by Julie Douglass
Estate Title & Trust
Brought to you by the Builder Realtor Relations Committee of the Sales and Marketing Council of the Northeast Florida Builders Association and LENNAR
Q. How can we better understand the new GFE process?
A. Several changes have come about with the new GFE, including the timing of disclosure, appearance of fees and limits of changes. First, once a contract is signed, the buyer will apply for a loan. Once application is made, the lender must issue a GFE within 3 business days. The GFE must remain available for 10 business days to allow the borrower to comparison shop. The GFE will contain the fees associated with the loan closing along with an interest rate that must remain good for a limited amount of time. Unfortunately, there is still some question about whether the lender must disclose all fees, including those paid by the seller, or simply the ones for which the buyer is paying. We hope to have an opinion issued by HUD relating to this issue. The fees disclosed on the GFE can only change by the following tolerances at closing:
a. Items that cannot change: Origination Charge, Credit or charge for the specific interest rate chosen, and transfer taxes.
b. Items that cannot increase more than 10%: Required services where the lender selects the provider; Title services and lender’s title insurance, owner’s title insurance, and Required services that the buyer can shop for, like appraisal, credit report, etc. (if the borrower uses the companies identified by the lender); and Government recording charges. The key to this section is that the total of these fees cannot increase more than 10%.
c. Items that can change at settlement: Required services, Title services and lender’s title insurance, and owner’s title insurance (if the buyer does not use the companies identified by the lender); Initial deposit for the escrow account; Daily interest charges; Homeowner’s insurance.
Q. Can the new guidelines potentially delay closings?
A. Delays in closings should not occur. It is the responsibility of the lender to ensure the accuracy of the new GFE prior to its issuance. In the event that one of the above tolerances is not met, the closing can still take place. The variance in the tolerance level does not stop the closing. However, Dept. of HUD will look to the lender to reimburse the buyer for any increases.
Q. What fees are now lumped together on the GFE?
A. Lenders can no longer charge any fees other than the following: Origination Charge, Charge or Credit for the specific interest rate chosen (previously called a “discount fee or point”), Appraisal Fee, Credit Report, Tax Service Fee, and Flood Certification Fee. No longer are lenders permitted to charge Doc Prep fees, Processing Fees, Administrative Fees, or Underwriting Fees. They must lump all of these fees into one “Origination Charge.”
Furthermore, title companies must also lump their fees into one “Closing Services Fee.” Line 1101 on the Settlement Statement will show a charge for the closing fee plus the lender’s title insurance policy and endorsements. These fees must be lumped and cannot be split out separately. The only fee shown separately in the 1100 section of the HUD will be the owner’s title insurance policy.
Q. What are the major changes/additions to the guidelines?
A. One change to note is that charges shown on the GFE must be shown on the buyer’s side of the HUD. In the event that a charge that is to be paid by the seller according to the contract is placed on the GFE, the buyer must be charged that fee on page 2 of the HUD-1 and then a credit given on the front page to reimburse the buyer for that payment. For instance, if the lender quotes owner’s title policy premium on the GFE, the HUD will reflect a charge to the buyer on page 2 of the HUD-1 and then a credit from the seller to the buyer one page 1 for the amount of owner’s title policy.
Currently, it is customary for closing agents, at the request of the lender, to move fees from the buyer’s side to the seller’s side to account for a closing cost credit to be given by the seller. The new guideline will not allow this shift in the fees. A flat credit must be shown on the first page of the HUD to account for the credit of closing costs and prepaids.
There are instances in which a GFE may change after the initial disclosure. HUD calls them “Changed Circumstances” and will allow the fees to change in the event that the borrower makes a change that is uncontrolled by the lender. Example: Borrower changes loan programs from FHA to Conventional. These types of changes warrant a new GFE to be issued based on the new information.
Finally, page 3 of the HUD will provide a comparison between the GFE and the final HUD, while categorizing the fees in the appropriate tolerance levels. Page 3 will also detail the terms of the buyer’s loan for easy comparison to the GFE.
It is more important than ever to open the lines of communication between the title company, the lender, the borrower(s) and the real estate agents. Furthermore, it is important that we all rely on our key business partners to ensure everyone’s success. Communication is going to be the key to getting through the new guidelines and regulations and keeping your sanity through it all!