The Truth Behind a Good Faith Estimate
Perhaps the most important document in initiating a mortgage transaction is the Good Faith Estimate (GFE). This is a document estimating ALL of the costs of a loan which must be presented to the borrower within 3 days of taking an application. It is a critical piece of information as it gives the borrower the costs of a given transaction as well as the proposed monthly payment The borrower can compare this information with the GFE’s from other lenders.
The GFE is very specific in the information that it provides and the line item numbers match up with the Settlement Statement that is provided by the title company at closing. Much of what is disclosed on a GFE is ultimately provided by parties other than the loan officer and the costs are not controlled by the loan officer; on the other hand, the preparer has the obligation to try to be as accurate as possible in disclosing these costs.
At times, the person preparing the GFE works somewhere other than New Mexico and does not know the correct fees (this is certainly a plug for using local loan officers) but in recent months, I have seen GFEs that do not comply with Federal regulations. Consumers should be mindful that an inaccurate disclosure on the GFE may constitute predatory lending practices because it can induce a borrower into a transaction.
For example, property tax in Santa Fe is very easily calculated, especially for a purchase. The calculation is simple: (Purchase price divided by 3) multiplied by .018 (.017 outside the City). I have seen estimates that are wildly divergent and usually lower.
Third party fees (for services provided by others) are another area of abuse, especially the Closing or Escrow Fee. In Santa Fe, this fee is around $350. In refinances, there is a specific table available from the title companies showing the reissue rate on title insurance (a call to a title officer can also give you the correct number). At closing, Interest for the month is paid in advance. All loans are due and payable on the first of the month for the previous month.
There are other areas of potential abuse of the consumer which take a more trained eye to spot. Some loan officers do not show any costs in the specific lines allocated to “Items Payable in Connection With Loan” but roll them up in a single line. The trick here is that these items must be checked in the next column (PFC = Paid From Closing) or they will not show up in (and will understate) the total. Another abuse is to show a cost (usually an appraisal) but indicate that it is “POC” or “paid outside of closing.” If the consumer isn’t careful, he thus ends up paying for the same service twice. Be sure to go over both the GFE and closing statement carefully with your attorney, Realtor or closing officer before you close.
As in all aspects of buying a property, learn as much as you can about the mortgage process by asking lots of questions. Compare answers from different brokers. Ask other professionals in related fields which loan officers they like and why. The more you invest in your own education, the wiser consumer you become and the more confidence and trust you'll have in your mortgage broker.
