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Is the Good Faith Estimate Hurting the Consumer?

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By : Calen Brennan    99 or more times read
The Good Faith Estimate that came into law on January 1st, 2010, has been drawing criticism for lack of clarity and causing more expense to the consumer. The GFE was intended to make estimates for mortgage loans fairer and easier for consumers to understand and to use. However, many in the mortgage industry are saying that it’s the exact opposite.

The new GFE is three pages long and discloses all costs, even the ones that don’t apply to the buyer. One example is the title insurance. This is paid by the seller in many states, not the buyer. But, there it is on the GFE, causing the buyer to think that their costs are greater than imagined. This has caused accusations of “trying to screw over” consumers, when the lenders are merely adhering to the law.

More expense incurred by the buyer is another claimed problem with the GFE. If a lender errs on the GFE in the buyer’s favor, the lender has to bear the losses. The problem is that lenders are starting to charge extra to cover the inevitable mistakes on loans. It’s kind of like reverse shoplifting; the mistakes of the corporation are passed on to the consumers due to the corporation’s errors.

Likewise, since interest rates are swinging like a maladjusted metronome, lenders never know if they are going to get on the good side or the bad side of a real estate deal. That’s another reason for passing on their projected losses onto their borrowers.

Another issue that deals with extra expenses incurred by buyers is the room for machinations that put money into some unscrupulous lenders’ pockets by deceiving the home buyer with a bait and switch routine. Take escrow accounts for example. Escrow is an account set up to hold money until a transaction is completed. However, escrow account set up estimates are not guaranteed and buyers can end up paying hundreds or thousands more because a company offered a nominally less fee than a rival, but then added a big set up fee to the closing costs.

The government, in attempting to halt the abuse of GFEs, has actually made it more likely. The over-accounting of necessary fees the buyer needs to bring to the table, the binding nature of the GFE and the room for shady dealings makes the new GFE something to be wary of. Get educated and make sure your lender is crystal-clear about what you have to pay.
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