Beware of Bad Faith Good Faith Estimates, Surprise Hikes on Home Loan Fees
By law, lenders must provide borrowers with a Good Faith Estimate of all mortgage costs (i.e. settlement, closing costs, etc.) as a deal grows nearer.
However, there is currently no law that prevents a lender from sticking a buyer with substantially higher costs come closing times than initially quoted. Thus, the question is raised:
- What happens when this Good Faith Estimate is given in bad faith and a borrower is faced with monumental, out-of-the-blue fees on his home mortgage loan?
Unfortunately, the move by some lenders to their fees or add new ones as a loan moves toward closing is easy to accomplish; especially on purchase transactions when borrowers pass a point where there isn’t time to begin again with another loan provider.
Some lenders also low-ball third-party fees as an inducement to borrowers who believe they can shop total fees, then raise them at closing.
HUD tried to deal with this and many other problems a few years ago with a proposal that allowed lenders to package a mortgage and all related services, which would be offered to borrowers at a single price. The proposal was very complicated; different parts offended different groups; and, as a result, it died.
Reportedly, HUD has since been working on a less ambitious agenda, but nothing has emerged as yet.
Meanwhile, the Mortgage Bankers Association (MBA), which is the major trade group of mortgage lenders, has come out with its own proposals, part of which are directed to Good Faith Estimate abuse.
The MBA proposes that deviations between the lender and mortgage broker charges contained in the GFE and those paid by the borrower at closing be limited to 2 percent, provided there are no substantive changes in the transaction.
It seems as though the threshold should be zero - because lenders and mortgage brokers know their own charges, why should they ever increase as closing nears?
But let’s not nitpick; 2 percent isn’t much. It means an estimated charge of $3,000 could increase only to $3,060. Considering the source of the proposal - mortgage bankers proposing that discipline be imposed on themselves - HUD ought to jump at it.