All in Good Faith
What Is It?
The Good Faith, sometimes simply referred to as the “GFE” stands for the Good Faith Estimate of Settlement Charges. This estimate is provided to a potential borrower which provides a list of anticipated closing costs a borrower may encounter when closing a mortgage loan.
The lender must use their own good faith judgment when providing the list of fees and quotes not just the lender fees but also non lender fees as well.
Lender charges are fees due the lender to offset the overhead required to evaluate and finance a specific mortgage loan. Common lender fees are underwriting charges which offset the costs of reviewing and approving a loan. Loan processing fees help to cover the costs of documenting and preparing a loan application for submission to an underwriter.
Lenders can also collect fees on behalf of third parties if the lender requires specific services to be performed in order to evaluate the mortgage request. For example, a mortgage company can collect a credit reporting fee but that fee goes to the credit reporting agency and not ultimately not to the lender. Lenders also collect funds upfront for an appraisal that will finally end up in the appraiser’s office. The lender didn’t perform the appraisal but needs one to process and approve the loan.
Lenders will quote not just their own charges but charges by other third parties as well such as escrow fees, attorney charges, title insurance and others.
A GFE must be provided immediately when a mortgage loan application is taken face to face with a loan officer or within three days after receipt of a mortgage application. But here’s the kicker: a mortgage application must have specific information before an “official” good faith is issued. What is that information?
A loan application must contain:
- Property Address
- Loan Amount
- Property Value
- Monthly Income
- Borrowers Name
- Social Security Number
If a lender receives an application and the property address is missing or the income section is left blank, the lender is not required to issue the GFE. The lender can provide a list of expected charges, but the lender is not held responsible for certain changes in costs until an application with required six pieces of information have been provided.
Why is this important to a lender?
An official GFE, one that is issued after the lender has received a completed loan application, is bound by certain limitations and can be responsible in all or in part of any discrepancy between a final charge and an initial disclosure. What are these tolerance levels?
All disclosed lender charges may not change at all from the initial GFE to the final settlement. If the lender disclosed their underwriting fee is $50 and left off a zero, the underwriting fee at the closing might read $500 instead of the original $50. The borrower may not pay for the difference, regardless of the cause of the error; it’s the lender’s responsibility.
If a lender refers a borrower to a particular title insurance company or attorney and the borrower uses that referral, the final charges to the borrower may not exceed the original estimate on the GFE by more than 10 percent. Anything above that the lender must pay. However, any service provider not suggested by the lender is exempt from the 10 percent tolerance.
Finally, any other charge may change without regard to the original quote.
These tolerance levels and potential lender responsibility is why some lenders won’t issue an official GFE, one that is bound by the original quote, until a completed loan application is on file. You may ask for a GFE along with a mortgage quote but without a property address or other required data, you won’t get the “official” GFE. But you’ll get a good substitute until you find a home.