2010 Good Faith Estimate Changes
After 30 years, Housing and Urban Development (HUD) made a few changes to the Real Estate Settlement Procedures Act (RESPA). We're going to briefly explain five of the key areas in the new legislation and give a plain English explanation of how it will change shopping for a loan.
Delivery of Good Faith Estimate (GFE)
- What's Changed: The GFE is no longer an "estimate." When delivered as part of a transaction, it becomes a binding contract.
- What it Changes: The GFE will come later in the process. In the absence of any rules, it had degenerated to a marketing flyer and was being sent out too early. Now, a lender will need credit, income, and asset documentation to generate the GFE, but the GFE will set a ceiling of what you will pay barring a change of circumstances...
Changed Circumstances
- What's Changed: The GFE is treated like most legal documents. There are limited reasons why the contract can change and any fee changes are limited to the nature of the changed circumstance.
- What it Changes: This adds unprecedented certainty for the consumer. Acts of God, war and emergency are allowable changes. "I didn't know title would be that expensive" is not.
Important Dates
- What's Changed: The top of page 1 of the new GFE includes four dates, three of which are key:
- Interest Rate Available Valid Through Date
- Settlement Charge Estimate Valid Through Date
- If locked, Rate Lock Valid Through Date
- What it Changes: This dates were previously buried throughout the disclosures. Page 1 of the new GFE effectively outlines many of the key questions about a mortgage.
Disclosing Fees
- What's Changed: There are two changes. The first is that the GFE may not vary in form or function from lender to lender. It will always look the same. The second is that most fees have some limit, either 0% or 10%, that they can vary.
- What it Changes: Consistency in the form makes comparing lenders easier. The GFE was previously a "floor." Few consumers paid less than quoted, many paid more. The new GFE creates a "ceiling" and your fees simply cannot exceed certain amounts. The key was adding an element of enforcement...
The Enforcer: The New HUD-1
- What's Changed: Page 3 of the HUD-1 or Settlement Statement compares the fees from the original GFE and the final lender figures. Fees that exceed the variance thresholds are added as credits from the lender to the consumer immediately.
- What it Changes: Everything. The 1974 version of RESPA didn't link the GFE and the HUD-1. Effective January 1, 2010, HUD is protecting the consumer at the closing table.
