Tag: Good Faith Estimate

“When Should I Get My Good Faith Estimate?”

~ Carolyn Warren ~ 2 Comments

?????????????????????????????????????????????????Dear Carolyn,

I am not sure if I should ask for my Good Faith Estimate in the pre-approval process before finding the house to purchase or after the property is identified. I am about to make an offer. Can you clarify?  ~ Chris

Yes Chris, here is the process you’ll want to follow for a smooth and secure mortgage experience:

1) Ask for a cost estimate or initial fees worksheet. This is the new upfront estimate that you can get without having your credit pulled or providing all your financial documentation.

2) Based on these estimate worksheets, choose your lender/loan officer.

3) Submit your financial documentation and have your credit checked by your chosen loan officer, so that you can obtain a solid pre-approval letter, in writing.

4) Go house shopping, with your pre-approval letter in hand, with your real estate agent. Your agent will need the letter when you submit an offer to buy a house.

5) After you’ve found a house and have a mutually signed purchase agreement, then you send that signed agreement to your loan officer, who will then adjust your loan amount, etc., accordingly and provide you with full loan disclosures. These loan disclosures include the 3-page Good Faith Estimate, Truth-in-Lending form, and other pertinent information about your loan.

If you need more personal help, please click on my webpage above that says, Review My Estimate.

Best wishes and happy house hunting!
Carolyn Warren

Beware of Bait-and-Switch Mortgage Fees

~ Carolyn Warren ~ Leave a comment

loan sharkLoan sharks are still in business, lurking inside of what are supposed to be reputable banks and mortgage lenders. These are the liars who bait you with an Initial Fees Worksheet or Cost Estimate that looks like a good loan. When doing your comparison shopping, they appear to be the cheapest and best. The icing on the cake is their personal charm; loan sharks are famous for being good communicators.

A home owner refinancing in Southern California asked me to review the three cost estimates she received. The one from a direct lender in San Diego appeared to be the best, so she proceeded with her refinance. But two days later when she received her official Good Faith Estimate, she saw that every one of the fees had been raised.

The lender underwriting and processing fee? Higher by about $400!

The appraiser fee? Higher!

The credit report fee? Higher!

The flood certification fee? Higher!

The tax service fee? Higher!

I advised her not to sign the paperwork until all the fees were corrected. The loan officer quickly apologized and blamed his loan processor. But guess what? The next day when he came out to her home to get the loan disclosure package signed, the fees on the new documents were still higher than initially disclosed. He mumbled some excuses and explanations and told her to sign.

She refused to be a victim of bait-and-switch and sent him packing. She then chose to go with a different, more honest lender.

This was the right choice. A one-time mistake can be fixed, but try to raise fees a second time, and it’s time to move on to a better loan officer. In this case, I don’t blame the lender, but the individual loan officer. He quoted fees that were lower than the company allowed, presumably thinking once he baited in the customer, she would stay no matter what.

A home buyer in Seattle last week had better luck. He also used my review and consultation service, because he didn’t want to spend the time and hassle of shopping around.

“I figured I would get one estimate and if it looked okay to me, get your expert opinion,” he said.

The initial estimate looked just fine. The interest rate was at the best available rate for the day and there were no unnecessary junk fees. The lender’s fee was competitive. I told him to proceed with confidence, and if he had any questions when he received his loan disclosures, to let me know.

The next day he emailed me his official Good Faith Estimate, and right away, I spotted a problem. The appraisal fee had been raised from $450 to $500. I pointed this out to him and suggested he ask the loan officer to correct it. Happily, the loan officer fixed the “error” right away, and all was good going forward. Using my service saved him $50 (he hadn’t noticed the increase) and gave him peace of mind.

If you’d like an expert opinion on your own loan offer, Initial Fees Worksheet, or Good Faith Estimate, please see here. One of my clients called me “The Mother Theresa of Mortgages.” Needless to say, I was flattered. It’s good people who are trying to get good loans that motivate me to do what I do.

Thank you!

“Is My Mortgage Broker Ripping Me Off?”

~ Carolyn Warren ~ 5 Comments

liarA home buyer gets a new Good Faith Estimate right before closing that is almost $5,000 more expensive than the original GFE. He wants to know if this is legal, or if he’s getting ripped off. Here is his question with my answer.

