Last week I got my first peek at the new Good Faith Estimate all lenders will be required to use by the Department of Housing and Urban Development after January 1st, 2010. It is a tremendous improvement over what we have now. They're not even in the same ball park! It is so good, in fact, that I predict the quiet rumblings of criticism I've heard within the industry will grow louder. Why? Because this is one of those rare, government mandated documents that actually and truly helps the people it purports to help: the borrowers! This is not good for those lenders that rely on borrowers' gullibility and ignorance as a crucial aspect of their business model.
A quick overview: the new Good Faith Estimate is three pages long. Within those three pages borrowers will find these helpful sections:
- Important Dates showing how long the rate and terms of the offered loan are valid and the terms of the rate lock.
- Summary of your loan including term, rate, amount, whether it is adjustable, negatively amortizing, subject to a prepay penalty and so on.
- Escrow Account explanation and information.
- Summary of Loan Charges in plain black and white.
- Origination Charges revealing fees charged directly by the lender.
- Other Settlement Charges making clear third party fees not quoted by or given to the lender.
- Instructions clearly explaining which charges cannot increase at closing as well as any limits on increases for those charges that can change at settlement.
- Trade-off Table wherein the lender compares how the payment (rate) and closing fees move in opposite directions for the same loan as the rate moves higher or lower than that quoted.
- Shopping Cart giving borrowers an organized way to compare lenders.
This new Good Faith Estimate is transparency on steroids! Take a look again at those last two items: a Trade-off Table and a Shopping Cart. Lenders like Brian Brady and myself have been providing this kind of understanding for years. We've spent hours explaining the concept of rates vs. costs to borrowers who are often misled by other lenders and even the industry in general. I can not count the number of times I've heard a client remark to one or both of us, "Gee, no one's ever told me this before." I guess we can expect to hear that a lot less often.
I also expect an even greater share of business to come our way. For a number of lenders out there, this new Good Faith Estimate means their model for doing business is going to change. That benefits the borrowers (obviously) but it also benefits those of us who have been doing this all along. As a matter of fact, I am going to start using this new Good Faith Estimate now, along side the older one. Why wait until January 1st, 2010? This is the clearest explanation of fees I've seen yet and it will only serve to educate our customers. As Brian is fond of saying: "An educated customer is our best customer."
by Sean Purcell
