Mortgage Market Share Report February 2011

?To simplify complications is the first essential of success? ~ George Earle Buckle

The Good Faith Estimate (GFE) mandated fourteen months ago is in my opinion creating more and not less uncertainty for consumers. The GFE just doesn?t tell them what they want to know. The form tells them what the lender is going to charge. The form tells them what the seller might pay for title insurance. The form tells them what other settlement service providers might charge. The rule that created the form results in some lenders grossly over estimating settlement costs. That avoids cutting the dreaded out of tolerance check at closing but seriously, how does that help the consumer?

The consumer wants to know ?What will my total payment be?? The GFE gives them some of the parts of the payment, but not everything, like the tax escrow amount. The consumer wants to know ?How much money will I have to bring to the closing?? There?s nothing remotely close to that answer on the form. The GFE does tell them their interest rate, which they want to know for comparison purposes. But by itself that information doesn?t help them complete their transaction.

One of the mandates of the new federal Bureau of Consumer Finance Protection (CFP) is to combine the Good Faith Estimate disclosure form with the even less useful Truth in Lending Disclosure. What might such a single form look like?

The American Land Title Association, the title industry?s national trade group, (ALTA) suggested a form of disclosure which it is currently discussing with the CFP. I think it?s a pretty good form and I?ve attached a sample at the end of this month?s report.

The current TIL and GFE forms total six pages. The ALTA?s form gets all the same information plus some more into three easy to understand pages. The three important questions?payment, rate, and cash to close?are all right there on the first page. Any seller?s contributions to the buyer?s costs, another omission in the current GFE, are clearly stated. The itemization of charges on page two looks remarkably similar to the actual HUD-1 closing statement. That will further minimize confusion. And instead of providing a shopping list format that few consumers use or pay attention to, it contains enough instruction to direct the engaged borrower to effectively comparison shop.

I think that the ALTA has done a great job. Hopefully their recommendations will be carefully considered by the CFP.