Franklin Financial Group Blog

The 2010 RESPA changes to the Good Faith Estimate (GFE) are certainly a bit confusing at first, and that is to someone in the lending industry. I can't imagine what they will be like for the consumers. After multiple training sessions regarding the changes, I now understand how to make the new GFE a part of my business. Certain fees on the form, once provided to a borrower, cannot change at all (zero tolerance) and some can change slightly (ten percent tolerance) between disclosure and closing or settlement. Additionally some fees must be listed on the GFE that may not end up being paid for by the borrowers at closing, but due to being included will certainly at first look make borrowers feel as if if their closing costs are higher even though they may not.

Another change to the form is that fees that have been itemized on the present GFE will now be consolidated into "blocks" of fees as totals. Personally I feel that itemizing is less confusing and shows more detail, but apparently the powers that be felt otherwise.

If borrowers "float" a rate (don't lock it in) at first, they will be provided on GFE, then when they lock their rate they will be provided another final GFE. Certain fees on the initial and final GFE cannot change no matter what. I do like this part of the changes as it allows borrowers to obtain their figures initially and then see the final numbers as they relate to certain interest rate. I think this is better and full disclosure, however I don't feel that the new 3-page GFE is necessary to do this when it could have been done with the old 1-page GFE. I have asked this question before, but what happened to the Paperwork Reduction Act passed by the same Government now requiring three times the paper for one specific form, generated often multiple times for each borrower on a mortgage loan transaction?

Change is not always easy and the RESPA changes for 2010 are certainly at first not going to be. As a matter of fact, in order for everyone in the lending transaction to make sure they are RESPA compliant, additional time per transaction should be expected to be required. As a result, mortgage loans that could were being closed in about 30 days may now take at least 45 to 60 days (or longer). If you are a seller, buyer, realtor or mortgage industry professional, be ready to be more patient and understanding as these changes begin to happen.

Consumers are the ones who are focused on being protected by these new changes. If you are a consumer and have questions or concerns about the new RESPA changes, please visit the following website:  http://www.hud.gov/offices/hsg/ramh/res/respa_hm.cfm. Here you can find further information and be able to contact HUD should you wish to.

The subject of this email is meant to be humorous, and is not necessarily what I believe. Having said that, I used the title to lead into an issue I will now discuss. As mentioned in a previous blog, and one of the most talked about issues in the mortgage industry right now, HUD has new RESPA changes going into effect as of January 1, 2010. One of the most talked about (and confusing) changes is how fees related to the mortgage transaction will be listed on the new Good Faith Estimate. Mortgage Brokers who can both charge fees to a borrower up-front, and receive compensation by the lender in the form of a yield spread premium, must divulge the total amount of their compensation, whether it is paid by the borrower or the lender, or both. How it will be viewed is entirely new and without explanation can lead a borrower working with a mortgage broker to believe they are paying much more in fees than they actually are when compared to working directly with a lender or banker. The problem is lenders and mortgage bankers also receive compensation that is very similar to a broker's yield spread premium, but lenders and bankers do not have to disclose the amounts to borrowers. This disparity has been going on for a long time, and personally (yes I am biased) believe how the brokers disclose is actually much more open and honest to borrowers. As a borrower you can make the determination on your own, but I cannot see how a borrower would disagree with me.

Anyways, in regards to the new Good Faith Estimate, I met with one of the lenders I originate loans through to discuss how things would work after January 1, 2010. They had just come from a meeting to discuss the disclosure of fees, and were not yet given instruction on how the changes would be handled on broker-originated loans. They did not seem to understand how brokers must disclose the yield spread premiums, and as a result were questioning whether or not the premiums would be allowed. I went on to explain how we as brokers will be required to disclose it and that it is acceptable and allowed. As a broker the lenders I am set up with have all provided webinars and education/training (some of them on multiple occasions) so that we can better understand the changes and be ready to apply them when required.

Mortgage brokers must learn a multitude of programs and different ways of doing loans with regard to using various lenders. Brokers therefore are being provided more training and guidance than a lender might provide to its internal origination staff. Think about it, if each of lender provides the brokers they are set up with multiple training sessions on the changes, the amount of information brokers have access to by far exceeds that available to one company's internal staff. Personally I have access to over 20 lenders, so if each of them gave me just one training session, I have 20 times to review the changes. The new changes have only been known for about 2 months, so I doubt there is a practical way for one lender or banker to provide training 20 times to its origination staff in 2 months.

So to answer my question if mortgage brokers are better than lenders or mortgage bankers, I would have to say at times yes, and at times no. There are many qualified individuals on both sides, so there really is no way to definitively say one way or the other. From a total disclosure standpoint, when working with a mortgage broker, you as the borrower will continue to see the total picture in regards to what you are "paying for". If you work with a lender or mortgage banker, there is still going to be something you are "paying for" that will continue to be hidden from you. This does not seem like a level playing field, but that is life is it not?