Happy New Year to you! Good News! Effective January 1, the new Housing and Urban Development (HUD) rules regarding the lending process went into effect. Why should you care? The process for borrowers just became more transparent and easier to understand. You veteran home buyers are thinking “It’s About Time!” For first time home buyers, this may sound as exciting as watching paint dry, but understanding this process is extremely important. Since this isn’t the sort of stuff that sticks in memory, you may want to print this article for future reference.
The short story - HUD has established strict guidelines for both the Good Faith Estimate (GFE), (the document lenders give prospective purchasers with estimated costs), and the final settlement accounting statement called the HUD 1. The estimated charges on the GFE will be easier to understand and will be shown side by side on the HUD 1 for easy comparison. With few exceptions, they must match the actual charges on the HUD 1 at settlement. This reform makes it much easier to compare lenders and settlement companies as well. But there is one big curve ball that you need to be prepared for. The law requires a new GFE to be issued under certain circumstances.
When a new GFE is issued, there is a mandatory three day disclosure period during which, settlement cannot occur! In the FAQs below, I will tell you when the curve ball is coming!
When must the loan originator issue a GFE?
No later than 3 business days after receipt of the loan application. Certain information must be provided before a GFE can be issued, but one important change is that the borrower must provide a specific property address. (minor curve ball)
At what point can a loan originator charge an applicant fees for services other than the cost of obtaining a credit report?
Following the receipt of the GFE and Truth In Lending forms by the borrower a your loan officer must wait the mandatory 3 business days prior to collecting any other fees such as the appraisal fee.
Is a GFE a loan commitment or guarantee of financing?
No, it is only an estimate of lending fees and settlement charges for a specific loan program for a specific house.
What are processing and administrative services?
Title and loan origination services including; processing by a 3rd party of your loan documents, underwriting by the lender which will fund your loan, preparation, copying, wiring, preparing endorsements, handling and notarization.
If a GFE has been provided and the interest rate has not been locked, can the loan originator provide a revised GFE when the borrower later locks the interest rate?
Yes, in fact, the lender MUST issue a new GFE when it triggers certain changes. OK, here’s a major curve ball! If the loan is locked close to the settlement date, the three day disclosure period could delay settlement. So what? Buy lots of pizza for the moving company guys sitting in your driveway and plan a good story to tell the very angry sellers who need their money to settle on their new home the day after the scheduled settlement date. It just won’t happen!
If a GFE has been provided and the interest rate has been locked, may the loan originator provide a revised GFE if the borrower requests a different rate lock period (an extension)?
If a borrower requests an extension to the mortgage loan identified in a GFE and that request will change the terms of the loan, the loan originator must provide a revised GFE to the borrower. Since a rate lock extension cost the borrower money, it is in the borrower’s best interest to make it a priority to promptly provide any documentation required to ensure your loan closes on time.
If at the time a GFE is issued it is known that the seller will pay settlement charges typically paid by the borrower, how are the charges disclosed on the GFE?
All charges typically paid by the borrower must be disclosed on the GFE regardless of whether the charges will be paid for by the borrower, the seller, or other party. It will now be noted on page 1 of the HUD 1as a lump sum credit unless otherwise specified in the real estate contract.
When does a GFE expire?
There are two dates to be aware of. The date your interest rate expires which can be as little as an hour after being sent to you. Or ten days after GFE issuance (if not otherwise specified) for title fees and other services, unless the borrower indicates an intent to continue with the loan application. If it expires the lender is no longer bound by the GFE.
These are just some of the questions you may have about the new GFE. For a complete list of Q and A’s that has been printed by HUD, go to http://www.hud.gov/offices/hsg/ramh/res/resparulefaqs.pdf
You can also call or email me and I will be happy to provide you a copy of a new GFE and go over any questions you may have about one you have received or expect to receive.
Thank you and may you have a blessed 2010.
Susan Wallace
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