Coming Soon: "Simpler" Closing Cost Forms
Dear Ali: I'm a Realtor and I've heard that Good Faith Estimate forms are changing -- how do I teach my clients to read the new form?
A: The Good Faith Estimate Form (sometimes simply called the GFE) is an estimate of mortgage loan costs. It's the form that is used by borrowers to help choose among competing lenders, and like most mortgage documents, it's confusing.
So for help, I turned to my friend Carolyn Warren, a mortgage industry pro who's just released her second book, "Homebuyers Beware: Who's Ripping You Off Now?" (disclosure: I have a blurb on the back cover of this book because I love it.)
"Banks are famous for inventing their own Good Faith Estimate forms," notes Warren. "They call their fees by different names so it's like you're trying to compare a pineapple to a peach."
To address this, the U.S. Department of Housing and Urban Development is implementing a new form, starting in 2010 and due to be in use by the end of the first quarter. The problem, Warren notes, is that this new, "simpler" form is three pages long! Still, it's an improvement.
There are two especially confusing bits for every consumer to be aware of. As an agent, you'll get extra brownie points if you can explain them to your clients:
1) "Important dates." There's a sentence here on page one that says "The interest rate for this GFE is available through ___." Even if the blank is filled in, Warren says, that's not the same as a rate lock. No matter what's quoted, you're not locked 'til you're locked.
2). "Adjusted origination charges." This box, on both page one, and page two, "favors banks over brokers," Warren says. (Warren has been both a mortgage broker -- who shops for loans for customers -- and a mortgage banker -- who lends the money of just one bank -- so she claims she doesn't have a bias here). As it's written, brokers have to disclose the spread that they're charging over what they're paying for the loan -- that spread is often referred to as the Yield Spread Premium, or YSP -- but banks don't. So when you're shopping for a loan, ask the mortgage broker or banker how they're making money on you, and how much.