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.