GFEs help clarify mortgage terms
TEXT OF INTERVIEW
TESS VIGELAND: Anyone who thought, hoped, prayed that the housing mess was almost over got a splash of cold water this week. The National Association of Realtors said pending home sales dropped big-time in November. But on the upside, if you are one of those folks hoping to buy in this depressed market, the paperwork just got a little easier. At least in theory.
That tall stack you get at closing includes something called the good faith estimate. And as of the first of the year, it should — I repeat, SHOULD — be a little easier to understand the terms of your mortgage.
Holden Lewis is here to talk us through some of the changes. He writes about all things mortgage and housing related at Bankrate.com. Welcome back.
Holden Lewis: Thank you.
Vigeland: I want to ask you first whether you’d have the pleasure, shall we say, of the old good faith estimate? Are you a homeowner?
Lewis: I’ve owned two homes and refinanced one of them, so I’ve seen the GFE, the good faith estimate, three times.
Vigeland: And was it confusing to you as the rest of us?
Lewis: It was confusing. And the third time, I had already been writing about mortgages; I had this mortgage beat for a couple of years and it was still… you know, it was really a head scratcher.
Vigeland: Yeah, well, I suppose that says it all. Let’s go back a step and explain to folks what exactly this is. This is a document you get when you are buying a home, and it’s supposed to tell you all kinds of things about your mortgage, right?
Lewis: That’s almost right. It’s a document you get, when you get a mortgage. And so it’s not only buying a home, but also refinancing. And yes, it is a summary, or an itemization, of all the charges that you’re going to have to pay associated with getting this loan. Everything from the origination fee to the tile insurance.
Vigeland: And it also has the terms of your mortgage, correct?
Lewis: Yes, it has what your interest rate is, the amount you’re borrowing, all that is on the GFE.
Vigeland: But the problem historically has been, not only that it’s confusing, but there has really been no template for this. Depending on what broker you use, what bank you use, the form could be completely different.
Lewis: That’s right. There was not a standardized good faith estimate form. A lot of people got a one-page document that was like an 11″ by 14″, with small print. It might be two or three or even four pages; it just depended upon who your lender was.
Vigeland: So what does this new three-page form from the Department of Housing and Urban Development, what does this do to make a difference?
Lewis: The new GFE has a number of features, a number of goals, I guess you could say. One is to make the lender stick to its estimated fees. Another is to allow you, the borrower, to compare different loan offers from the same lender. For example, kind of a plain vanilla loan or one where you pay points to get a lower interest rate or one where you pay a higher interest rate and don’t have to pay as many fees. And then another thing it allows you to do is to compare loan offers from different lenders. It has a work sheet built into it.
Vigeland: You mentioned that one of the differences is that once you get this good faith estimate, the bank is required to stick to that estimate. That again, is a real difference, because I mean, I will tell you as a homeowner myself, the good faith estimate I received at the beginning of the process was hundreds of dollars different from what I got at the end.
Lewis: This bait-and-switch problem was rampant. For 35 years year, really, people are afraid to even apply for a loan, I think, or they were afraid to apply for a loan, for fear that they would be bait-and-switched. It was kind of like buying a car. I don’t know about you, but if the car buying experience weren’t so horrible, I would’ve owned more cars in my life.
Vigeland: Good point.
Lewis: The same with loans. People would refinance more often or buy houses more often, if they didn’t feel like they were putting their financial lives in their hands.
Vigeland: Well, I suppose this goes some ways toward making the process a little easier, but nothing’s going to get rid of that three-inch stack of papers, is it?
Lewis: Absolutely not. In fact, of course, this probably makes that stack a little bit higher, but hopefully, a little easier to understand.
Vigeland: Holden Lewis writes about mortgages and real estate for Bankrate.com. Thanks so much for helping us out today.
Lewis: You’re welcome.
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