ing the New 2010 Good Faith Estimate
09-15-2010 03:11 PM
The first part is the most complicated I’d say, as previously on GFE’s this section was broken down into individual underwriting, processing, funding, doc prep, origination points etc. Now it’s just “Our origination charge” (#1). So if your loan amount is $100,000 and are paying a 1% origination fee, an $800 underwriting fee, a $500 processing fee… then the total would be $2,300 in “Our origination charge”. However if you are also paying a 1% discount point to get the rate listed on page 1 of the GFE, then section #2 would appear as below, bringing the total of Section #1 & #2, “Your Adjusted Origination Charges” to be $3,300. This is called “Block A” and corresponds to Block A on the first page of the GFE.
This section A has created a big change for mortgage brokers (but not lenders). Now mortgage brokers must credit all “yield spread premium” to the borrower. Yield spread premium (YSP) is a commission that is paid to them from the lender they are brokering it to, the higher the interest rate, the more the YSP, at lower rates the lender will charge the broker, which the broker would typically pass on to the borrower as a “discount charge”. In Section #2 the 2nd box would be checked, and an amount (the amount of the YSP) would appear there. In order for mortgage brokers to make that yield spread premium back, they need to charge the borrower for it, and this is done by increasing Section #1 “Our origination charge” by the same amount of as in #2. This ends up being a wash, as the “Your Adjusted Origination Charges” would show the math, such as:
For the same exact loan, but going through a lender, it would look like:
Both Adjusted Origination Charges are the same.
Lenders do not need to do this because they are making the mortgage with their own money (banking), and even though there is a commission paid to the loan originator, it is internal and could be based on several factors… but when you obtaining a brokered loan, the entire amount the mortgage broker is making is disclosed. Most brokers have been disclosing their compensation for quite some time now, but only with the new GFE has it become mandatory.
At closing the figures in section 1 & 2 cannot increase from the GFE except for in 1 situation – a “changed circumstance”.
Now there are circumstances which the “our origination charges” can change, these are aptly named “changed circumstances” – these include but are limited to: loan amount & home value change, floating the interest rate to locking in the interest rate, interest rate lock extension, loan program (FHA to conventional etc) or loan term change (15-year to 30-year, etc), adding/removing a borrower, escrow waiver charge (in most states lenders charge a slightly higher rate or “escrow waiver” fee if you do not set up an escrow account), “Act of God, War, Disaster or Emergency”, or if additional services are requested that couldn’t reasonably be foreseen when the initial application was taken (such as an appraisal review, a 2nd appraisal, an attorney trust review fee, etc.).
The next sections I’ll go over are 3 through 11.
#3 are items that the originator selects, such as the appraisal, flood certificate provider, and credit report.
#4 is the total of all escrow/title/closing attorney charges, except for the owners title policy.
#5 is that owners title policy.
#6 are required services you can shop for such as pest inspections, home inspections, etc… this section is commonly blank.
#7 are government document recording charges, for the deed, mortgage, etc.
At closing, sections 3-7 collectively cannot increase more than 10% than the GFE.
#8 are the state/county/city transfer taxes that the seller and/or the buyer pays. At closing this cannot increase from the GFE.
#9 is the estimate for how much would be needed as the initial deposit into the escrow account (if required), #10 is the daily interest charged until the mortgage payment starts covering interest, and #11 is the annual premium for the homeowners insurance.
Block B is totaled at the bottom, and then Blocks A + B are added up, again matching the 1st page of the GFE.