GFE Plus 60

It's been 60 days now since the release of the new Good Faith Estimate and as the loan applications come streaming in, I have heard that Loan Officers and Mortgage Brokers are still struggling with this new form. I heard from a lender's representative the other day that more than 75% of her time is spent helping LO's and Brokers complete this form correctly. To confuse things further, policies vary even between lenders on how to handle this form.

We all better get it right because the 120-day grace period is half-way done.

The most common misconception that I have seen and heard about is the misunderstanding of how YSP (Yield Spread Premium, commission paid to the broker from the lender) is handled. In the past, LO's had the option of collecting fees from the borrower (points), a commission from the lender (YSP) or a combination of the two. With the new form this still happens but it is notated differently on the GFE.

I heard it explained a very simple way and that probably led to my quick understanding of the concept so I will share it.

The YSP is still the YSP although now it is a credit to the borrower not to the broker. So in compiling the figures in the GFE, the broker's fees and lender's fees are lumped together in line 801. The YSP is a credit to the borrower in line 802 and the "Adjusted Origination Charges" is line 803. Line 803 is the portion of the total Origination fees in line 801 that the borrower contributes to the transaction.

According to the law, line 801 CANNOT INCREASE. Lines 802 and 803 can change in either direction with the market or with decisions made by the borrower at the time of rate lock.

What has been confusing for LO's is that in completing the GFE, there is no place for the YSP (paid to the broker) because it no longer goes to the broker in the strictest sense. Instead, the broker must mark his/her fees as either origination or broker fees even if most, if not all, will be paid by the YSP. I have seen LO's create their own line to read "YSP to broker from lender". This is really pointless because no matter what it is called, it's all the same thing: income to the broker. If you remove terminology from the process, it makes more sense.

Let's call the broker fee what it is: The Broker Fee. This is the money that the broker intends to earn for helping to arrange financing. This broker fee can be collected in the same three ways that it used to be: from the borrower, from the lender or a combination of the two. This fee can then be offset by the YSP either entirely or not at all. Regardless of how it is paid, this fee is collected and cannot increase from initial disclosure without a "changed circumstance".

In generating the GFE for my borrowers, I estimate what the YSP will be at the disclosed interest rate given the market at the time it is generated. When it comes time to lock the loan, I direct my borrowers to fetch their GFE and I go through their lock options with them. I describe the YSP as their credit because that it what it is. Then I tell them "if we lock at 5.0%, your credit will be $______ which increases line 803 to $_____. If we lock at 5.25%, your credit will be $_____ which makes line 803 $_________. Which one do you think would be best for you?" And I let them choose.

If the borrower opts for the 5.0% option which increases his Adjusted Origination Charges by the equivalent of one point, then this borrower just opted for a one point loan. If the borrower chooses 5.25%, then he/she opted for a no point loan. If the borrower chooses a higher rate still, the excess is used to pay for other closing costs associated with the loan. In any of these cases, the broker earns the same fee, which is what was disclosed in the first place.

The BEST part is that this way the borrower is the one choosing how much of the broker's fees will be paid by the lender. It gives the borrower the control to determine how much or how little of this fee he/she wants to pay.

It is also helpful to keep in mind that the broker fee is no longer a function of the loan amount as YSP was. Before the new form, brokers could determine that they were going to earn a percentage of a loan. Let's suppose a broker is looking to earn one percent (point) profit on a loan. This means that a $300,000 loan would pay the broker $3000 while a $150,000 loan would earn the broker $1500.

This is no longer the case. If the GFE is drawn up such that the broker is earning one point on a $200,000 loan ($2000) and the borrower takes out a $250,000 loan, the broker still earns what was disclosed: $2000. Conversely, if the broker discloses a fee of $3000 for a $300,000 loan (one point again) and the borrower takes out a $250,000 loan, the broker can still earn what was disclosed: $3000.

To simplify things, it would help to stop thinking of the broker fee as a percentage but, rather, it should be viewed as a flat fee.

Don't forget that we are experts in no-money down and low-money down Government mortgage loan programs. You can email me at eric@righttracfg.com or call me at 860-647-7701 x13. I will be happy to answer any of your questions.

When it comes to No Money Down Financing, we are the Experts!

Eric Boucher
Government Loan Specialist
Right Trac Financial Group
860-647-7701 x13 Office
860-324-3324 Cell
eric@righttracfg.com

Right Trac Financial Group is licensed in 8 states: CT, NH, MA, VT, ME, RI, NY and FL. Our Corporate Headquarters is located in Manchester, CT.