HUD’s new good faith doesn’t answer simplist questions

If you’ve been shopping for a mortgage in these first few days of the 2010, then you may have already gotten the new good faith estimate that all lenders are required to use by the Department of Housing and Urban Development.

Sure looks a little different than what borrowers have been seeing for a number of years under the Real Estate Settlement Procedures Act.

Previously, lenders and mortgage brokers could design their own version of a good faith estimate and when borrowers were trying to shop for a mortgage, it truly was confusing to compare and contrast various good faiths from one company to another because visually they could be very different and when numbers are show up in different places, then naturally confusion will exist.

HUD decided to make the new good faith estimate uniform from one lender to another and the main thrust seemed to be making a document that more user friendly with the ability to allow consumers to more easily do side-by-side comparisons.

Well, it was a nice try. HUD took what was basically a one-page document that — more times than not — would specifically detail the estimated charges a borrower could expect to see when settlement time comes and turned it into a three-page document that fails to display some of the first questions that a borrower wants to know. These include:

• What is my total monthly payment, including taxes and insurance?
• How much money do I need to come to closing with?
• Or, if I am refinancing and getting cash back, how much should I expect to get back?

Yes, that’s true. Now a borrower will not have an official document, required by HUD that will give them the answers to three of the most important questions that a borrower seeks. And nowhere in the new good faith estimate does it break down the specific dollar charges for getting the loan. It clumps them all together in a single origination charge.

True, some lenders are taking it upon themselves to embellish the new good faith with more details as way to protect them in the name of disclosure. But in reality all that does is generate more paperwork for the borrower to sift through and attempt to understand. A three-page document may now grow to six pages.

The new good faith estimate seems to be clearly focused on making sure the borrower understands what interest rate they have, how long that rate is good for, how it or the monthly payment can rise or fall or not all, if there is a pre-payment penalty and what charges at closing can increase, not increase or increase by no more than 10 percent.

Making lenders and loan officers more accurate in their estimates should be applauded. A seasoned loan officer should pride themselves on issuing a good faith that will be extremely close to what the final numbers will be at closing. A good loan officer, if unsure, will check with a title company to get exact fees for taxes, title insurance and such. Of course there are times when some charges that the loan officer could not anticipate for the good faith will show up on the settlement sheet – such as a homeowner’s insurance policy annual renewal being required to be collected.

Nevertheless, the idea of creating a uniform document that all lenders can use is a first-class thought and a step in the right direction.

The U.S. Department of Housing and Urban Development, which pushed hard for the new RESPA regulations, has said that it will “exercise restraint in enforcing new regulatory requirements” under RESPA until May 1. But let’s hope by then, some revisions will have been made so that there is a place within the new good faith where borrower will easily be able to see what their effective monthly mortgage payment will be, how much they should expect to bring to closing or how much they should expect back if refinancing.

Sometimes, the simplest things are the hardest to do.

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