The National Association of Realtors released a study challenging the HUD’s newly proposed Good Faith Estimate, claiming it could actually lead to higher costs and more borrower confusion.
The report notes that among the changes, a GFE will be required before a borrower has applied for a loan to facilitate the borrower’s shopping process, leading to the issue of multiple GFEs before loan application.
“Under the new regulations, a GFE would be required prior to loan application. As noted by HUD, these new regulations will effectively create two types of applications: one for the GFE, another for the actual mortgage.”
Additionally, the originator will be required to guarantee the loan origination fee and specified third-party fees for at least 10 business days, likely squeezing out smaller entities that can’t guarantee their prices.
“Under HUD’s proposal, loan originators (and mortgage brokers) will be asked to guarantee not only their own fees, but the fees of third-party settlement service providers.”
“To manage the resulting risk, originators will inevitably seek out contractual arrangements (and pricing concessions) with one or more service providers.”
NAR believes that larger players will be able to negotiate better mortgage rates with third party settlement providers, undercutting competitors and eventually pushing up costs once resistance subsides.
Costs are also a major area of concern, with training, updated software, multiple GFEs and credit reports, compliance costs, interest rate hedging, additional risk, and the sheer time it will take to complete the new processes easily exceeding HUD’s annual cost estimate of just $44.50 per loan for its expanded GFE.
“HUD ignores or dismisses the operational and hedging costs that would be associated with this new requirement” and “fails to recognize the impact that increasing the amount of time at closing would have on other related costs.”
NAR estimates that additional costs per loan could range between $300-$400, based on initial underwriting and processing costs, number of GFEs, hedging costs, and closing script, not including any possible legal ramifications brought upon by a “guaranteed” GFE.
The report concludes that a simple and standardized form may work best, and could still meet most of HUD’s objectives without making the home loan process any more costly or cumbersome.
To give you an idea of industry sentiment, I have already received e-mails sent by brokers and processors looking to stop the new disclosure in its tracks.