good faith estimate

“This is what a mortgage form should look like” –President Obama

President Barack Obama shows a proposed mortgage form as he speaks at the James Lee Community Center in Falls Church, Va., Wednesday, Feb. 1, 2012. (Credit: AP Photo/Cliff Owen)

When you make one of the biggest purchases of your life, wouldn’t it be nice if the forms you signed were simple, clear, and transparent?  President Obama, the Consumer Financial Protection Bureau, and we think so.

The Consumer Financial Protection Bureau’s (CFPB) “Know Before You Owe” project is working to accomplish this goal. They are combining several of the disclosures you receive when you apply for and close on a home loan into two , easy-to-use forms. CFPB is collecting input on these forms from consumers and industry people online and in person in usability tests across the country.

On Wednesday, February 1, 2012, President Obama outlined a “Homeowners Bill of Rights,” designed to help protect borrowers. One aspect of that plan includes a “new, simple, clear form for new buyers of a home.” Obama said:

So this is what a mortgage form should look like. This is it. Now that our new consumer watchdog agency is finally running at full steam, now that Richard Cordray is in as the Director of the CFPB, they’re moving forward on important protections like this new, shorter mortgage form. Simple, not complicated. Informative, not confusing. Terms are clear. Fees are transparent…

I prefer actions that are taken to make things simpler and easier to understand for consumers so that they can get the best deal possible – especially on the single biggest investment that most people will ever make.

We too prefer positive actions that benefit and protect consumers.


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One Year Since the Release of the New Good Faith Estimate: What’s the Verdict?

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.

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Helping Consumers Navigate the Homebuying Process

The U.S. Department of Housing and Urban Development (HUD) and the National Association of Realtors® (NAR) recently unveiled three how-to videos to help prospective homeowners shop for a home, shop for a loan, and know what to expect in the closing process.

Two of the videos cover the Good Faith Estimate, a form Kleimann developed, that is a required form. The form was developed in part as a consumer tool to help explain the terms of a potential home loan as well as to encourage comparison shopping for the best loan for the consumer.

From the HUD website:
“HUD’s videos are easily accessible from both HUD and NAR’s websites as well as from HUD’s YouTube channel. They include:

Shopping for your Home – The homebuying process obviously starts with finding a place you’ll want to call home. This short video will instruct viewers on assessing how much of a home you can afford, working with a real estate agent and what happens once you find the home you want to buy. Housing counselors can assist home buyers and home owners on issues such as home buying, fair housing, credit issues, and foreclosure prevention.

Shopping for your Loan – Once you’ve found the home of your dreams, the next step is to shop for a mortgage loan. This video will help consumers use the good faith estimate (GFE), which is a form that spells out the terms of a loan offer, to shop for the best loan for them. Consumers will learn how to use the GFE to determine how long an interest rate is available for a particular loan and how to identify key loan terms and costs of a particular loan offer. HUD suggests consumers shop and compare GFEs from multiple mortgage brokers and/or lenders in order to get the best loan for their situation.

Closing the Deal – Finally, this video walks consumers through the actual closing process including how to make sure the loan they were offered closely matches what they encounter at the settlement table. In particular, HUD will walk the viewer through the HUD-1 Settlement Statement and demonstrate ways consumers can compare their actual costs with those reflected on their Good Faith Estimate.

Stevens added, “These videos go a long way in identifying key aspects of the homebuying process that a consumer should be aware of. Our goal is help make the process more transparent through educating consumers who in turn can make informed choices about their home purchase. We partnered with NAR because a real estate agent is often the primary point of contact for homebuyers and we believe real estate agents are in a great position to provide these videos to their clients as they move through key areas in the homebuying process.”

To view HUD’s new homebuyer education videos, visit HUD’s YouTube channel at”

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