Why The Good Faith Estimate Was Revised
The current mortgage news that is affecting mortgage brokers is the changes made recently by HUD to the Good Faith Estimate (GFE) disclosure. After the devastating implosion of the US housing market, HUD took a serious look at the possible causes. It has been determined that exotic mortgage products were not properly understood by the consumers who used them. Default rates on negatively amortizing home loans or adjustable rate mortgages are higher than less sophisticated products. Mortgage brokers and bankers across the country have all but ceased to originate most of the exotic loans. Nevertheless, in case they ever become vogue in the mortgage market again, HUD is prepared to protect the consumer better with the new GFE.
Some Of The Changes Made To The GFE
- The Important Dates section informs the borrower about the interest rate lock. If the loan is not locked at the time of disclosure, the GFE will only be good for a few hours because mortgage quotes are subject to change without notice. Because the mortgage quote affects the closing costs, the guarantee for the estimate of costs is also given an expiration date.
- The Summary of Your Loan section attempts to very clearly state the mortgage quote, terms, and conditions of the new mortgage. A series of questions are designed to test the borrowers' understanding of how their new loan will work, such as, "Can your interest rate rise?"
- In the Understanding Your Estimated Settlement Charges section, #1 makes very plain exactly how much money the mortgage broker is going to make for originating your loan. In the past, the amount a mortgage broker could make was not nearly this obvious.
The new form makes it easier to understand your mortgage, but does not negate the need to shop and compare the offerings of several lenders.