Highland Beach Condos, Boca Raton Homes, Boca Raton Real Estate Advice and Opinions: What does the New HUD, GFE and Government have in Common?

You are spot on.  This "improvement" does not improve a thing.  Fact is, the orginal GFEs that we have gotten from lenders for years was just fine, thank you.

Just realized to have a complete HUD1 for the bank now, we need a GFE from the buyer's lender...???? Good luck with that.

I just got a request from a negotiator for an updated HUD1 and she didn't even know about the new form...I need an aspirin.

This was supposed to simplify things so consumers were not ripped off.  It actually just puts artificial limits on closing costs.  An appraisal cannot vary by more than 10% from the GFE or the lender has to pay the charges.  Sometimes appraisal fees are not known, for example, complex land deals.  Thus the lender has to "guess".  Even if the seller is covering this expense, if it varies off the "tolerance" level, the lender must pay.... Basically, it is overregulating and assuming people are idiots.

Pewee!  We all smell it!

kp

Absolutely on the mark. The government, in it's infinite wisdom took something that could a little tweaking and turned it into something that now needs overhauled. Ridiculous what they have done to the consumer.

Thank you

Q. "Why is it necessary to put the title insurance premium on the GFE if the seller is paying for it?  How is that simplifying things?"

A. Because it is not paid by the seller in every state and it is a Standardized Form just like the HUD is a standardized form and did not exist before 1970.

If the mortgage companies played nice and performed so the consumer could see what they were going to be charged with - the government would not need to step in. How many closing have you attended where the buyer had to beg borrow and steal to come up with all the hidden charges?

And, one more question since we started talking about Mortgage Company problems. Why is it I must inform the buyer and seller with a Consumer Information Statement explaining who and how I earn my commission and the mortgage representative gets to act like they are the Dutch Uncle?

Couldn't agree more. Once again the government thinks it can do everything (and I do mean everything) better than the people doing it. The don't consult, don't ask, don't investgate and certainly don't care. When they pretend to care or consult they appoint some huge industry moguls that haven't actively worked in the capacity for years; for instance they will ask a broker who at one time owned 25 offices but hasn't practiced real estate actively for 15 years... but at least he's well known... It's all broken; we need far smaller government and less intrusion. Great blog David.

Our GFE in Texas is always 2 pages. I agree that the idea is excellent but the execution is poor.

What we need in banking and government are honest people, who can write in a clear and concise manner. I'm all for protecting the consumer. By the way, in Connecticut, the buyers pay the title insurance fee.

The more regulation is enacted, the more regulation is needed to regulate the regulated regulations.. 

Reminds me of the movie with Will Smith (Enemy of the State) -- Who's is going to monitor, the monitors, of the monitors!!!

Great post

JE

To Greg in response #6...I can say I have never been in a closing where there were hidden charges and the buyer was blindsided. Don't let a few bad apples spoil the whole bunch!

The only mortgage folks who get to hide their yield spread premium are the bankers. I guess they have a better lobby than the brokers.

I will second that notion!  The Government needs to worry more about roads and snow removal and less about business.

New HUD is out in NH.  Very detailed and everything is on it including the difference between the GFE and actual #s. So with it being so detailed maybe future closings will eliminate all the rest of the paperwork the buyer has to sign.

You ask why does the government not talk to anyone in the trenches? Because they think we don't know what is good for us, they think they know better than we do, most of them are elitists who belong to some club from another planet and they want more control and more power.  It is this demeaning of the citizens that arises patriots to the call. It is this over stepping of the bounds of what government is supposed to be that washes away the apathy that has stagnated the people for a long time. 

Damon is right, government needs to go back to road building and protecting our borders. 

I love comment # 11- Very true. 

and comment #10- Lane- Actually they think they are above reproach. Katerina

This is driving many lenders and title companies bunkers. What was wrong with what we already had ?

Great points David.  The inmates are running the asylum.

Greg (response 6)

In the interest of fair play bw brokers and realtors,  if I, as a mortgage broker, have to explain where every dollar comes from and goes to, why shouldnt you?

Mark (response 12) is correct.  The bad apples are GONE!  The market fixed this business 3 years ago when all these unreasonable products went away!  Now, you have FHA, RD, VA, Fannie and freddit.  There is no more subprime.  The brokers who had to decieve their customers to make a living have gone back to selling cars and insurance.

I could not agree more. It is causing headaches for lenders, title companies, appraisers and most of all borrowers. We went from a detailed GFE to bunching figured lumped together, that do not necessarily pertain to the borrower's cost to close. With many of the sections either having a 10% tolerance or being locked in, the words "good faith estimate" are simple not true. It is a contract between the lender and borrower.

