I was having a discussion yesterday with a great real estate agent (Bill Peck) who was lamenting to me that his home buyers had received three Good Faith Estimates (GFE) from different mortgage companies and they were much more scattered in their estimates than we have traditionally seen.
For those of you who did not read our previous blog article on the new RESPA rules, it covered how many of the new rules were going to increase the estimated time it takes to close on a real estate transaction. Additionally, it provided download links to all of the new forms.
One form in particular, the new Good Faith Estimate (GFE), was identified as a document that could create some chaos early on. Yesterday, Bill was welcomed to “early on!”
Why We Needed A Uniform Good Faith Estimate
The new GFE and the rules that came with it were needed in order to simplify the process of comparison shopping for home mortgage lenders. In the past, with few rules governing the GFE (other than that it was to be provided), we saw many sloppy or crooked activities going on.
While 99% of the mortgage lenders did not do it on purpose, there certainly were times when buyers were quoted one thing, and then charged much more when it came time to go to settlement.
Problems Encountered Using The New GFE
The new RESPA rules were designed to make this problem go away. But as we predicted, we are seeing well-intentioned lenders “quoting high,” so that the discrepancy will not get in the way of closing. You see, they can be wrong “high” and the closing goes on. But if they are wrong too “low,” then the closing must be delayed for the home buyer to have adequate time to consider alternatives.
This idea was good in spirit, but in practice it is chock full of problems. Perhaps a simple solution would have been to have the lender only have to disclose the fees it would charge, and then identify the other service providers and taxing authorities who would also be bringing charges to the consumer. Either way, we are still learning to work with the new GFE.
Understanding Title Insurance Costs
The reason that the three GFEs were so far apart yesterday was because each lender had quoted (predicted) different amounts for title insurance. This really should not happen, as title insurance premiums are promulgated and should represent the bulk of the title insurance costs for the home buyer.
I felt that a quick explanation of how title insurance fees are calculated might ease concerns for home buyers getting ready to receive a new Good Faith Estimate. Fortunately, having a brother (Danny) at Smith, Thompson, Shaw & Manausa allowed me to get a simplified version which I will share with our readers.