Q:  We are purchasing a new home.  The builder gives us incentive to use their mortgage broker and lender.  The broker gave us a good faith estimate before the start of building.  This GFE said we would receive credit of about $2,000 to offset the $6,000 origination fee.  Four months later, as the home nears completion, we locked in on a rate.  For some reason, the broker then sends a new GFE.  Pretty much the same as the old GFE, except the new GFE says we would only receive about $180 to offset the $6,000 origination fee.  Is this legal?  Thank you.

A: In my opinion, you are getting ripped-off. However, what your loan officer is doing is 100 percent legal. So yes, he can do that. I’ll explain why, and what you should do about this now.

The so-called credit is actually the YSP (Yield Spread Premium) the lender makes by selling your loan to the wholesale lender. Your loan officer is giving you the YSP as a credit to help pay for their (exorbitant) fees.  The YSP is directly tied to the interest rate. When the interest rate goes down, there is a bigger YSP to credit to you. When the interest rate goes up, there is less YSP money to credit to you.

According to the two GFEs you received from your broker, the interest rate when up significantly in the past four months, and that’s why the credit decreased. But there’s something very wrong here.

First, why hasn’t your loan officer been keeping in touch with you about interest rates as your loan progresses? You don’t suddenly get a $2,000 surprise at the last minute! (Not with a good loan officer.)

Second, why didn’t your loan officer give you a choice between rate and credit? No one in their right mind locks in a rate with a net $5,000 fee. Surely, you did not approve that lock-in!?

The reason your loan officer sent you a new GFE is because the pricing changed so drastically, making it a legal requirement to give you a new GFE disclosure. But that GFE should not have been a surprise. There should have been a discussion and approval by you ahead of time. If not, then this loan officer is one of the types I warn people to avoid in my books.

I can tell you this: No one — and I mean NO ONE that is ethical or reasonable — is selling loans with a $5,000+ origination fee nowadays. And that is what this loan officer is trying to sell you now. That is a rip-off. It is not in your best interest to pay that kind of origination fee. A competitive origination fee would be in the $600 to $900 range, depending on your location. 

You are in the driver’s seat here. You do not have to stand for this bait-and-switch, over-charge. You have options, and it is not too late.

First, you should tell your loan officer that you will not be paying more than $900 in total origination fees. You would like to know if he’d prefer to give you a new rate lock and GFE, or if he’d prefer to lose your business altogether, because you will move on to another lender if you don’t receive an acceptable GFE within the next 24 hours.

There are so many different good, ethical, honest lenders you could go with. There is no reason to pay an extra five grand. There are lenders that can close a purchase loan on a rush basis in three weeks, so you still have time if you act now.

What’s more, when you allow yourself to be ripped-off, you send a message to this loan officer that his tactics work and that he should keep on doing this to other home buyers. Only when we choose to stop accepting high priced loans will the high priced lenders either lower their prices or go out of business.

In your case, it appears that you are not receiving any kind of special deal by going to the builder’s pet broker. You are paying for it with that ridiculously high $5,000 origination fee. That is one of the common rip-offs I expose in my mortgage books.

cover-3d-mortgage-rip-offs.pngBy reading Homebuyers Beware or Mortgage Rip-Offs and Money Savers, you will know how to properly shop for a good, ethical loan officer. You will understand par rate and YSP. You will understand why to ask right up front, “What is par rate?” and “How long is the rate lock you quoted me?” You will communicate to the loan officer by how you speak that you are a savvy borrower who will not be scammed or ripped-off.

I got sick and tired of the lies, junk fees, over-charges, and rip-offs. And that is why I decided to stand up for the American home buyer by writing Mortgage Rip-Offs and Money Savers. Thanks to the American public, it has become the top mortgage book on Amazon — and that means a lot of good folks have become money savers.

Best wishes to you.

No Good Faith Estimate Without a Rate Lock?

~ Carolyn Warren ~ 9 Comments

frustrated “I was just pre-approved for my loan, and although I was assured that I would receive a GFE, when I got my paperwork, I don’t have one. Just the lender’s own loan summary form. Two managers told me they don’t give out GFEs until a rate is locked. Isn’t this against the law? This isn’t the only lender that has told me that they cannot provide a GFE without a rate lock,” wrote a savvy but frustrated lady who’s read my books.

