Whether you have decided to purchase a new home, or refinance, the starting point of the mortgage process begins with the Good Faith Estimate, aka GFE. In 2010, the U.S. kicked the new year off with a major overhaul to the GFE in an attempt to make it more understandable to the consumer. Most of us have learned however, that the new format is even more confusing than the previous version, and more often than not, the consumers are left with very little understanding of what they have just read.
The Consumer Financial Protection Bureau has realized this too, and as of May 2011, is in the process of formatting yet another new version of the GFE that should help clarify some of the confusion. You can view the two examples, and cast your opinion as to which version you, as a consumer, would prefer to see. If you have been waiting for a chance to make your opinion heard on this matter, now is your chance, so take advantage of it while you can!
Regardless of what changes are made and when, the consumer still needs to understand what it is that they are reading. All the format changes in the world will not make any difference unless the consumer understands what "Box A" and "Box B" charges represent, and the differences between the two. So, let's start with Box A.
Box A charges are the total lender charges for your loan. This includes Origination, Underwriting, Processing, and any other fees that the lender charges directly. This number cannot change after you have locked your loan, unless there is a "Change of Circumstance".
A Change of Circumstance is defined by RESPA as:
Changed circumstance is now defined in § 3500.2 as: (1) Acts of God, war, disaster, or other emergency; (2) Information particular to the borrower or transaction that was relied on in providing the GFE and that changes or is found to be inaccurate after the GFE has been provided, which information may include information about the credit quality of the borrower, the amount of the loan, the estimated value of the property, or any other information that was used in providing the GFE; (3) New information particular to the borrower or transaction that was not relied on in providing the GFE; or (4) Other circumstances that are particular to the borrower or transaction, including boundary disputes, the need for flood insurance, or environmental problems.
In other words, if it is found during the process of your loan that your property is in a flood zone and you are required to carry flood insurance when flood insurance was not initially quoted, the figure in Box A can change to include the cost of flood insurance in your quote. Or, if your lender requires a review appraisal, Box A can be re-disclosed to include the cost of the review appraisal. Lenders CANNOT revise the Box A numbers without a Change of Circumstance. This is in place to prevent "Bait and Switch" tactics. When comparing GFE's provided by different lenders, Box A is the section that you should pay the most attention to.
Now, let's look at Box B. The charges in this section reflect all other settlement charges associated with your loan, such as appraisal fees, title fees, interest, escrows, survey, etc. Some of these fees can change from the initial quote, as they are 3rd party fees that are associated with your loan. Third party fees are defined as services that are provided in conjunction with your loan from a company other than your lender, for example the Appraisal fee. The appraisal fee is determined by the Appraiser, or Appraisal Management Company, which is a separate entity than the lender. The lender does not control the fee for this service. Another example is Homeowners insurance. If you provide your Loan Officer with a quote for $79.00 per month, but your actual premium turns out to be $84.00 per month, the lender is allowed to change the cost to reflect the actual amount charged, as this is a Third Party Fee, and the consumer chooses the provider for this service.
Box A and Box B combined give you the total estimated costs of your loan. This figure is the combined dollar amount for all fees disclosed under both Boxes A and B. This figure however, does not include any seller or lender credits, Earnest Money or Option Fees and therefore does not reflect the total amount that you will need to bring to closing. All credits and money down will reflect on the Details of Transaction section of the loan application (page 4).
Purchasing or refinancing? Click here to request a quote from a local Austin, TX based lender.
Armed with a better understanding of what the GFE fees represent and how to interpret them, you can feel more comfortable making an informed decision about your loan.
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