The New 2010 GFE - Good intentions? Maybe. Good execution? No way.

How many people love the new Good Faith Estimate? Don't raise your hand, we can't see them. Comment below and share your thoughts and experiences regarding the new GFE; let us know who you are - Realtor, loan officer, borrower, concerned citizen, etc. As for me, I can't stand it and think that the implementation of it is a great argument for term limits for our lawmakers. Here are a few of my initial thoughts based on my 16 years of experience in the business as well as my first-hand experience with the new GFE. First of all, I have always known what my fees are and the only time they have changed is 1) if the rates changed and the borrower's rate wasn't locked, or 2) if the borrower wanted to changed the structure of the deal such as buying the rate down or minimizing closing costs. Hence, as far as my fees were concerned, they were never an "estimate." The fees that I didn't have control over were what I was estimating. I say this because the lawmakers on capitol hill had the wisdom to make a "No Tolerance" policy as to the variation of the lender's fees. The problem is that they couldn't even get that right. For instance, if my GFE shows a no point (higher rate) deal and the borrower decides that he would like to buy the rate down, I can not go back and charge a point to give him a lower rate. Stupid I know, but everyone I have spoken with concurs that this is how the law was written.

In essence, loan officers are forced to quote a worst-case (highest fee) scenario or risk curing (paying) the shortage out of their own pocket. Case in point: I just closed a loan for a lady who I have been working with since about May of 2009 (yep, about 10 months). The loan was $69,000 on a $128,000 purchase. Over the 10 months or so, I worked up a number of scenarios with different purchase prices. Unfortunately for me, I forgot to change the Transfer Tax to the appropriate amount for the final purchase price and underestimated it by $97.50. Even though it is customary in southern Nevada for the seller to pay the Transfer Tax and even though I get no commission or benefit from it, and even though it is a tax that would be paid regardless of what lender she used, I had to cure the shortage. THIS MAKES ABSOLUTELY NO SENSE TO ME.

The credit crisis and the subsequent housing market free-fall did not happen because of underquoted transfer taxes (as well as similar items). The debacle occurred because too many loan officers were selling the option ARM and didn't understand how it worked. It occurred because banks and lenders were offering 100% financing on investment property homes for people with 620 FICO scores on stated income loans or 100% financing on owner-occupied homes for people with 560 FICOs. Of course there was lots of loan fraud that exacerbated the problem.

Here's what I think: most of the loan officers that caused the problems are no longer in the business - they were in the business for the easy money which is GONE. We need a reasonable GFE that is SIMPLE and provides the borrower with a good approximation of his costs. See my next post for the more specific problems with the GFE. Don't forget to leave your comment.