The thing that really impresses me about your blog and the responses, is how informed Realtors are to the new GFE process. I have ran into way too many real estate agents (not Realtors) who do not have a clue just how much the mortgage financing world has changed. 30 day contract are non-existence in this environment. One slight change in the appraisal, sales prices, loan amount, interest rate, etc......causes a 10 business day delay.

As lenders and realtors we all have to work together to educating buyers of this new process and set realistic expectation upfront. Although, in my opinion these changes are not for the best, informed educated professionals will survive and continue to grow in this new world.

You raise many good points.  No one likes the new GFE.  Not borrowers, not lenders, not realtor not closing agents.  The information that needs to be disclosed on the form has changed it from the good faith estimate, to worst case scenario. 

Goverment solutions are to problems that they create.  I agree that we will have a new HUD in a few months.  How much time and money has been wasted to come up with the existing HUD that is so flawed as to be almost unusable? More MCE classes will be in order when they change it again.

Why would government people think they need advice from others who have experience and real-life knowledge of the field? After all, we elected a president who had an appalling lack of experience governing, no military experience, and no idea how to 'make a payroll', and he's appointed dozens of people who have no experience or knowledge of the jobs they're  doing. So obviously, you can succeed in America without knowing what you're doing. Right?

Wendy --

I understand that appraisals are tricky at times, however one aspect I like about this change is the 10% rule.  Why it was put in place is to protect the consumer from the "bait and switch".  Bait the consumer with a low fee loan and then tack on fees at closing without his/her knowledge.

Although I agree that the new GFE is not the best way to disclose initial fee estimates I think it does simplify the process for the borrower because for the first time everyone has to use the exact same form.

Previously every company could develop their own GFE form and many did.

Every LOS system had their version of the GFE.

The 10% variance rules for fees will also push a major improvement on everyone.  The days of quick down and dirty estimates that really did nothing for the borrower and even less for the agents who relied on them are gone.

Loan officers will actually have to review the borrowers income, employment, and credit before issuing the new GFE if they want to stay in business.

(Mark #12 - I worked in wholesale lending operations for over a decade and I can assure you that it was a common occurrence.)

The scary thing is that they did have roundtables, focus groups etc.  They did ask for input from the industry.  And, they did get that input.  I'm not sure what they did with that input but it's pretty obvious that we didn't wind up with a format that we would have chosen.  The original revised GFE was 4 pages as opposed to the 3 page form you see now. 

The revised GFE was enacted "to provide Borrowers an easier means of comparing loan offers and to determine that they are getting the loan at settlement that they were offered in the GFE."  This verbiage is taken straight from the FAQS (now 57 pages) from RESPA itself. 

I don't think it's too much to ask to have Loan Officers be more accurate with fees and to put a process in place that makes it imperative to actually know that you are quoting correct information.  There are times when this can be challenging but it certainly is an honorable goal.  The problem is that a Loan Officer can't give a GFE until we have all 6 components that make up a complete application.  The most important and obvious of these is a property address.  In other words, I don't see that it helps a consumer to compare 2 GFEs after their offer has been written.  This is one of the real issues with the new format and new rules associated with RESPA.  Consumers would be better off shopping before they have an accepted offer on a home. 

There are definitely issues with the new GFE itself - it doesn't show a total PITI payment, it doesn't show accurate cash to close etc.  The mistake that most people are making is that they are attempting to use the new GFE like the old one.  You honestly can't do that as it doesn't make sense.  Realistically, what we have is what we have and we need to embrace it and use our expertise to our benefit.  Yeah, the form is a real departure and not what we would like but it's here and we need to get used to it.

One issue that is really important for Realtors to pay attention to is the owner's policy of title insurance.  In most states, traditionally this has been paid for by the seller.  On the previous HUD-1 and previous GFE, this was not a Buyer's closing cost.  It is now.  Why is this an issue?  Well, take the new change from FHA coming up this summer decreasing the allowable seller credit from 6% to 3%.  Guess what?  The owner's policy is now part of that 3% restriction.  And, let's say the seller is paying a lump sum of $5,000 toward the Buyer's closing costs and prepaids.  Does that $5,000 include the owner's policy or is that over and above the $5,000?  Previously this wasn't an issue since the owner's policy was a Seller's cost and it didn't show on the Buyer's GFE or HUD-1.  All that has changed.

I wrote something similar a few days ago:    http://activerain.com/blogsview/1458746/owner-s-policy-issues-in-oregon-and-washington

In any case, I think it's best to figure out how to work within the system and make the most of it.  None of us like the changes but getting angry about it isn't going to do anything other than raising your blood pressure.  :)

Time for all of us to send messages like these to the people who represent us. Elections are coming up and the last time I looked, it was the people who voted the politicians in or out of office. In spite of all the spins, ads, and general bullshit, this is still very true and the politicians know it.

