Understanding The Mortgage Loan Estimate And Closing Disclosures

This BLOG On Understanding The Mortgage Loan Estimate And Closing Disclosures Was UPDATED On June 3rd, 2019

After the mortgage and real estate meltdown of 2008, the whole mortgage industry went through a major overhaul. Mortgage lenders which includes banks, credit unions, mortgage bankers, and mortgage bankers had to abide and conform by new mortgage regulations. Understanding The Mortgage Loan Estimate is key for mortgage professionals and consumers.

  • Foreclosure rates have hit historical highs
  • Tens of thousands of lenders went out of business
  • No doc, stated income loans and lenders specializing in these mortgage products disappeared overnight
  • Millions of homeowners had home loans with teaser rates and negative amortization initially
  • After a few years, their new adjustment on their loan payments have multiplied significantly
  • They could not afford their home and went into foreclosure
  • Government created disclosures after disclosures as part of the new mortgage rules
  • Part of the mandatory requirements lenders needed to disclose is the Good Faith Estimate, also referred as the GFE
  • Understanding The Good Faith Estimate was often complex and confusing
  • CFPB created the new Loan Estimate in order to make Understanding The Mortgage Loan Estimate much easier than the old GFE
  • The CFPB was working on getting it replaced with the Loan Estimate where the GFE was replaced by the LE
  • Goal was to make Understanding The Mortgage Loan Estimate easier to the consumer

The Good Faith Estimate Versus Loan Estimate

The GFE is supposed to be a very important part of the mortgage application process. However, understanding the good faith estimate was often complex to many loan officers and consumers. Understanding The Mortgage Loan Estimate is much easier so that is why the CFPB replaced the GFE with the LE:

  • The Good Faith Estimate was created to serve as a way for a public consumer, the mortgage applicant, to do the following:
    • compare
    • shop
    • comprehend the costs and fees associated with obtaining a residential mortgage loan
  • The Good Faith Estimate is required to be given to all mortgage applicants by lenders under the Real Estate Settlement Procedures Act, also known as RESPA
  • The Good Faith Estimate needs to be provided to all mortgage loan applicants within three days of a mortgage loan applicant applying for a residential mortgage loan
  • The Good Faith Estimate needs to include costs and fees that are itemized of getting a mortgage loan

Costs And Fees On Loan Estimate

There will be itemized fees and costs on the Loan Estimate.

  • The costs and fees listed on the Loan Estate are not final costs and fees
  • There are estimated fees and costs that a home mortgage loan application may or may not incur
  • The fees and costs on the Loan Estimate can change
  • If there is an adjustment on the home purchase price such as if the appraisal on the subject property does not appraise out and there is a price adjustment on the original real estate purchase price. 
  • Most lenders will inflate the Loan Estimate
  • This is because the actual costs incurred by the borrower cannot be higher than 10% over the price quoted on the Loan Estimate or else, the lender needs to pay for the difference
  • For example, if loan originator quoted borrower a $1,000 fee on a well and septic inspection
    • had a well and septic inspection and cost $2,000
    • maximum home buyer need to pay is $1,100 or 10% above the Loan Estimate
  • The lender needs to pay the $900
  • Even though the mortgage has no relationship and/or profit or gain with the well and septic inspection
  • However, if the LE stated $3,000 for the well and septic inspection and the home buyer paid $2,000, the mortgage lender is not liable buyer will pay the $2,000
  • Most lenders will inflate the LE
  • Just because buyers get a lower quote on a Loan Estimate does not mean they are getting the best deal
  • There are two categories of fees that fall within the Loan Estimate
  • The lenders’ fees and the third party fees

Lender Fees On The Loan Estimate

The lender fees and costs on the Loan Estimate include the following:

  • Loan origination fees
  • Mortgage processing fees
  • Credit report fees
  • Underwriting fees
  • Inspection fees
  • Points
  • Other Fees
  • Lender fees on the LE are fees and costs associated with the lender in originating the mortgage loan

What Is The Closing Disclosure

The new closing disclosure is the old HUD-1 Settlement Statement. When the CFPB replaced the old Good Faith Estimate with the new Loan Estimate, they also replaced the old HUD-1 Settlement Statement with the new Closing Disclosure also referred to as the new CD.

Understanding The Mortgage Loan Estimate On Third Party Fees

Third-party fees on the LE are fees and costs that are incurred with the borrower in getting the home loan to close and is independent of the mortgage lender.

Third-party fees on the Loan Estimate include

  • appraisal fees
  • title insurance fees
  • attorneys fees
  • home inspection fees
  • tax certification fees
  • survey fees
  • government recording fees

Update On This Article On Understanding The Mortgage Loan Estimate

The Good Faith Estimate was replaced by the Loan Estimate on October 3, 2015. Now, after borrowers get a CTC, CLEAR TO CLOSE, there is a three day waiting period in order for a home buyer to be able to close on their home loan. The replacement of the GFE was the doing of the Consumer Financial Protection Bureau, CFPB.

Related> The Good Faith Estimate

Related> Good Faith Estimate: GFE

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