It has been a year since the Department of Housing and Urban Development released the new Good Faith Estimate. HUD’s stated goals for the new GFE were to: 1) help consumers understand costs before settlement; and 2) enable consumers to compare and shop the best loan. As plain language practitioners, who want consumers to understand information, we’re always interested in how major initiatives really work.
So, what’s the verdict on this new form? An article from the Wall Street Journal discusses ways that the GFE can help consumers shop for loans. But to be fair, not everyone is happy about the changes. Real estate professionals report that the new GFE is cumbersome and costly. A recent survey by Broker Banker notes that 95% inflate their GFEs to avoid tolerance violations, and some lenders have developed “worksheets” to avoid being held to the GFE tolerances, thus subverting the consumers’ ability to shop for a loan and a lender. Although there are software packages to estimate GFE figures, many lenders choose not to use them.
Ultimately the proof of how well the GFE “works” will be demonstrated over time as we see how well it protects consumers and streamlines the homebuying process. Already, some evidence shows that the GFE is meeting its intended purposes. A new study shows that settlement costs have gone up, at least partially because lenders can now be penalized for not accurately disclosing fees on the GFE. Some mortgage lenders are speaking out about how the form benefits consumers.
Any major change such as the new standardized GFE is bound to encounter growing pains. Future research must focus on assessing the real costs and benefits of the form – both to consumers and industry. At the same time, industry feedback must be considered while also balanced with a “tough stand” towards lenders who consciously inflate tolerances or otherwise subvert the honest use of the GFE. Even with a new GFE, the work of improving the homebuying process is just beginning. Listening to consumers and industry with an eye towards greater system improvement will be a win/win for everyone involved.
Kleimann worked with HUD to develop the Good Faith Estimate and to test it qualitatively and quantitatively with over 1600 homebuyers and potential homebuyers. The new GFE was released in January 2010.