The main purpose is to give borrowers, at the beginning of the loan process, when they are figuring out their budget to purchase or refinance a home, a sense of their total cost. So a borrower could look at the GFE and evalutate the bank, title, and other fees, as an estimate, that are associated with their loan. You would think that this is–has been–a great document.

In the past, lenders had the ability to tell their clients that, for example, bank fees are going to be (say) $500, and then at the closing charge the borrowers $1500. At the closing table borrowers could either close and eat the additional fees, or they could decline to close and either try to sue the lender or find a loan with another lender.  Any scenario is painful. And rightfully so. This is the “inspiration” for the new GFE.

Now, as I will discuss in upcoming posts, the lender must write, in separate boxes, total bank charges, total bank credits (to the borrower), or total bank discount points. At the top of the second page the loan officer must clearly indicate:

1. the bank’s total orgination fees that usually include bank and/or origination fees.
2. if the bank is offering and interest rate with no other fees.
3. if the bank is offering any credit to the borrower.
4. if the bank is charging discount points to lower the interest rate.

Theoretically, then, borrowers can compare–the old apple to apple comparison–lenders cost to cost. It’s not a bad idea, and seems simple enough. But as the article that I have referenced explains, these numbers cannot change unless the borrower requests a change, and if the loan officer makes changes without the borrower asking for the changes, the lender will have to pay for the difference.  So in my initial example, a borrower showing up at closing with a settlement statement that is $1000 higher than the GFE will not have to eat the difference. The lender will be forced to pay the difference  Though this is a good thing for the borrower, to protect them for predatory lenders, it can be an unfair practice against many lenders. Now lenders are forced to wait until borrowers have a contract before issuing a GFE.  And so borrowers can only receive and estimate (an estimate for the Estimate?) of what their GFE will be.  Sound a little wacky?

Stay tuned for some more thoughts on the new document.

So what does the Chicago City Counsil do? Increase the tax stamp, to the buyer, for buying a home!

What used to be $7.50 per $1,000 just increased to $10.50 per $1,000.

So a home that costs $300,000 currently carries a tax of $2,250, will have a cost of $3,150.  And this becomes effective for purchases, in the city of Chicago, after April 1.

Besides knowing about the additional costs, borrowers should pay attention to a few things:

1. Does the Good Faith Estimate disclose the costs?
2. When a loan officer meets with a borrower and analyzes the borrower’s qualifications for a loan, does the loan officer take into consideration the new costs?
3. Think about asking the seller to help pay for the costs.

Whether we like it or not, the increase is here.

The room, as I call it, is the place where you, the borrower of a loan, and the loan officer, the person who is assisting you in getting the loan, meet. By place I should almost say space, but really, it is how you meet the loan officer. It could be via email, via phone, or in person. It is this place/space where the loan process begins, and this is the area that no one–none of the so-called experts–really can tell how things are going. Except for the loan officer and the borrower(s).

In continuing my series on our current foreclosure epidemic that started with my Introduction, I think this is probably the most important step in staying out of foreclosure.

Tony Gallegos has a recent post (quoted from another source) that explains how Abe Lincoln would know his opponent’s arguments and case so well that he himself would, in effect, take all the wind out of the opponent’s sails and win. Because he knew their case better than they knew their case. In an odd way, this is relevant to my point. As borrower’s ‘meeting’ with a loan officer, in many cases a stranger, you should think about the loan officer’s agenda. Yes, the loan officer has to make a living, yet the best loan officers never convey the sense that they are meeting you only to make a profit. Hopefully, though, when you walk into that strange space (internet, phone, or actual room), you will get a very strong sense that the loan officer wants to help you, make you feel comfortable, and assist you in making the best decisions. Though you are nervous and excited and probably feeling eight to ten other emotions, I think it is important to pay attention to the loan officer.  What is he saying? How is she saying it? Are there options? Why? Why not?

So here is my main point–and it is going to sound really crazy: don’t just think of yourself. By this I mean pay attention.

The road to foreclosure starts right now. We, the people who are trying to understand and explain and help others not go down this path, forget that we really don’t know what happens in these rooms. Does the loan officer explain an ARM and how it works and how it could hurt you? Does the loan officer give options? Does the loan officer review the Good Faith Estimate, and, if the borrower signs it, does the loan officer sign as well? Does the loan officer review the credit report, the essential documents for underwriting, and/or the different types of documentation (verify income and assets and employment…or not)?

Most important, when you walk in the room, do you feel like you are being treated as a human being or manipulated like a robot?  And this is what no expert can measure in explaining how the foreclosure mess started.

I am not Abe Lincoln (for sure), but I do like to understand my clients, and most good, reputable loan officers will do the same. Prepare yourself before you step into the room.

Secure your loan and interest rate. Now.

Rhonda Porter does such a fabulous job in explaing how this all happens and how to work with your loan officer correctly, that I think you should go directly to her post. An excellent, thorough post.

And notice what she writes at the end, “What ever you do, please do not select the person who will be assisting you with your largets investment (your mortgage) by interest rate alone.”

Someone should write a book about this.

There is always a better chance that the market (rates) will get worse than get better.

The band-aide that is being proposed is great. This band-aide may stop the bleeding for some, but for others it is too late. Many families need help, and without some financial assistance they may also lose their homes. 

What happened?  There are enough reasons to write at least 50 blog posts. For me, now, it is, ironically, a good opportunity for those getting ready to buy a home to stop and look in the mirror. Here are some questions to ask yourself:

1. Have you written out a budget, including a proposed mortgage payment?
2. Have you met–in person–with a loan officer who reviewed your information, documentation, and your budget?
3. Have you decided that your loan officer listened to you, answered your questions, and explained any documents that he or she asked you to sign?
4. Have you established, with the loan officer, your potential purchase price that will keep you within your budget?
5. Have you reviewed that budget–again!–to make sure you are not surpassing the amount that you have committed to yourself?

When you have left the meeting with your loan officer, you may feel a mix of emotions. Excited. Nervous. Relieved. 

You may feel a bruise here or there. That’s from your loan officer giving you honest advice, that the $250,000 property you “peeked” at this weekend will put you above the budget that you have established.

A small band-aide will help. Your bruise will get better. Imagine how it hurts for those who didn’t follow the steps you just took.

Reading a Good Faith Estimate, for many people, can be as intimidating and rarely as fun as reading a foreign menu. Many of the categories are unfamiliar to buyers, and the numbers don’t seem to add up.

When in doubt, ask questions (in person). If you are still confused, ask more questions. If it seems that the loan officer is speaking in a foreign language still, perhaps it is time to find a new loan officer.