This post was written by a guest blogger Mark Anderson who is a loan office with Pulaski Bank. He specializes in helping first time home buyers through what can often be a very confusing process. He considers himself more of a consultant than a salesperson. He takes client education seriously and his level of customer service is unmatched. If you have any questions about this post or home financing in general please check out his business website.

Effective January 1, 2010, Congress instituted new rules regarding the Good Faith Estimate. Geared toward shutting down predatory lending practices, the rules make it nearly impossible for a mortgage company to quote one set of fees at application and deliver something different at closing.

While the aim is good, the law of unintended consequences has already come into play. Shopping for the best mortgage will now be more difficult and more complicated.

I have often complained about the old Good Faith Estimate and I agree that a change was important. The form had to meet some basic standards, but overall, comparing apples to apples was not easy if you didn’t know what to look for. The old Good Faith Estimate itemized all of the fees associated with a loan closing, including third party charges ultimately not determined by the lender. Lenders could make their bottom line appear artificially attractive by estimating third party fees low. Also, lenders used a variety of confusing, sometimes downright deceptive terms to hide the true cost of their own services. For example, while ‘Tax Service Fee’ sounds like a government imposed charge, it could be $50, $500 or really any number the lender felt like imposing. Maybe some of the fee actually was paid to request tax return transcripts, but I routinely saw my competitors charging outlandish amounts which clearly were not legitimate third party costs.

For this reason, I encouraged my clients to isolate the lender fees and compare those against other quotes, without regard to the varying estimates for third party charges. If the loan officer refused to itemize the actual lender fees, I advised people to walk away.

The new Good Faith Estimate is great in that the true lender cost is reflected very clearly and separated from third party fees. It is now referred to as the ‘cost of origination’. While I am happy with this change, there is a fundamental flaw to the new GFE: lenders are not going to issue them until you select them as your lender. This is because the lender now has a legal responsibility to be so precise that it is simply impractical to issue the form before you file a full application and have a property officially under contract.

The good news here is that once you have selected a lender, made your application and gone under contract, you will receive a Good Faith Estimate that will be amazingly close to the final number at closing. However, since it is impractical for the lender to issue a GFE ahead of time, how can you really shop for the best deal before making a commitment?

Unfortunately lenders will now provide informal quotes that don’t have to meet any government standards. At least the old Good Faith Estimate looked fairly similar from lender to lender. Now, borrowers are going to be faced with such a variety of quote sheets that it will be that much more difficult to compare them.

Despite the problems the new GFE causes with initial disclosure from your lender, you can still exercise control over the quote process in much the same way I recommended before January 1. While the quotes will look different and while they might not be a very good reflection on the actual costs, you can still demand that your lender tell you what they charge.

My main concern with this whole new process is that there was at least some regulation of the old Good Faith Estimate. Now, as a consumer, you will simply have to exert your knowledge as power and show your lender you are aware of the recent changes. Let them know you are also aware that you will always have the ability to move to another lender if their non-regulated initial quote looks much more attractive than the formal GFE.

Good news for homebuyers who weren’t able to make the November 30th cutoff date! Copied below is a note I received from a local lender. His contact info is included if you have any further financing questions

RISMEDIA, November 6, 2009—After the Senate gave final approval last night without a dissenting vote, the House of Representatives voted overwhelmingly this afternoon to pass legislation containing an extension and expansion of the homebuyer tax credit, completing Congressional action and sending the tax credit to President Obama for his signature, possibly as early as tomorrow.

The $8,000 homebuyer tax credit for first-time buyers, due to expire in 25 days, will be extended through April 30 of next year and buyers will have an additional two months, until the end of June, to close. First-time buyers who are in the process of making a purchase will no longer need to worry about qualifying for the $8,000 credit if they close after the November 30 deadline. The new legislation increases the income limit for couples with income up to $225,000, a nearly $55,000 increase above the level in existing law.

For the first time, the new legislation makes buyers who already own a home eligible for a credit. A $6,500 maximum credit will be available to existing homeowners who have lived in their current residence for five of the prior eight years. The legislation limits eligibility for the existing homeowner credit to homes worth $800,000 or less.

The legislation takes effect December 1 and is not retroactive. Both credits are available only for primary residences, not second homes or investment properties.

Glenn Hayhurst, President
Strategic Lending, Inc.
work: 314-569-4009
toll free: 866-577-0866
fax: 314-569-3409
www.strategiclendinginc.com