A quick disclaimer: I just got all this information this morning and it was a bit like drinking water from a firehose. But here’s how I interpret it.
Lenders and title companies will be using a new Good Faith Estimate (GFE) and Settlement (HUD-1) Statement starting January 1st.
For buyers it means some added consumer protections. The first thing that’s different is that the GFE is done at the time of loan application, not at the time of pre-qualification/pre-approval as it was in the past. The second thing that changes is that the lender’s fees as stated in the GFE cannot change. If the lender’s do change by a certain percentage, the whole GFE has to be re-done and re-disclosed, and the buyer must have three days to review it.
If this three-day re-disclosure period comes into play it will delay real estate closings by three days. Headaches for all involved.
The hope is that this will shut down lenders who quote a rate upfront and then jack it up at the closing table (forcing the buyer to accept it or not close on the home). As I understand it the new GFE is like a contract between the lender and the buyer: if the lender states a fee at time of GFE he has to abide by those stated fees. If they go over that amount, too bad.
Another added twist is that lenders will no longer be able to offer the classic “pre-qualified” or “pre-approved” letter. However they still feel that they will be able to come up with something that says “if so and so puts down this much at this rate for this term he should be able to afford this home.” Can’t wait until I see my first one.
The new HUD-1 (are they still calling it the “HUD-1,” I wonder) Settlement Statement now has a third page which compares the lender fees as stated on the GFE with what the actual costs are. Ideally they should be the same or only slightly different.
The new HUD-1 also itemizes things differently and accounts for things a little differently. In the past if a seller was paying buyer closing costs (let’s use $5000 in closing costs as an example), each little cost would be itemized on the seller’s side until it added up to $5000. With the new statement it’s just shown as a lump sum credit for $5000. And the yield-spread premium (the difference between the rate the lender charges the buyer and the actual base rate) will also be shown on the statement.
To put all these changes in a nutshell, if you’re a buyer and/or seller in a transaction and the lender miscalculates closing costs, it will delay closing three days. So be prepared.
Most lenders I work wih locally have their sh*t together. They live in town, they work in town, and if they screw up they’re accountable. But if you’re a buyer using Third World Lender of the Internet, be especially prepared to fork out an extra three days rent for the moving van.