Just as soon as we got used to the new Good Faith Estimate (“GFE”), it’s time to say goodbye to it. In the Fall of 2015, a brand spanking new document replaced the crusty old Good Faith
Estimate. In fact, 3 classic mortgage disclosures (including the GFE) become extinct at the same time. More about that later.
Beginning of the End for the Good Faith Estimate
After the US housing crisis, the Government kindly thrust themselves upon mortgage lending as a compliance watchdog. As a result, complex mortgage processes and confusing disclosures have forcefully been adopted by mortgage lenders. Some of the force fed changes have actually been positive. Unfortunately, the majority of the Fed’s ideas muddied the lending waters.
The not so helpful variety of changes confused and often infuriated consumers. For example, the Government’s good faith estimate (“GFE”) overhaul clearly missed the mark. The revised GFE lacked clear disclosure of a borrower’s monthly payment. Worse yet, a borrower’s cash to close was absent on the GFE.
The New Good Faith Helps Consumers
The good Faith Estimate’s replacement has a brand new name. After all, a fresh start given the GFE’s troublesome run including a new name is wise. The new document, called the “Loan Estimate” kills 2 birds with one stone. As a result of combining the Good Faith Estimate and Truth in Lending Form into the Loan Estimate, home-buyers have fewer places to look for important loan information.
The Good Faith Estimate overhaul creates clarity, consistency and transparency for consumers. Overall, The Loan Estimate conveys important loan information to consumers. Examples of this include:
- Monthly payment
- Estimated cash due at closing
- Projected monthly payment in future years
- Loan type and terms (amortization, rate, payment type etc…)
The “Loan Estimate” Better or Worse then GFE?
Thanks to the Government’s bang-up job on the last and final GFE, doing better was easy. New Loan Estimate – Better. Considering the massive upgrade to the clarity of information disclosure, the Loan Estimate stands head and shoulders above the GFE. Lastly, considering congruent flow from Loan Estimate to Closing Statement (more on that later) consumer’s are far better served by the Loan Estimate than they ever were with the GFE.
By Jeremy House