Checking The Pulse Of The Kansas City Real Estate Market

The new 2010 Good Faith Estimate has been in effect for more than a month and I’ve yet to see any mortgage lenders, borrowers or real estate agents climbing buildings or jumping off bridges. The changes do however have people talking and will certainly change the way loans have been handled over the years. For the best mortgage lenders, these changes won’t have the same drastic effect they’ll have on shady or unorganized lenders. The lenders I know well have also taken on the changes head on in educating agents and borrowers alike about the changes.

The January 1st 2010 Real Estate Settlement Procedure Act (RESPA) has certainly made the Good Faith Estimate a lot more good faith — and a lot less Que Sara, Sara. Lenders will have to educate borrowers on what’s being charged for their loan, why they’re being charged each amount and in many cases, who exactly is charging the fees. I’m expecting it will clearly educate borrowers on the risks of ARM loans and other creative financing methods that are at the root of our current financial mess. I’ve read many places online that it will make it very easy to compare the Good Faith Estimate that was given out early in the process to the actual HUD-1 Settlement Statement that will be produced  for the real estate closing.

The new Good Faith Estimate requires that mortgage lenders show all the key loan terms and closing costs to borrowers. More importantly, if the lender half-asses a Good Faith estimate, the lender could be on the hook for overages in many instances. I’m thinking this will give home buyers some good assurance that the Good Faith Estimates will be reasonably accurate and minimize or eliminate the junk fees seen all too often over the years. Finding junk fees on the HUD-1 has put many a borrower in the difficult circumstance of not being able to fight it because they’ve already closed on their home sale.  And, if you’re thinking ahead like me, this seems likely to lead lenders to work closely with closing agents to build a comfort level that the fees quoted early on are  more-or-less guaranteed come closing time.

Different aspects of the new Good Faith Estimate (GFE) are defined at different tolerance levels. The one I’ve commonly heard referred to is the 10% tolerance of quoted fees. This applies to settlement service fees where the lender specifies the provider to be used in the transaction. But there’s also many that fall under zero tolerance, including fees the lender was in direct control of when they were listed on the GFE – such as the lender’s own origination fees, underwriting fees and processing fees.  Then there’s the unlimited tolerance for items that the borrower is in control of – such as title insurance, home inspections and homeowner’s insurance. You can see how the lender can’t be expected to guarantee the latter.

It’s worth noting that many lenders believe any money saved by the new GFE could be lost due to the extra time and costs required to make sure they are in compliance with the changes — all costs they’d likely want to pass on to consumers. But if lenders start erring on the safe side, competitors who are on the ball and quoting accurate fees and costs will undercut them and secure the borrower’s business. So I find it unlikely that lenders will simply quote high amounts on the GFE, because if they do they may go  out of business – due to having no business. The new Good Faith Estimate is a 3-page document  that provides a break down of loan costs in layman terms. ALL mortgage lenders are required to use  this document going forward and you can check out some of the most common GFE questions here on these 57 pages of frequently asked RESPA questions.

A down side that I’m pondering is whether lenders will refuse to give borrowers a Good Faith Estimate early in the home buying process. If they refuse until a buyer has applied for a home loan and gone under contract, this would keep a borrower from really knowing the costs of the loan until they’re already under contract. Although I could argue that’s no worse than what’s been dealt with before these changes were made. We’ll need several more months to see how things play out and make any definitive assessments of the effect of the new GFE. Irregardless, it’s as critical as ever that borrowers work with a reputable and trust-worthy lender. If you’re looking for a good lender to finance your home purchase or refinance your current home, here are three lenders that I would trust to handle my own Kansas City mortgage loan…

Posted by Jason A. Brown