Editorial
Front Page - Monday, February 08, 2010
Caroll says agents need to pay attention to alterations to HUD’s GFE
Ethan C. Nobles
Special to the Daily Record ecnobles@att.net
Jim Carroll Sr. of the Carroll Mortgage Group in Little Rock said there are some major changes to the U.S. Department of Housing and Urban Development’s (HUD) Good Faith Estimate (GFE) and real estate agents who aren’t familiar with them need to learn about them in a hurry.
Carroll, speaking at a January meeting of the Arkansas Association of Realtist, said one of the most significant changes to the GFE is that it does not show the true monthly payment a borrower will make on the mortgage at issue. The form makes reference to escrow payments for property taxes and “property related charges” but does not break them out specifically.
Rather, the prospective borrower is showed only how much the monthly payment will amount to when principal, interest and mortgage insurance are considered. That could mean trouble for real estate agents who don’t explain to buyers that monthly payments could be considerably higher when property taxes are factored into the mortgage.
“The first dollar amount that looks like a house payment is going to be low,” Carroll said.
The fact some escrow amounts are included in the GFE is puzzling as the overall purpose of the new form, Carroll said, is to avoid a situation where buyers show up at the closing table and are hit with surprise charges. He added that the true monthly payment, however, will still appear in the Settlement Statement (HUD-1) presented at closing.
To that end, there are some charges that can’t be increased at closing and charged to the borrower – if those items do change, the lender will have to make up the difference. The charges that can’t increase are the lender’s origination fees, transfer taxes, points charged that reduce – or increase – the interest rate that are based on the borrower’s credit score, transfer taxes and origination charges that were adjusted after the borrower locked in an interest rate.
The items than can increase up to 10 percent are required services such as appraiser fees that are chosen by the lender, title services and the lender’s title insurance if those services are chosen or suggested by the lender, required services such as home inspections that the buyer shops for if providers are the ones suggested by the lender and government recording charges. Some charges that can change are required services that the buyers shops for if the providers are not ones identified or suggested by the lender.
In other words, if you want a specific person or company to inspect the home you want to purchase and that inspector has not been identified by the lender, you might find the provider’s fee is higher than originally anticipated. The fee listed in the GFE can change and there is no violation.
Other items than can change in the GFE include daily interest charges, homeowner’s insurance and the initial amount the borrower is required to put into an escrow account. Carroll said the fact that initial escrow account deposit can change allows some room for surprise.
He said some lenders may “lowball” that amount in order to convince a borrower to take out a mortgage and then change it significantly at closing. He said buyers and agents should question that amount if it appears low in the GFE – the amount could increase quite a bit at closing and that’s allowed in the new HUD form.
In short, Carroll said agents looking out for the best interests of their clients should become very familiar with the new GFE and the areas where “surprise” costs might be hiding.
In a related matter, Carroll said HUD has done away with the “anti-flipping rule” that prohibited people from purchasing a home and selling it within 90-days. That 90-day “dead period” has been eliminated, encouraging invest-ors to purchase homes, fix them up and sell them as the repairs, upgrades, etc. are complete.
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