At the beginning of 2010 new lending guidelines went into effect regarding how loan originators handle the loan process and how closing costs must be disclosed to the buyer. One of the new rules included a nationwide standard Good Faith Estimate (GFE). The purpose of the new Good Faith Estimate is to hold lenders to the fees they quote the buyer and make it easier to compare loan programs and fees between lenders.
New GFE’s Goal: Allow Buyers to Compare Loans
HUDs goal is to make sure that all lenders quote realistic fees and try to avoid any last minute closing cost surprises. This is definitely a plus for the buyer but besides HUDs goal of quoting realistic fees, the new regulations were put into affect to help home buyers make an apples to apples comparison between loan products and fees from different lenders.
Does the New GFE Solve the Problem and Help Home Buyers Shop?
I’d say no. The problem with the new GFE is that lenders are not required to provide a Good Faith Estimate or commit to any fees quoted until a home buyer has an accepted contract to purchase a certain property. This means if you want to compare loan products from different lenders, you really can’t make an apples to apples comparison until you have an accepted contract, which, in my opinion, is too late.
Can’t I Start Shopping for a Loan After I Get an Accepted Contract?
Remember, when you are under contract, you are also under the time constraints of the contingencies in that contract. (A contingency is a legal right to get out of the contract.) In San Mateo County, you typically have 14-17 days to get final loan approval under the financing contingency. Once the clock starts ticking on the contingencies, it is nearly impossible to start shopping for a mortgage loan and close your transaction on time.
Final Verdict? The New GFE Misses the Mark!
Although HUD had good intentions in standardizing the GFE so buyers can accurately compare loan products, the fact that they cannot start to compare loans until they have an accepted contract makes it impossible to gather the information and close the loan while staying within the time frames laid out in the contract.
In my next few posts I will explain how the fees are disclosed, how the loan process has been altered for the buyer and how lenders may start handling the pre-approval process.
Have Questions About the New GFE?
If you have any questions about the new Good Faith Estimate, or would like to schedule a time to sit down and go over the new rules and what you can do as a home buyer to make sure you have a successful transaction, give me a call at (650) 520-0915 or send me an email at info@SanMateoMortgageBlog.com.
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