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Tuesday, March 9, 2010

Problems with the new GFE

In my previous post, I talked about some issues with the new GFE. I didn't tell you that I almost had to eat $100 for an appraisal shortage in addition the the $97.50 that I ate for the transfer tax. Initially we were trying to do this loan as a conventional loan since the LTV was (considerably) under 80%. However, on 12/12/2009, FNMA capped the DTI at 45% so this borrower could no longer qualify for conventional financing. When I changed the loan program in my loan origination software to an FHA loan along with changing the closing cost scenario, the new cost for the more expensive FHA appraisal was not changed, for some reason. So even though the actual cost of an FHA appraisal is $450 (at least in southern Nevada), I was going to have to pay the difference between the quote of a conventional appraisal ($350) and the $450 FHA appraisal except that we were within the 10% tolerance of that section of fees.

Painting the Picture:
In theory, the new GFE was supposed to make things simpler for the borrower. In actuality, we went from a single page GFE that disclosed costs as well as credits and gave a bottom-line figure that was accurate if the loan officer did his job properly to a three page GFE that doesn't account for credits thereby not providing the client with a bottom-line number. Additionally, the new GFE has no signature line which means the loan officer can gloss over this form in favor of the other forms that now go with the new GFE such as the old GFE, now called the "Initial Fees Worksheet" - also no signature line - and the "Itemization of Amount Financed" which does have a signature line but does not show any credits.

In all, the situation is far more confusing and because of the tolerance standards and the need to quote worst-case scenario, the borrower doesn't necessarily get a more accurate figure and since the credits (if the seller or lender is paying any of the costs) do not show on the new GFE, the borrower doesn't get a true picture of what they will need to bring in at the close of escrow.

My guess is that if our lawmakers did consult with people in the industry (I'm guessing they did), it was people who haven't been on the front lines working with the forms and borrowers for a while. I'm thinking about starting a petition to change the new GFE to something that actually serves the borrowers and our industry in a way that works for everyone. Let me know your thoughts and experiences with the new GFE by commenting below. Do you think it needs a change? We'd love to hear your thoughts.

1 comment:

Brandon said...

That's an interesting observation. I agree that the loan process is already confusing enough (and I'm a lawyer), they shouldn't make it worse...