This may have happened to you--you shopped for your mortgage and found a good deal. You intelligently got an estimate of costs for your mortgage, but when you closed on your loan, the actual costs of your mortgage were MUCH higher. Of course you were angry, and you might have had to scramble to come up with extra money to buy or refinance your property. Well, the good news is that there will no longer be nasty surprises at closing. Starting January 1, 2010, if your actual costs aren't very close to what the lender disclosed to you, you aren't responsible for paying them--the LENDER HAS TO PAY THE EXTRA CHARGES.
The U.S. Department of Housing and Urban Development is requiring significant changes to the Good Faith Estimate (GFE) disclosure and HUD Settlement Statements (HUD-1 and HUD-1A) and these will be effective on January 1, 2010. These important regulatory changes require lenders to ensure that borrowers more easily understand their mortgage transaction. One difficulty with shopping for a mortgage today is that lenders often disclose their fees in different ways, and even comparing annual percentage rates (APRs) is not effective because not all lenders include all costs in the calculation. That will change.
The new GFE and HUD-1 forms standardize how fees are disclosed--making it easier for borrowers to compare offers between lenders. The GFE and HUD-1 will also be aligned so that borrowers can compare their estimate of costs to the actual costs. Specific enhancements include:
- All lenders are required to disclose fees in the same manner.
- Loan feature information has been added to the forms.
- All lender fees are combined and shown as a single amount (fees paid by lenders, property sellers or builders and fees paid outside of closing are included in the total settlement charges).
- A reconciliation of the GFE (estimated costs) to the HUD-1 (actual costs) is required.
Click here to view a sample of the new GFE and click here for a sample of the new HUD-1 that we will begin using on January 1, 2010.
In an effort to improve the accuracy of the settlement charge information provided to borrowers, new restrictions are placed on lenders regarding how and when fees disclosed on the GFE may change. Tolerances on changes to settlement charges between the final GFE and HUD-1 fall into three categories:
Charges that cannot increase at settlement:
Origination charges
Discount or premium points for a specific interest rate selected
Adjusted origination charges (after the interest rate is locked)
Transfer taxes
Charges that cannot increase in the aggregate by more than 10% at settlement:
Required settlement services that the lender selects, such as appraisal services
Title services and lender's title insurance (if selected by lender or if the borrower uses a company identified on the Settlement Owner’s title insurance (if the borrower uses a company identified on the Settlement Services Provider List identified)
Required settlement services (such as Pest Inspections) that the borrower selects from the Settlement Services Provider
Government recording charges
Charges that can increase at settlement:
Required settlement services that the borrower can select, if the borrower selects a service provider not listed on the Settlement Services Provider
Title services and lender's title insurance, if the borrower selects a service provider not listed on the Settlement Services Provider List
Owner's title insurance, if the borrower selects a service provider not listed on the Settlement Services Provider List
Initial deposit for borrower escrow account
Daily interest charges
Homeowner's insurance
** Note: For 1 and 2 above, these fees will not be subject to the tolerances should a changed circumstance occur that directly impacts the fee and a revised GFE is provided within the three business day time period after receipt of the information regarding the changed circumstance.
So in the near future it will be easier than ever to shop for a mortgage and get your best deal--whether you opt for an FHA, conforming, jumbo, or bad credit mortgage. An ugly surprises at closing should become a thing of the past.
