In July, I wrote the Good Faith Estimate (GFE). Here's where I explained the nuts and bolts of limits on closing cost fee-changes. In August, CNN Money published a report that showed that closing costs had come done on account of the changes to the Good Faith Estimate. I agreed with CNN Money that the GFE rules accomplished the death of the "bait and switch" that caught house buyers in the past. However, I did not think that the disclosure came early enough to help buyers shop around for their best mortgage deal. I wrote:
A factor that supports crediting the GFE with lower costs is that the "bait and switch" in lending is dead. Before the reform of the past few years, borrowers had no idea what the total they needed to bring to closing would be until the day before closing… Now, the GFE has accurate fees. But the GFE is not a good tool for comparing lender to lender, in relation to fees. It takes some time to prepare, so the lenders do it only when borrowers apply. Many lenders will not prepare a completed, binding GFE until the borrower has put in a good bit of effort and paid an application fee. Many will give a non-binding estimate, so that borrowers can compare apples to apples; those apples, however, are not binding.
My professional association, the Massachusetts Association of Buyer’s Agents (it’s the website attached to my name up in the top right corner here at BREN) is formally questioning the timing of the GFE that is part of the "Know Before You Owe" proposal by the Consumer Financial Protection Bureau (CFPB.)
"In and of itself, changing the disclosures will do little to help consumers looking to comparison shop prior to locking in a mortgage," said MABA’s board of directors. "The fact of the matter is that unless buyers can get information on loan costs, such as interest rates, monthly payments, and closing costs earlier in the transaction process, it’s all for naught because there is rarely enough time to shop for a better deal the way things are currently set up. According to the CFPB, this was one of the primary drivers for overhauling the mortgage disclosures - that is, to make shopping for a mortgage easier and more efficient.
The board’s statement continues: "As things now stand, lenders can’t provide a good faith estimate of loan costs until they have an application in hand, which means there needs to be a property with an accepted offer or purchase and sale agreement. In order to give buyers time to comparison shop, that needs to change, as does the timeline for mortgage contingencies - typically made tight to protect the seller's interest. Consumers need more information sooner in order to effectively shop for a loan. In short, they need to be able to get disclosures in a meaningful way - at a meaningful time. There needs to be a way to get a buyer a binding good faith estimate earlier in the process - perhaps based on certain conditions, such as a single-family up to a certain price and/or a certain credit score range."
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