Our Federal Government through HUD and other departments will continually create upgraded forms like the GFE for consumers to better understand, we feel it’s just overwhelming, but a need for our elected officials to inform the public. Our GFE is designed to give you your down payment quote within seconds, with disclosure at the end, the bottom line, you want to know what you’re paying, take our estimate and shop us, but we’ll be here waiting in the end. Mortgages are very difficult transactions, and the industry charges heavily for this service. Our fees and rates will be hard to beat. Below is a brief history to our GFE, its birth to its dissolution.

The Good Faith Estimate (GFE) was designed to encourage consumers and borrowers to shop and then compare fees from various lenders before choosing a mortgage provider. Its original purpose was to help consumers and borrowers understand what services they could shop for, so they not only receive the lowest interest rate and best terms but most importantly, save significantly on their closing costs. The GFE may be the best negotiating tool you may have on your side when it comes to finding the best possible lender pertaining to the cost of your home mortgage.

In 1974, Congress passed the Real Estate Settlement Procedures Act (RESPA) with the intent of protecting consumers by requiring the disclosure of all costs associated with real estate purchases or loan transactions. The GFE helped borrowers avoid overpaying for a loan and set an interest rate. It was also designed to provide more transparency in real estate transactions. This was critical because too many homebuyers were being preyed upon by unscrupulous realtors and others involved in the sale of real estate. It was the most important but confusing mortgage document that a purchaser or a homeowner that is purchasing or refinancing their home had to review and sign.

The goal of the Good Faith Estimate was to help borrowers compare the fees across several mortgage lenders with ease. As the borrower, you’d know what you were getting yourself into before signing off on the mortgage.  However, the government discovered that the Good Faith Estimate was not as helpful for the borrower as it seemed. With too much lender-chosen jargon involved in a Good Faith Estimate, the information was sometimes confusing to the borrowers. With that, it was difficult to pull out the details that would allow the borrower to compare loans easily.

The GFE was a critical part of the Loan Application, it indicated the closing costs associated when applying for a home mortgage to purchase or refinance in today’s Real Estate market. This includes a breakdown of the anticipated loan terms with an itemized list of all the various closing costs that are involved when applying for a home mortgage. Most importantly, how much money it will cost you to refinance or close your Real Estate transaction. All fees in connection with the home mortgage must be indicated by the Lender on the GFE.

On November 17th, 2008, HUD (House Urban Development), announced that lenders and mortgage brokers will be required to provide consumers with a Standard three-page Good Faith Estimate that key terms and closing costs must be disclosed.  HUD required a new standardized GFE and HUD-1 Settlement Statement Beginning January 1st, 2010.  HUD required all lenders and Brokers to provide all borrowers with an easy-to-read standard GFE and HUD-1 that would clearly answer the key questions a borrower may have when applying for a mortgage.

Questions Included:

What’s the Terms of the loan?

Is the interest rate fixed or can it change?

Is there a Pre-Payment Penalty? 

Is there a Balloon Payment?

What is the total Closing Cost?

HUD estimates that by improving upfront disclosure on GFEs, and limiting the amount estimated charges can change; consumers will save nearly $700.00 dollars in total closing costs. HUD’s new required GFE has been reduced from four pages and three pages; including an Instructional Page to help borrowers help better understand their loan representatives. In addition, the GFE will consolidate closing costs into major categories to prevent junk fees and display total estimated settlement charges prominently on the first page so the consumer can easily compare all Good Faith Estimates.

Mortgages are difficult transactions that may include multiple finance features. So on August 1st of 2015,  Congress through the Consumer Financial Protection Bureau (CFPB) has created new forms that will replace the current standardized Good Faith Estimate, the Truth and Lending Statement (TILA), and the HUD-I for most transactions. The new combined disclosures are called the “Loan Estimate” and the “Closing Disclosure”, eliminating the GFE.  Lenders will be required to give consumers these forms for mortgage applications submitted on or after August 1, 2015.

LOAN ESTIMATE: This form must be delivered no later than the third business day after receiving the consumer’s application.  The Loan Estimate form replaces the Good Faith Estimate and the “early” TIL disclosure. The Loan Estimate form also incorporates new disclosures required under the Dodd-Frank Act. Creditors are responsible for ensuring that the figures in the Loan Estimate are made in good faith and consistent with the best information available at the time they are disclosed.

CLOSING DISCLOSURE: This form must be received by the consumer at least three business days prior to the consummation of the loan. The Closing Disclosure form replaces the HUD-1 and the Truth-in-Lending disclosure. The Closing Disclosure generally must contain the actual terms and costs of the transaction. The Closing Disclosure form contains additional new disclosures required by the Dodd-Frank Act and a detailed accounting of the settlement transaction.