As people applying for mortgages on or after 1/1/2010 have realized, there is a new format to your Good Faith Estimate.  It is no longer itemized line by line like the old format (still contains relevant info, some of which won’t be repeated in this post), but instead several like fees are grouped together.  All the same fees from the old GFE are still being charged, they are just labeled differently.  The new Final HUD-1 format has changed as well, and shows even more helpful info (including a breakdown of costs and a corresponding “map” to the GFE that you were disclosed with, but this post is about the new GFE.

You can view the new GFE in it’s entirety at http://www.hud.gov/offices/hsg/ramh/res/gfeform.pdf (new Final HUD-1 at http://www.hud.gov/offices/hsg/ramh/res/hud1.pdf).  The new GFE “seeks to balance the borrower’s interest in receiving an accurate GFE early in the application process to enable the borrower to shop effectively, with the lender’s interest in maintaining flexibility to address the many issues that can arise in a complex process such as loan origination”.  The new GFE had been years in the making, and finally back in November of 2008 a “Final Rule” was put in writing regarding it and the effective date is any new application taken on/after 1/1/2010.  That Final Rule can be found at http://www.hud.gov/offices/hsg/ramh/res/finalrule.pdf.  That .pdf is 86 pages long and is the basis for understanding the nuances of the new GFE; this post is to point out what I believe consumers are most concerned with based on experiences and observation.

The new GFE (commonly called the “2010 GFE” or “New GFE”) has several advantages over the old GFE, as well as a few omissions of helpful information often on the old format GFE. 

The first thing that most people notice is that it no longer calculates your “estimated funds to close” (or if you are getting cash back, your “funds to borrower”), that figure is now only represented on the “Details of Transaction” (often on) page 4 of the Uniform Residential Loan Application (URLA form 1003), it used to be both on page 4 of the 1003 as well as on the bottom of the GFE, but the new GFE is just about the terms of the new mortgage.  The loan originator may also choose to provide a more detailed breakdown such as a “Funds to Close Breakdown” disclosure of some sort, but it’s always shown on page 4 of the 1003 (some software puts the Details of Transaction on page 3).

The new GFE shows some costs that may be covered by the seller, such as transfer taxes and an owners title insurance policy (which depending on the contract, may be a buyer/borrower charge).  It also doesn’t show any seller closing cost credit or earnest/initial deposit credits that have already been put into escrow (which are all still listed on page 4 of the 1003).  I’m sure this is part of the reason it doesn’t include the “estimated funds to close”/”funds to borrower” figure.

Secondly, it no longer has a signature/date spot for the borrower to sign.  However some originators will provide an additional page called “Acknowledgement of receipt of GFE” to have something in writing from the borrower confirming they have received the GFE.  That acknowledgement form isn’t required by HUD, but may be required by the originators internal compliance department.

In my opinion the best part about the new GFE is that it makes loan originators accountable for initially disclosing accurate fees, not only their fees but 3rd party fees as well. 

There are charges that cannot increase, which are “Our origination charge”, “Your credit or charge (points) for the specific interest rate chosen”, “Your adjusted origination charges”… which are all lender/broker related items… and “Transfer taxes” (which often are all seller paid, but some areas have the buyer paying a portion of them too).

There are charges that in total cannot increase more than 10%, which are recording charges, appraisal fee, tax service fee, flood cert fee, mortgage insurance premium (for those loans which have an upfront mortgage insurance/guarantee/funding fee cost), and title/escrow/closing attorney charges (including owners title insurance policy).

There are charges that can change entirely (no tolerance), such as the initial deposit for your escrow account, interest per day up to when the mortgage payments start covering interest, homeowners insurance, and that’s usually it.

Another great part of the new GFE is that it shows you how long the interest rate & originator charges are good for, how long the estimate for other settlement charges is good for, how soon after you lock in your interest rate you must go to settlement within, and how many days before settlement must you lock your interest rate in for. 

In another section it goes over existing staples such as loan amount, interest rate, and monthly payment (principal & interest & mortgage insurance, not taxes/insurance), but then it also adds helpful info on if the interest rate can rise (such as with an adjustable rate mortgage), if you make your payments on time can the mortgage balance increase (such as on a negatively amortized loan), if you make your payments on time can the monthly payment increase (such as with an adjustable rate mortgage), and does the loan have a prepay penalty or balloon payment, and if so, how much and when.

In another new section it also informs you if an escrow account is required.

The new GFE, like the old GFE, is required to be sent to you within 3 days of application – however HUD has clarified what constitutes an application, and it requires 6 items:  the borrowers name (1), the borrowers monthly income (2), the property address* (3), the amount of the mortgage loan (4), the value of the property (5), and a credit report obtained by the loan originator (which requires a social security number) (6).  When refinancing, item #3 is known, and after going through the loan application is when the 3 day clock starts ticking on when they need to send out the application & disclosures (including the GFE) - remember you do not need to receive it within 3 days, the originator just needs to send it out within 3 days.

* The requirement of a property address makes it difficult to get a GFE for purchase transactions when there hasn’t already been a property identified/under contract.  Since no address is available, instead the borrower who is seeking estimates for a purchase of an unknown property will be given an “Initial Fees Estimate” which looks identical to the old format GFE (see the link at the beginning of this post) except for it won’t say “GFE” on it, it’ll say “Initial Fees Estimate” instead.  Keep in mind this Initial Fees Estimate is non-binding, however loan officer who is of good character should make that Initial Fees Estimate as close to as accurate as possible.