“The whole idea was to try to create a system that would simplify the process, provide greater transparency and most important, try to get the consumer more accurate figures about what this transaction was going to cost them three days into the process, rather than at the closing table.”
Home buyers will now know up front the term, type and interest rate of their loan, whether the rate is adjustable or fixed, whether there is a prepayment penalty, and exactly how much money is required for closing costs.
The GFE must be presented to home buyers within three days after receipt of all necessary, relevant information.
The new GFE form is more concise, only three pages with one additional page of instructions on how to read and understand the form.
Because fees are grouped into clear categories, “junk fees” will be harder to sneak in. Total estimated closing costs will appear clearly on the front page, for easier comparison of various loan offers.
At closing, HUD will very closely control which fees can or cannot vary from the amount presented on the GFE in the beginning of the process. If allowing a fee to change, HUD will control how much the fee can change.
Overall, total closing costs are expected to drop by nearly $700 on average per transaction.
At this time, the rule contains many requirements and limitations pertaining to it. For example, the loan originator must provide a GFE within three business days of the borrower’s application and cannnot charge more for the GFE than the cost of the credit report. Generally, a revised GFE cannot be issued unless there are “changed circumstances”. Change circumstances include the acts of God, war, disaster, other emergencies and situations where information particular to the borrower or the transaction either changes or is later found to be different from what was known at the time the GFE was provided.
- Cannot Increase (Zero Tolerance). The following cannot increase at settlement:
- Loan origination charge or adjusted origination charges (after the interest rate is locked)
- Borrower’s credit or charge (points) for the interest rate chosen (after the interest rate locked)
- Transfer taxes
- Can Increase up to 10% at Settlement. The aggregate total of the following charges can increase up to 10% at settlement:
- Required services that the lender selects
- Title services and lender’s title insurance (if the lender selects them or the borrower uses companies that the lender identifies)
- Owner’s title insurance and required services that the borrower can shop for (if the borrower uses companies which the lender identifies)
- Government recording fees
- Can Change. The following can change at settlement:
- Required services that the borrower can shop for, title services and title insurance (if the borrower does not use companies that the lender identifies)
- Initial deposit for escrow account
- Daily interest charges
- Homeowner’s insurance
HUD has also determined that a loan originator may cure a violation of the tolerances simply by reimbursing the borrower the amount by which the tolerances were exceeded.