True Story, June 2014. Mr. Borrower asks his lender for a Good Faith Estimate or a cost estimate for a purchase loan. He wants to borrow $320,000, has excellent credit, and 20% to put as a down payment.
The loan officer chats him up, asking a lot of questions about his situation, building rapport, and making Mr. Borrower feel comfortable. No problem so far. But read on.
Then the loan officer tells Mr. Borrower he will need six pieces of information in order to provide a Good Faith Estimate: the property address, the estimated value of the property, the desired loan amount, his name, his income, and his social security number (to run a credit report).
That’s a lot to provide just to see the price tag on the loan. The loan officer could have given Mr. Borrower a general cost estimate (which would contain all the desired numbers and information) without collecting the six pieces of data. But he didn’t, because by collecting W2s, tax returns, pay stubs, and running a credit report, it deepened the obligation of Mr. Borrower to the loan officer. Not my favorite practice, but still legal. The bad part is coming next.
The loan officer then said, “We need to get started right away, so let’s order the appraisal report. I will need your credit card to pay for that.”
Mr. Borrower was immediately charged $450 for an appraisal. ILLEGAL!
According to Federal law, it is illegal for a lender to collect money for any reason, including an appraisal fee or an application fee, without first providing a Good Faith Estimate. The only exception is the lender may collect a small fee (like less than $50) for a credit report.
Three week later, the Good Faith Estimate and other loan disclosures finally arrive in Mr. Borrower’s email inbox. And right there in black and white, it says the appraisal fee would be $385. But wait, he was already charged $450 weeks ago! Not only that, but the Origination fee was higher than the verbal quote the loan officer gave initially as well.
Four violations of the law committed by the lender:
1) Collecting money before providing the GFE.
2) Collecting more money for the appraisal than what was disclosed on the GFE.
3) Charging a higher origination fee than promised without any reason to justify the increase.
4) Failing to provide the GFE within 3 business days of collecting the six pieces of information.
Yes, there are still shady, illegal scams going on today.
After our consultation, Mr. Borrower is now filing a complaint against the lender with the Consumer Financial Protection Bureau. Hopefully, there will be a good ending to this sad and disturbing story. For everyone else, you can avoid being ripped off by knowing ahead of time what your rights are.
Do not give out your credit card info until after you have reviewed and accepted the Good Faith Estimate.
And if you want to see the price of a loan without having your credit report pulled, do not give out your social security number; instead, ask for a general cost estimate (which is more detailed than the new official GFE anyway).
If you have any questions, please let me know and I’ll be happy to answer.