Due to RESPA Reform, as of January 1, 2010, lenders are required to use a new, uniform, Good Faith Estimate (GFE) form. This new form creates additional disclosure and transparency about the loan product being offered as well as the costs to the borrower. The Good Faith Estimate (GFE) form is 3 pages in length. All lenders will use the same form. This was not true prior to January 1, 2010.
Once a borrower has provided all the information necessary for a lender or broker to complete a Good Faith Estimate (GFE), the loan originator has 3 business days to deliver a Good Faith Estimate to the borrower. It can be delivered via email if the borrower consents.
Consumers will be able to use the new Good Faith Estimate (GFE) form to more easily compare loan proposals from various lenders.
The new Good Faith Estimate (GFE) form is now more binding on the lender. When I say "more binding," I mean that it IS binding with a few exceptions:
- Some fees quoted are 100% binding on the lender if certain conditions are met.
- Some fees quoted are subject to "tolerance levels" (can change up to 10% if certain conditions are met)
- Some fees are not subject to any cap in the amount they can differ from what is quoted on the Good Faith Estimate (GFE) form.
We will go over, in detail, which fees fall into which category as we go through the Good Faith Estimate (GFE) form. The fees which are not subject to any tolerance cap are usually those where the borrower chooses to use a service not required to close the transaction, or uses a company, for a required service, other than a company identified by the lender (from which they derived their estimated cost). If the borrower selects one of the companies identified by the lender, or if the lender selects the company for a required service, the lender is bound to the figures quoted with up to a 10% tolerance.
There are 6 pieces of information that have to be on the Good Faith Estimate (GFE) in order for it to be binding on the lender or mortgage broker. They are:
- Borrower's Name
- Social Security Number
- Gross Monthly Income
- Property Address
- Estimated Property Value
- Loan Amount
If any of these pieces of information change during the transaction, the Good Faith Estimate (GFE) is no longer binding and the Lender or Broker will then issue a new Good Faith Estimate within 3 Business days. Anytime a new Good Faith Estimate is prepared, the borrower cannot close on that transaction for another 3 business days after receipt of the new Good Faith Estimate (GFE) form.
The sections, and therefore the numbers quoted, on the new Good Faith Estimate (GFE) form now correspond to identically numbered sections on the Settlement Statement (HUD1 or HUD1A) that the borrower sees at closing.
Let's examine these forms, beginning with the Good Faith Estimate (GFE) form, page 1:
