New GFE What Does It Mean to You and Your Customer?
January 4, 2010
Good Morning: By now you have heard about the new GFE and the "magical issues" that will come with this new disclosure document. Please understand that while the new GFE will protect your client from last minute changes at the closing table (the reason for the new law), all should basically be the same for your clients. With a few exceptions (see sample of new GFE and HUD below).
- The GFE now becomes a legally binding contract between the lender and the customers
- The rate on the GFE is time sensitive (most will guarantee 1 hour for the rate quoted)
- The estimate will have a time limit for all settlement charges as well.
- Once your customer agrees to lock the origination and discount fees (points) cannot change unless the loan does not close before the lock expires (we must get inspections and appraisals done quickly) there is 0% tolerance on these fees.
- Appraisal Charges, Tax Service, Flood Certification, Up Front Mortgage Insurance, Mortgage Insurance rates, title insurance, owner’s title insurance, attorney fees. Cannot increase more than +10% from the promised fees shown on the GFE. (The exception to this rule will be if the client decides not to use our standard provider – we will have a single attorney that will guarantee our fee structure.) I will get a copy of this out to your all so you can share with your attorney of choice. My guess is that your attorney will be less expensive. If our client decides to use your attorney then we are exempt from this requirement.)
- The following Fees can change: Survey, Pest Inspection, Title Insurance if you do not use our default supplier (Cardinal Title Insurance), initial deposit for escrows, Daily Interest Charges and Homeowners Insurance.
What does all this mean to you?
- We need to get inspections done ASAP
- Appraisals must be ordered quickly – we have our selected suppliers and can guarantee the rate.
- Our attorney will be the default – unless we get your customer to agree otherwise (all lenders will have this in place).
- Our Title Insurance provider will be the default unless your attorney can get a better rate (borrower must agree to other supplier).
- The appraisal will be important for all mortgage insurance requirements.
- The GFE will only show the amount of borrowing costs, it does not show the payment or the amount needed to close. Both of these are shown on the loan application. As a team we will be providing an initial pricing model that will give this information to the borrower in place of a GFE.
- Finally, we will need to educate our buyers/ customers about a good faith estimate. The GFE was in the past an estimate (therefore it was abused by unethical lenders) and now is a legally binding contract with the lender. A tool that provides the amount needed to close; the PITI payment (with HOA when required) and the amount needed to close on a single sheet will give the easiest way to demonstrate our estimated payment structure to our customers. We have developed such a form that will keep it easy for your buyers to know what to bring to closing, what their payment will be and finally what the closing costs should be.
With change come conservative approaches from the closing departments for all lenders. We will endeavor to get our packages out early so we will not have discrepancies between the GFE and the final Settlement Statement.
Market Information:
It's been a rough ride over the last couple of weeks as the mortgage market is waking up with quite a holiday hangover. Since December 17th, the FN 30yr current coupon has increased by roughly 35bps. At the same time we have seen the 10yr yield that spike by ~ 60 bps in December. What this indicates is a trend towards higher interest rates. According to Fannie Mae 30-YR fixed rates are reporting at 5.250%. This is up .5% from the low of 4.75%.
Remember the Fed is still buying FN 30YR coupon mortgage backed securities (MBS) until the end of March. Once we get there I would expect the MBS spreads to follow the 10yr yield more closely.
Subscribe
