Loan Estimate Replaces The Good Faith Estimate By The CFPB

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Loan Estimate Replaces The Good Faith Estimate

This BLOG On Loan Estimate Replaces The Good Faith Estimate Was UPDATED On June 2nd, 2018

Loan Estimate Replaces The Good Faith Estimate

Loan Estimate Replaces The Good Faith Estimate effective October 3, 2015. The main reason Loan Estimate Replaces The Good Faith Estimate was because the Consumer Protection Financial Bureau, referred and known as the CFPB, thought that the GFE was very confusing. CFPB wanted to simplify it with a simpler form called the Loan Estimate.

  • The Loan Estimate is also referred to as the LE.  
  • The mortgage business is an extremely regulated business
  • All mortgage lenders need to abide both federal and state mortgage guidelines
  • One of the most important rule when it comes to mortgage loan applications and mortgage process is that federal laws require that all mortgage companies, including banks and credit unions, need to disclose all costs and fees
  • Cost and fees, including third party charges, needs to be disclosed to borrowers with 3 days of triggering a loan application
  • The purpose and goal why this law was implemented was to help borrowers to compare mortgage rates, costs, and fees among lenders. 
  • The second purpose for this disclosure requirement is to make sure borrowers do not get a surprise on costs and fees
  • This federal disclosure is called the Good Faith Estimate, also referred to as GFE  
  • Effective October 3, 2015, The Loan Estimate Replaces The Good Faith Estimate
  • The Loan Estimate will be referred to as the LE.

The Good Faith Estimate, GFE, is a standard form created and approved by the federal government where all lenders need to abide by. However, it will only be good until the Loan Estimate Replaces The Good Faith Estimate later this year.

Page 1 Of The GFE

The Good Faith Estimate is a mortgage document created and implemented by the federal government. 

  • The Good Faith Estimate template was created and published by the United States Department of Housing and Urban Development, HUD
  • All banks, credit unions, mortgage bankers, mortgage brokers, and lenders need to use the standardized form of the Good Faith Estimate when originating home loans
  • The Good Faith Estimate consists of 3 pages
  • The Good Faith Estimate is valid for a period of 10 days from the date of issue
  • Items included in the Good Faith Estimate include the following
    • the summary of the mortgage loan consisting original mortgage loan amount
    • the terms of mortgage loans
    • amount of initial monthly principal and interest payments
  • The escrow information is also included in the Good Faith Estimate
  • Includes the pro-rated home annual property tax and the homeowner insurance fees
  • The estimated loan costs which includes the following:
    • origination fees
    • processing fees
    • underwriting fees
    • title fees
    • all applicable third party costs are included as well

Importance Of Dates On The GFE

The Good Faith Estimate needs to be disclosed timely and date are a priority when it comes to the GFE. 

  • The GFE is not good forever
  • The expiration date is listed on page one of the Good Faith Estimate
  • The first date on the GFE is the date when the interest rate quoted expires
  • For the mortgage company to honor the terms of the GFE, borrowers needs to make a commitment with lender before the expiration of the first date
  • The second date of the Good Faith Estimate is the date where the third party costs and fees are guaranteed. 
  • The costs and fees of third party settlement charges are normally overly disclosed because if it is underdisclosed, the mortgage lender is liable for third party charges even though the mortgage lender has nothing to do with third party charges. 
  • Any charges that the mortgage loan borrower pays over 10% of the third party fees disclosed on the GFE, the mortgage lender is responsible for
  • When mortgage lenders are not sure of the estimate of third party charges, they will list a very high amount
  • The Good Faith Estimate will also list the number of day of your mortgage rate lock
  • The mortgage company is not responsible to honor the rate quoted on the GFE if the mortgage loan does not close within a certain time period
  • The last box of the GFE is the number of days prior to the date of closing the mortgage rate needs to be locked

 Escrow Account Information

The second section of the GFE will have a summary of the mortgage loan and escrow account information. 

  • It will note whether the loan is a fixed rate mortgage loan or an adjustable rate mortgage, ARM
  • The inital original loan amount is listed as well as the term of the loan, mortgage rate, and initial monthly principal and interest payment
  • It will also say whether or not mortgage rate can rise during the course of your loan
  • Whether original mortgage balance will rise, or whether the loan has a pre-payment penalty fee
  • There are no pre-penalty fees by law on residential mortgage loans
  • However, the verbiage is still listed
  • The escrow account line item will explain how property taxes and homeowners insurance will be disbursed
  • The Good Faith Estimate will list whether or not you are escrowing for your property taxes and homeowners insurance.

Settlement Charges

The bottom of page one of the Good Faith Estimate will summarize the charges and fees borrower might incur in the origination of the mortgage loan.

  • The fees and costs are itemized in two parts
  • The first part will list all costs and fees charged by the mortgage company
  • The second part will consist of the fees that will be charged by third party vendors such as
    • title companies
    • attorneys
    • inspection companies
    • government charges
    • other third party vendors
  • Remember that these costs and fees are not actual charges and fees borrowers needs to come up with but merely overly disclosed estimates
  • If the fees and charges does not apply to the home loan borrower, then they are not obligated

Page 2 Of The Good Faith Estimate

  • The adjusted origination charges will be on the second page of the Good Faith Estimate which consists of the following:
    • all lender fees and costs
    • processing fees
    • credit reporting fees
    • discount point fees
    • underwriting fees
    • other fees and costs from the mortgage company
  • Below the adjusted origination charges on the second page of the Good Faith Estimate, there will be a section for other settlement charges for services provided by third party companies that has a direct or indirect association with the origination and funding mortgage loan

Page 3 Of The Good Faith Estimate

  • The third page of the Good Faith Estimate was created to educate the consumer on shopping for a mortgage loan
  • Also information on comparing mortgage loans
  • The Good Faith Estimate is controversial
  • It was often difficult to understand for many consumers
  • Unfortunately, it is a federal law and must be disclosed properly to borrowers

The Loan Estimate Versus GFE

The Good Faith Estimate has been replaced with the Loan Estimate which was created and implemented by the Consumer Financial Protection Bureau, CFPB, effective October 3rd, 2015. We explained the Good Faith Estimate in great detail. Whatever was in the GFE was simplified and converted into the one page Loan Estimate. The CFPB made this change in replacing the GFE to the new Loan Estimate to make it easier to comprehend for consumers.

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