Questions Raised Over Good Faith Estimates

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Questions Raised Over Good Faith Estimates

Good Faith Estimate forms do not always provide borrowers with a complete picture of what they will be paying in costs for their loan at closing, mortgage industry experts warn.

The three-page Good Faith Estimate forms provide buyers and home owners who are getting a mortgage a line-by-line disclosure of what their borrowing costs will be with the mortgage. As of Jan. 1, 2010, lenders now must provide the disclosure form to borrowers within three days of receiving a loan application.

The forms were revamped over a year ago but the lack of clarity that still exists on the form can lead to delayed closings or even the loss of a locked-in interest rate, says Melissa Key, a spokeswoman for the Mortgage Bankers Association.

The new Good Faith Estimate form “is better than it used to be, but it’s not up to snuff,” Kathleen Day, a spokeswoman for the Center for Responsible Lending, told The New York Times. “There are things that need to be unbundled and made clearer.”

For example, the form fails to break out seller paid costs, such as transfer taxes. These costs, instead, are grouped into the “total estimated settlement charges” figure that falls at the bottom of the form. As such, borrowers at times are unknowingly looking at a larger amount than they’ll have to pay.

The form also doesn’t account for down payments in the “total estimated settlement charges” column, leading borrowers to look at a smaller final number than they’ll need to actually pay, experts say.

Some changes may be on the horizon to the forms, though. The new Consumer Financial Protections Bureau has said it will consider revising the good faith estimate forms to make all costs more transparent to the borrower.

See the source story for this posting from the New York Times >>

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