Boulder City Steve

I have become very selective on whom I recommend for mortgage services. Those that made my list have not made as much whining to do about the changes as I see here.  All those I have felt comfortable working with are still in the business and very happy to have qualified by test to continue to provide good service. The butchers (for the most part) are gone. It is only with exception to the percentage change that requires them to provide a new piece of paper and because of the uncertainty of some final figures that may cause a delay in the actual closing that cause some concern.

I am glad to see some regulation on something that I once compared to shopping for a mattress. You could go to six different stores and see the same Serta Mattress with six different fabric cover being called something different in each store and sold at a different price, but the inside was still the same - except in store two and five where it was a completely different mattress. And, if I had a dime for every time a client said, "I'm using a family friend" only to find they were being charged a higher interest rate and over heard their "friend" telling them that they didn't realize that something would be a "buyer" charge because where they do business it belongs to the seller, I would have enough to buy a coffee at Starbucks.

Mortgage, Banking and Insurance all need government oversight.

You are spot on. It reminds me of an old saying "I am from the government and I am here to help you". Fat chance stay in DC.

Thank you all for your comments.  I wish that all of us were on the panel to revise the new GFE and HUD.  Maybe we would get it right.  I just want people to think before they act.  Think about the consequences before acting on them.

If your objective is to help the borrower understand then don't make it complicated.  Stop using the old adage "Do as I say not as I do".

If another person tells me that the real estate industry does not want change and that is why we do not like the new procedures I may go crazy.  I think that my 4 year old could come up with a better system.

Gregory, I disagree with you.  The GFE is a standardized form, but the old one you could either put it on the buyers side or seller's side.  It is also a negotiable item on the closing statement.  In Palm Beach COunty it is standard and customary to have the seller pay for the title insurance, but in the counties to the north and to the south, and most of our state the buyer pasy for it.  However, it is a negotiable item so why mandate that it must be put in the buyers column on every transaction, and if it is paid by the seller you will have to credit the buyer the title insurance.  It also conflicts with the contract. 

Question?

What happens if the seller is contributing 3% towards the closing costs of the buyer, and the seller is paying the title insurance if the max contribution from the seller is 3%.  Does this effect the contribution?  Will the lender allow this?  It creates more questions then answers.  We need something that is simple for the borrower not complicated and ambiguious.

Mark, great points.  I agree this is what we have and we have to make the best of it, but there are way too many issues here.  I love that it holds mortgage lenders accountable for the fees they disclose on the GFE (10% rule).  I love that it is encouraged to bring your GFE to closing to compare the fees.  There is no bait and switch with this system and that really is great.  However, it confuses the situation in that you are disclosed fees (title insurance, sometimes doc stamps on deed) that you are not paying.  How is that simplifying everything?

To My Realtor Friends,

As we all know, Big Government can never get anything done right...Government is never the answer.

In fact big Government is the Problem ! They do this all the time in just about every industry or any

type of business.  Big Government can never fix anything. They just make things much worse.

Tony Dancel

Realty One Group

Henderson, NV.

I agree that there are a lot of issues with the new GFE.  I think the overall issue that is tough to overcome is how to make a standardized form for the entire country.  We have some of the same issues you are mentioning here in Oregon and Washington.  We've gone from having the owner's title insurance policy being a Seller cost to a Buyer's cost that happens to be paid for by the Seller. 

It's also frustrating to be under the gun to get a GFE out within 3 days and not be able to get title fees quickly enough and then to be held liable to whatever the title fees are. 

In general, I think a lot of us in the industry would respond to HUD with "Really?  Is this really the best you could do?"

I think the simplification (in HUD's opinion) comes from the fact that there is a greater emphasis upon listing fees in a manner that is easier for the consumer to understand and to shop.  It is a good thing that there is no emphasis whatsoever on fees that have nothing to do with who is used.  Lumping fees together is a real adjustment for us - I'm really used to itemizing everything and explaining each line individually. 

In any case, I don't know that the new GFE truly accomplishes what it was set out to do but it's pretty clear what direction HUD is pushing us on this.

One thing is for sure - we are going to be doing a lot more face to face applications.  It's pretty difficult to explain the new form via internet or over the phone.

The thing that is really frustrating is that the regulations aren't over.  We're going to see more as time goes by.  I wouldn't be surprised if we see more in another 6 months.  :(

Hey David

GREAT BLOG! You might want to spell check it next time.

I don't mind the new GFE. I feel that holding brokers accountable for the fees they quote is a good thing. I can't understand how taking my YSP and giving it to the borrower and then collecting it back as fee is making this less confusing for anyone. (myself the borrower or the closing attorney) That's is like saying because the government bailed out the auto industry, from now on any time you buy a car the dealer needs to disclose how much he made on the sale and how much he paid his sales person. I don't think it's necessary.

It is amazing when Washington tries to get their arms around something and they rely on other than those in the industry.

I think we will find out with the new GFE, etc. that it will be a mess.

