Changes With The Good Faith Estimate Leave Reverse Mortgage Borrowers Confused And At Risk
As we welcome in the new year we are also looking at many changes with reverse mortgages. The first of which is the New RESPA (Real Estate Settlement and Procedures Act) requirements. These include a new Good Faith Estimate (GFE) and HUD-1 (closing Settlement Statement). (Note, these RESPA changes apply to conventional loans also – so if you are looking are refinancing or purchasing you’ll want to be familiar with them too.) The intent is to make it easier for borrowers to compare fees between service providers, application and final HUD-1 Settlement Statement fees, and disclosure of yield spread premiums or lender paid fees.
With the new regulations a GFE will ONLY be provided with an actual application. It is no longer allowed for the informational or quote package to include a GFE. The borrowers are at risk because they may just want to receive estimates on the fees when they request a GFE, and not knowing the new regulations they will be signing an application and the broker/lender may start processing the loan even before they’ve made a final decision – especially the unethical originators and lenders. Besides the info needed for information purposes such as name, address, birth dates, home value/estimated home value, amount of balance of current loans, information that will trigger the application include the Social Security Number, monthly income and assets and other pertinent personal information. This information should NOT be provided until lender is chosen and ready to proceed with an application.
Included are now three fee categories on the GFE: those that cannot change, those that have a 10% tolerance, and those that can change without restrictions. There are areas of allowance for “Changed circumstances” which will include:
- Fees that may change due to a difference in the appraised value include, i.e. origination fee, FHA Mortgage Insurance Premium, Title Insurance, MN Registration Tax, inspections, surveys, certifications, etc.
- Required services not known prior to the application, such as but not limited to roof, foundation, engineering inspections or certifications, and surveys.
- Recording fees for unknown liens, mortgages, loans, judgements, title changes such as deeds, trusts, death certificates, Power of Attorney, and release fees, etc.
- Required services by providers chosen by borrower rather than the lender, such as title services and fees, title insurance, and notary fees
- Other circumstances particular to the borrower of transaction, including the need for flood insurance or environmental problems
- Acts of God, War, disaster or other emergency
- Changing from one product to another.
- Home Owners Insurance
A new GFE will need to be provided to the borrower within 3 days for these changes to be permitted at closing. It is the broker/lender’s responsibility to disclose and document the disclosure of the new GFE to the borrower(s). If not disclosed properly, the broker/lender will have to pay the difference, it cannot be charged to the borrower(s).
At the time of inquiry and for information purposes only, we, Prestige Mortgage/Reverse Mortgages SIDAC, will, as we have always done, be providing an explanation of closing costs.
While we have always provided accurate GFE’s (usually within only $100 difference between application and actual fees at closing) you can now expect all lenders to be providing the GFE fees to be the same as at closing.
Unfortunately in the process of trying to make sure all fees are disclosed to borrowers the new 3 page GFE (formerly 1-page) is more complicated and will be more confusing for borrowers. We will do our best to help borrowers understand the fees, changes, and forms.
Review a comparison of Minnesota Reverse Mortgage costs to conventional loan fees in the post, “Reverse Mortgage Costs – High or Mythical?”