GFE – Good Faith Estimate Confused?

If you’ve obtained a mortgage earlier in your life and now are getting a new mortgage for a home purchase or refinance you’ll notice that the GFE or Good Faith Estimate looks totally different. The old GFE or Good Faith Estimate was one page long and clearly labeled/identified each and every cost associated with your loan. Everyone getting a mortgage thought it was easy to read and pretty straight-forward.

Now the GFE or Good Faith Estimate is longer, doesn’t clearly identify or line item each cost and everyone that sees it for the first time says it’s very confusing. The next question I usually get is what happened to the old GFE or Good Faith Estimate and why did they change it?

Here’s the answer – the federal government got involved. Remember what the great President Ronald Reagan once said, “One of the scariest things you’ll ever hear is we’re from the government and we’re here to help. These words cannot ring truer with regards to the government revamping the GFE or Good Faith Estimate. Yes only the government could take an easy to read, one page, line item cost break-down of your mortgage and turn it into a three page litany of confusion where you have no idea what costs are associated with your mortgage.

What the government did was take the line item costs on the old GFE or Good Faith Estimate and disperse them into three separate categories: Origination, Title, and Pre-Paid Items. But all without breaking down each line cost associated with each category. They went to a “Lump & Dump” system.

Origination is now composed with any of the costs associated with the lender and/or mortgage broker. Sounds great right, not so fast. Since they are lumping all the costs together you have no idea who is being compensated for what on your mortgage. For example, a mortgage broker may only be receiving a 1% Origination Fee, but because the lender’s charges for processing, underwriting, tax certificates etc are all added together for one charge in the origination section most clients think that the person doing the loan is getting all that money when in reality they are not.

Same goes for the Title Section, the title policy, survey, messenger fees, escrow fees are all being lumped together in one charge. So though ti appears the title company may be making a killing in reality they are making the same amount on the title policy that they always have and that’s regulated by the Texas State Board of Insurance.

The last section is the only one that makes sense The Pre-Paid Section, but again it’s lump and dump. They now add up your insurance costs, property tax costs, and interest charges and put it all in one section. Most people again would rather have a line item so they know the exact costs for each item associated with the loan.

When you receive your GFE or Good Faith Estimate ask your lender or mortgage broker for a separate line item for each cost associated with the loan. It will let you know who is being compensated for what and how much they are actually being paid.

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