Since a lot of folks are hitting up against this brick wall, I thought it best to answer the question for everyone at the same time.

ANSWER

The short answer is yes, it sounds like they are in violation of the law. I’ll explain.

Effective January 1, 2010, a Good Faith Estimate is required to be issued no later than three  business days after the loan officer has received all of the following:

  • borrower’s full names
  • monthly income
  • social security numbers to obtain a credit report
  • property address
  • estimated value of the property
  • loan amount
  • any other information deemed necessary by the loan originator to complete an application

Receipt of the above items are how Federal banking law (HUD) defines a loan application.

From HUD’s Real Estate Settlement Procedures Act (RSPA) FAQ 23:

An application includes information the loan originator requires the borrower to submit in anticipation of a credit decision. If a loan originator issues a GFE, the loan originator is presumed to have received all six pieces of information.

So we see that a loan officer  can issue a Good Faith Estimate without the rate being locked; and in fact, is required to do so. A rate lock is not borrower information required for a credit decision, so there’s no loophole there.

What’s more, a loan officer must not require your signature before providing the Good Faith Estimate, because that might inhibit you from shopping, which you are fully entitled to. Here’s the quote fro the law.

HUD’s RESPA FAQ 31:

…a loan originator may not require a borrower to sign consents to verify employment, income or deposits as a condition of issuing a GFE as such a requirement may inhibit borrowers from shopping for the best loan by leading borrowers to believe that they are committed to obtaining a loan from that loan originator.

THE BOTTOM LINE

If you have provided all the information stated above to complete an application, your lender must either issue a Good Faith Estimate within three business days or deny your application.   If they do not, they are violating RESPA. I suggest you refer them to this blog post with a friendly reminder that they probably don’t want to be reported to HUD (U.S. Dept. of Housing and Urban Development), the legal watchdog that is happy–if not eager–to “follow up” on lenders who violate the law.

ONE LAST COMMENT

Personally, I find the Loan Summary/Cost Estimate Worksheet/Initial Fees Worksheet (whatever your lender wants to call it) to be more revealing and more helpful than the new 3-page GFE that the Feds designed, because they show the breakdown of fees better and include more information (such as total monthly payment and cash to close) than the GFE does.

As always, your comments are welcome.

 

Best and Worst New Mortgage Laws

~ Carolyn Warren ~ 4 Comments

best and worst 2012 gave us plenty of time to see how the new mortgage laws have played out, both for home buyers and home owners refinancing. Here are my votes for the best and the worst new laws.

THE BEST NEW LENDING LAW

It seems the Feds took a tip straight out of my book, Mortgage Rip-Offs and Money Savers, by passing a law that states the lender’s fees cannot increase after they give you a Good Faith Estimate (GFE) and you accept it within ten days. This has eliminated surprise fees from popping up at the time of closing–a common occurrence I warned people about. No more bait-and-switch! No more finding a new $500 fee at closing! This is a law we needed, and it has saved borrowers hundreds of dollars.

THE WORST NEW LENDING LAW

It’s hard to pick just one, but the law that says the convoluted 3-page GFE designed by the Feds is a contractually binding document is just plain stupid. And I don’t use that word very often. Since when is an estimate a contract? Because of this law, it is impossible for a loan officer to provide a GFE up front. How could anyone offer a loan contract without verifying credit, income, and assets? This law has forced all lenders to rename the upfront GFE to something different.

The form used most often as a GFE before (a great form that was the favorite of most mortgage brokers and my personal favorite) is now titled “Initial Fees Worksheet.” Banks have their own forms with titles such as “Cost Estimate Worksheet” and “Cost Analysis.”

The result has been nothing but confusion. No benefit, no help, no transparency, only confusion.

Let’s hope 2013 brings more common sense, more savings, and more clarity back into federally-required mortgage documents.

Thank you for reading and recommending my books: Mortgage Rip-offs and Money Savers, and Homebuyers Beware. Thank you to all the good folks who emailed to let me know how much money they saved because of this information. It’s for you that I write!

Happy New Year!