Hot Button Good Faith Estimate Issues
For those of you struggling with the Good Faith Estimate, a number of our mortgage compliance auditors here at Quality Mortgage Services took a little break from mortgage auditing a few days ago to participate in Mortgage Banking Association Regulatory Compliance Conference in Washington DC and we want to share with you some information so that you can better understand what the hot buttons are with this document and eliminate the chance of the loan being kicked back for irregularities.
Here at Quality Mortgage Services, we pride ourselves on bringing you the very best in state of the art mortgage compliance software call Mortgage Analysis Review Software (MARS), but we also want to provide you with information to make your job as an originator easier and more understandable in our ever changing industry.
On page 1, it’s important to make sure that all the boxes are completed. Of particular importance and required is the originator e-mail address as well as the name and address of the company Originator. In addition, the date prepared, and, it hasn’t changed, the GFE, TIL, Servicing Disclosure, Credit Disclosure and any other relevant documents must be prepared within three days of the date of the application. I know it seems silly to remind all of seasoned, experienced mortgage originators of this requirement but you would be amazed at the number of files we audit that aren’t in compliance.
Also of particular importance, now that the words “changed circumstance” has entered into our lexicon of mortgage terms, is that each time you make a change to the loan, document all changes and disclosures within the required time frame and update the date on the GFE and TIL.
Still covering page 1 of the GFE, item # 1 must reflect a date that the GFE is available through. Item # 2 should reflect a minimum of 10 business days. A business day is defined as Monday through Saturday, Sundays and holidays are excluded. Item # 3 is not applicable if the loan is unlocked. If the loan is locked, then a date should be reflected according to the expiration date of your lock. Item # 4 is the number of days required by your lender when unlocked and is N/A when locked.
The next section on Page 1, “Summary of your loan,” should be self explanatory but needs to be completed, in full. Not that we are seeing very many ARM products these days, but one of my auditors recently caught an error in this section. While the loan had a 30 year amortization, it was a 7/1 ARM. The Loan Officer checked “No” to the question, “can your interest rate rise?” If refinanced prior to the change in the 7th year, then the question would be “No,” but there is no way of knowing what the borrower may or may not do when that first change date comes around.
Page 2 of the new GFE is divided in “blocks.” I will cover them accordingly.
Block 1, Origination Charge – this is subject to zero tolerance. It is what it is.
Block 2, Your credit or charge (points) for the specific interest rate chosen. One and only one box may be marked. This section is subject to zero tolerance.
Blocks 1 and 2 must be viewed independent of one another. Changes may not increase or credit decrease without a changed circumstance, and, if that happens, then the loan is subject to re-disclosure.
Block 3, Required services that we select, allows for a 10% tolerance in the charges. This section should reflect your third party charges to the loan.
Block 4, Title services and lender’s title insurance, allows for a 10% tolerance in the charges. As a side note to this section, we are seeing GFE’s where these charges are often misplaced and put in another area.
Block 5, Owner’s title insurance, allows for a 10% tolerance in the charge. If your loan is a refinance, mark this block with an “n/a.”
Block 6, Required services that you can shop for, allows for a 10% tolerance in the charges. These services would include such things as a roof inspection, pest inspection, septic and well inspections. This section, however, excludes Title Services as those are items that are usually predetermined by the Sales Contract and would be covered in Blocks 4 and 5.
Blocks 7 & 8, Government recording charges and Transfer taxes, Block 7 allows for a 10% tolerance in the number, Block 8, Transfer taxes, has no tolerance in the number.
Block 9, Initial deposit for your escrow account, allows for a 10% tolerance in the number.
Block 10, Daily interest charges, should reflect the daily amount of interest per day for “x” number of days. 15 days is required, on FHA this does not apply.
Block 11, Homeowner’s insurance, no tolerance allowed in the charge.
This moves us on to page 3 of the GFE. “Using the tradeoff table.” You must complete the left column of this section. Columns 2 and 3 are optional. Make sure you disclose all fees, regardless of who is paying the fee, buyer or seller.
Some other things to remember when preparing a Good Faith Estimate. You must include a “List of Settlement Service Providers” with the document.
Remember that a copy of the final GFE will go to Escrow to be used in conjunction with the preparation of the HUD 1. Escrow now has to provide a page which compares the final HUD 1 with the final GFE and those fees subject to a tolerance must be within the allowed 10%.
Other things you need to mentally file away, when locking a loan, the GFE must be reissued with the important date section updated. In addition, whenever making a change to the loan terms, interest rate, fees, loan amount, etc, protect yourself by completing a Document of Changed Circumstance, covering: 1. A description of the change; 2. The date of the change; 3. The block/section of the GFE affected; and, 4. The prior fee and the resulting fee change. Make sure you have your borrower sign the Changed Circumstance form.
One other thing to remember, the new GFE does not have a place for the borrower to sign. You cannot, and should not, add a signature line to this version of the GFE.
Hopefully this mini tutorial will assist you in taking out some of the guesswork to the new GFE. At first glance, it seems like a fairly daunting document, but if you follow the guidelines above, I have no doubt you will become a pro at completing this form and assure yourself of smooth sailing with your Lenders.