The government are famous for fixing last years problems. At least the issue of YSP/rebate has been made more transparent as this is now a "credit to the borrower". But guess what happened last month, 6 idiots in Washington signed a letter sent to the federal reserve asking them to ban YSP..so now that will actually hurt the borrower, as banning YSP will now take away the credit to the borrower. The same letter talks about subrpime loans...seriously who has done a subprime loan in 2.5 years? the govt are completely ill informed and uneducated and just posture and grandstand like chickens at a fair.

I think it is disgusting and shocking that you have crooks like Barney Frank and Chris Dodd making decisions that effectively have bottlenecked transactions for the next 6-12 months while we all try and pull the real estate market out of the ground. The housing starts and sales #'s this year will be much lower due to transactions being so difficult to close. 

The truth is, this is a way too much disclosure and all the bad appples have already left the markets, be it on the real estate side or the lender side..if you have survived this long since July 2007 when the crap hit the fan, then you can only be doing business the right way.

I think the intentions were good with this, but when it comes to Gov't are we really surprised they completely made a cow dung pie of this. I mean, our president for starters probably has the same business experience as a district manager at Mc Donalds, and 90% of his administration have no private sector experience either. They are in away over their head and their arrogance and narcissism is quite deplorable. Vote them all out

Michael  

David, it appears your chief complaint is over a $400 charge for an insurance policy that protects the buyer against any future claims on the property they bought. FOUR HUNDRED DOLLARS? And, you write a post that would make chicken little look like a calm, reasonable, right thinking fowl. I call foul blog.

Gregory, I like the logic of what you are saying in terms of the insurance being for the benefit of the purchaser of the property.  That makes sense.  Typically the cost is higher than $400 for our area but of course it does depend on the actual sales price.

What is tough is history and precedence.

This is now a standardized form for the entire country but there are differences from region to region as to how transactions are done and that can make implimentation of this form a challenge.  For example, it's typical in Oregon and Washington for the seller to pay the owner's title insurance policy.  For many customers, $1,000 will make or break their transaction.  So if the owner's policy does become a Buyer's responsibility to pay, it does impact transactions in a way that does warrant some consideration.

Overall, there is going to be an increased importance placed upon people in my profession to actually know what they are doing.  If you haven't done it already, read the 57 pages of FAQs.  Read the new settlement guide.  And while you're at it, read the Note and the Trust Deed.  This is your profession - be an expert. 

"We are from the government and we are hear to help," are words that should terrify anyone.  Have you ever tried to wade through the documentation on any government run program.  I have bid on government contracts before and they do nothing like normal people.

Gregory, you obviously did not read the entire blog.  I agree that borrowers should be more infomred and mortgage lenders need to be held accountable, but what happens when you have government decide how this is going to be done?  This happens.  It is a standardized form for the entire country.  Do you think the real estate laws, and how real estate business is done in Kansas is the same as New York?  I am sure it is not.

My chief complaint is that this form further complicates a process rather then simplifying it.  The title insurance is just one example of how the form complicates things.

Take for instance a borrower who is receiving a 3% cash contribution from the seller.  He is purchasing the property for $300,000.  He locks in his rate and gets a GFE.  Even though the seller is paying for the title insurance it must be listed on the GFE and then credited back.  Promulgated rate is $2575.  Because you have to credit that back it is included in the max contribution under the lender's guidelines.  Since the borrower can only receive $9,000 back they would subtract the $2,575 and the borrower could only receive $6,425 back so although the borrower as per the contract does not pay for the title insurance in essence he does.  Even if you reduce the purchase price to compensate for the $2,575 the borrower still has to come up with $2,575 out of his pocket assuming the closing costs are $9000. 

Tell me how this helps the borrower?

Tell me how this protects the borrower from deceptive practices?

It does not.  The way I would have approached this was to revise the original GFE and made sure that it itemized costs, and still include the 10% rule

So true about the government thinking they are above us all.  I saw something on TV a week or so ago where the the CEO of Waste Management went out in the field for a few weeks and did some of th grunt work in the field when no one knew who he was.  It was eye opening for him and at the end he went back and changed a lot of the rules and processes after he saw what was really going on.   If these bozos in the government had to come and do our jobs first before they made up all these new rules and forms, they might actualy come up with something that would be better rather then worse!

David, you hit the nail on the head!  The government and its meddling are aboslutely the problem.  I know it sounds too much like Republican partisanship, but limited government is better government. 

Matt, thank you for your comment.  I am not sure what is better government, and I do not care for the party system, but I will say that what the government has done recently is put the "wrong people on the bus" to make decisions.  It may because of lack of experience or bad advice, but either way they are not getting the job done.  They are spending way too much money trying one thing, and having to revamp it.  Why can't they get it right the first time.  By relying on people in the field that would have alleviated a lot of these complications.