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ENTITLE DIRECT > Title Insurance Knowledge > Are some lenders trying to avoid new GFE regulations for title insurance, closing costs?

Are some lenders trying to avoid new GFE regulations for title insurance, closing costs?

01/22/2010
According to a report from the Washington Post, some loan originators are avoiding compliance with new rules put forward by the U.S. Department of Housing and Urban Development (HUD) to help homebuyers and refinancers get a better handle on the real expense of closing on a loan including the cost of title insurance.

The paper reports that the first few weeks of new guidelines for the Good Faith Estimate (GFE) are not playing out as anticipated by regulators. According to the new rules, lenders have to give an accurate - or as close to accurate as possible - determination of what it will actually cost a person to buy or refinance a home.

The point of the new rules from HUD is to keep lenders from enticing consumers with lowball estimates on closing costs and title insurance, among other things. As a result of these lower estimates, many consumers move forward with that lender and end up paying thousands of dollars above what was estimated.

"In the past, no federal rule penalized low balling," the Post report said. "Loan officers and others who provided the estimates were not held responsible."

The new rules dictate that certain final fees must be within 10 percent of the estimation given by the lender on the GFE, while other fees aren’t allowed to change at all. If it turns out the fees are outside the tolerance threshold, the lender will have to pay the difference.

The new GFE form took effect on January 1, 2010. However, the paper noted that many lenders are getting around the new form by substituting it with their own estimation forms and worksheets. Many of these lenders claim that these forms contain the same information as a GFE.

"Typically, they are issued only when shoppers do not provide - or are asked not to provide - key information that constitutes an 'application' under HUD's definition in the rules," the paper said. "For example, if a consumer does not provide the address of the property to be financed, technically there is no application and therefore no requirement to issue a GFE."

In order to avoid this scenario, consumers are encouraged to request a GFE, even though lenders are only required by law to furnish the GFE within three days of taking an application. Furthermore, consumers should keep in mind that any worksheets or forms other than HUD’s new GFE given to them by lenders may not accurately reflect what it will cost for them to buy or refinance a home.

Consumers can download a copy of the new GFE from HUD's website (www.hud.gov) where they can also find additional information about the new rules. Both the new GFE and the new HUD-1 Settlement Statement are also available for viewing and download at www.entitledirect.com/sample_documents.

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