate then I would receive a bigger rebate. A simple rebate cap enforced by the lender would have put a big dent in abuse of the client.

Instead now I must fill out all of the same fees as before using a GFE 2010. My problem is that it doesn't break fees down line by line. Now, even if I initially pay my credit reporting vendor for a client's credit report, I cannot collect from the borrower. It doesn't make sense. This is a hard cost for obtaining a loan and I can't collect it from the client. Now it must show that the Lender's fee is paid by the broker and now the broker must collect from the borrower. Even though the client is paying the lender, it must show as though the broker collects and pays as a pass through. Why? This serves no purpose except to appear as though the broker is charging more fees, even though its the lender making that money.

And the worst travesty of the new GFE 2010 is RESPA's insistance that even if a borrower is NOT paying for a service, it must be disclosed. This makes my blood boil. Even if it stipulates in a purchase contract that a seller is paying for transfer tax and an Owner's title policy, it must be disclosed on the GFE to the borrower. In California, for instance, these fees are typically paid by the seller. HUD is actually penalizing the broker for not disclosing these fees paid by the SELLER to the buyer. How does this make sense? If these non borrower fees are not on the GFE 2010 then the money is debited from the broker's hard earned commission. They are forcing the seller to breach a purchase contract, This is wrong.

The end result is a continuing unfriendly atmosphere for the broker, even though in almost every comparison, the broker is a less expensive way for the consumer to get a loan then going to a Bank. The banks don't have the same disclosures and thus mask their fees and charge more.

If you're a consumer, shop around. If you're a broker, we need to change this! If you're a lender, good luck with the politics. If you're a lawmaker, shame on you, why don't you actually put the people first?

Can't wait to see New Generation Lending get up and running. Fair prices, new programs, common sense and no government involvement. Contact us with questions.

This was worth posting again. Short sale profits for One West Bank