By Chad Huebener
Lenders have long known it was coming, and many prayed it would go away. But it is here to stay.
Effective January 2010, major changes have just been put into place regarding lending practices when it comes to purchasing a home. The intent of the change is to make it easier for borrowers to compare lenders and shop for competitive lending prices, with all pricing by the consumer being viewed as apples-to-apples. Previously, this was a cumbersome process and virtually impossible for buyers to sort out. Also, HUD (Department of Housing & Urban Development) wanted consumers to have a crystal clear picture of what closing costs would amount to for each transaction.
The new changes that just went into effect will require that once a Good Faith Estimate (GFE) is written for a borrower on a particular property, the lender can make no changes to that document (i.e. the fees stated on the GFE must remain the same) with the exception of a select few fees that fall in a certain category and and have a significant impact on the transaction (i.e. a change in the sale price, for example). Certain fees can change at a margin of 10% max. Fees wich do not fall into the category of having a significant impact on the transaction and do not fall into the category of being adjustable by the 10% margin must be "eaten" by the lender.
This is all good for the borrowing consumer, but the new GFE is not perfect. It does not tell borrowers the amount of cash required to close, nor does it show them their estimated principal, interest, taxes and insurance. It does not include lender or seller credits, as well as any tax provisions. For that reason, many firms, including Coldwell Banker, are utilizing Closing Cost Worksheets for borrowers so that a realistic estimate of the proceeds needed to close on the property can be obtained.
Finally, borrowers have up to 10 days to receive and sign off they they are accepting the GFE before an appraisal can be ordered or any other fees incurred on the transaction. This could have a significant impact on a seller receiving an offer - has the borrower approved the GFE?
During these changes in our industry, there are some initial complications expected to occur with the new lender requirements, therefore a very good, solid working relationship between lender, title company, and the realtors involved is very important. A slight miscommunication in something as simple as fees to the borrower could result in (in the case of a minimum-down buyer) the loan losing its eligibility to be insured, or the entire transaction falling apart.
It will take some time for the real estate industry to sort out these new changes. GFE's and HUD-1 statements must balance perfectly now, a process that will take title companies more time to work through. We do expect though, that within 2-3 months time, this process should get easier.
For some, it might seem as if the our regulators have now swung the pendulum so far in the other direction to protect the consumer. That is not all bad. Time will tell how the GFE will impact the real estate transaction. More on this to follow......
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