The New, Allegedly Improved Good Faith Estimate (Page Three)

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This is the conclusion of the series begun in Page One and continued in Page Two

Page Three is where the most blatant lies of this whole piece take place, and the first part of page three is where they are found. It segregates the charges into three different camps: Ones that it claims cannot increase, ones that it claims cannot increase by more than 10% in total, and ones that, supposedly unlike the other groups, can change at settlement.

This is nonsense on stilts, lulling the consumer into a false sense of security.

Loan providers can low-ball every bit as much as they ever could, and this form, in my honest opinion, is the worst part of all because it explicitly states something that is not true. What it really means is that these charges cannot increase without being redisclosed three to seven days in advance of signing the final paperwork. Guess what? Crooked loan officer lies like a rug to get you to sign up, and on day 38 or 42 of a 45 day process is finally forced to tell the truth or something close to it. At that stage of a purchase, there is (thanks to other new regulations) no way on this earth that you're going to be able to get another loan ready before the deadline written into your purchase contract. You have no choice - you are stuck. And the whole concept of back up loans has been killed by changes in the market. Even on a refinance, you've spent the money for an appraisal and other sunk costs. There's no way to force them to release that appraisal to you - not that it would do any good with HVCC in effect. Net result: You're out the money and the time, and many refinances have an external reason forcing them to happen - almost all "cash out" refinances have an external deadline, a time by which the people have to have the money. People are extremely unlikely to begin the process anew at that point in the transaction, which means that the people who LIED to get them to sign up are rewarded with a loan commission, people who told the truth and are spurned by consumers because the lie looks better receive nothing and go out of business, and the federal government is an unindicted co-conspirator to the raping of the consumer by making a false promise that the liar's numbers cannot change.

We've covered how this whole premise is a lie, but let's cover the three categories and how honest loan providers are going to approach them until they go out of business.

The charges that supposedly cannot increase at settlement are loan origination charges, discount charges for the specific interest rate chosen adjusted origination (which I covered in the page one article) and governmental transfer taxes. It is worth noting that even on the new Good Faith Estimate form the government does warn you that discount is changeable until you lock your loan, something that the market is trying to push as close to the day of settlement as possible by imposing high costs on brokers and correspondents for every loan that is locked but does not fund. The reality is that these charges are going to change. Until they started charging me for loans which don't fund, I locked every loan when people said they wanted it. Now I have to float the rate until I'm certain underwriting isn't going to reject the loan. If your loan isn't locked, you are at the mercy of the market even without mixing in possibly foul loan officer intentions. The closest thing to a guarantee even the best most conscientious loan officer can give in the new lending environment is "Everything but the rate/cost tradeoff I can guarantee right now - but I can't guarantee that until we lock your loan, all I can do is tell you what it would be if we locked today" Since the this tradeoff is far and away the largest determinant of the loan you will get, this amounts to guaranteeing the molehill while the mountain moves every day. It would be a useful yardstick for comparison as to which loan to sign up for if lenders had to tell the truth at loan sign up, which they do not.

The charges which supposedly cannot increase more than 10% in total are services that the lender selects, title services and title insurance, required services where you're allowed to shop but the lender ends up choosing the provider, and government recording charges. First off, on purchases trying to get escrow and title companies to honestly disclose their charges is a battle all on its own - I don't know why, as I have no problems getting "one flat rate" quotes from them on refinances. Maybe because it's because they can seduce the less diligent real estate agents by offering them help prospecting for clients, while on refinances they have to deal with loan officers who are competing on price for consumer business. But the same thing applies to this section as the previous - these charges can change without limit if they are redisclosed three to seven days in advance of closing.

The only charges that receive a completely honest treatment from the new form are the ones that the form advises you can change at settlement; These are services that you can shop for and don't have to use providers identified by the lender, such as escrow, title (if you don't use their selected provider), etcetera.

The one thing I do like about this new form comes next, because it tells consumers for the first time anywhere in an official publication that there is a tradeoff between interest rate and cost by telling you that there may be alternative loans available for lower cost at a higher interest rate or lower rates for a higher cost. Of course, this being the government, it misses something important - the changed loan amount or how much money you will receive from the same loan amount if you do choose the different loan.

It then gives consumers an place to write down and compare the loans they are being offered. Once again, this might mean something if prospective loan providers had to tell the truth at loan sign up, which they don't. As it is, this section serves as nothing more than another way to lull the consumer into a false sense of security about what they are being told. If the loan providers are permitted to lie about their loan characteristics and what it costs, the whole exercise becomes a competition to see who can tell the tallest tale believably. Traditional methods of comparison do not help in such an environment, as the numbers they are using to compare are fabrications told for the purpose of securing your business and getting a commission check, because by the time they have to tell the truth most people cannot change loan providers and most of those who could won't.

Caveat Emptor

Original article here


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About this Entry

This page contains a single entry by Dan Melson published on July 15, 2014 7:00 AM.

The New, Allegedly Improved Good Faith Estimate (Page Two) was the previous entry in this blog.

Real Estate: Giving Someone a Monopoly Does Not Encourage Top Performance is the next entry in this blog.

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