Monday, June 4, 2012

Gulf Between Good Faith Estimate and Actual Closing Costs Troublesome

A home buyer gets ready for settlement day only to discover right before the “Big Day” that they are going to have to bring a lot more cash to close the deal than they originally thought. The surprise can sometimes threaten to derail a deal. Lenders are required to provide buyers a good faith estimate of closing costs within three days of receiving borrowers’ mortgage applications. But these good faith estimates reportedly are sometimes underestimating—or even greatly over-estimating—the true costs of settlement. The Consumer Financial Protection Bureau is working on revamping the good faith estimates and the HUD-1 settlement sheet, which is given to borrowers prior to closing listing the costs. The revamp is expected to provide more clarity to borrowers on closing costs and also make it easier for borrowers to shop around for their mortgage. Title professionals report that a lot of the times the estimates provided to borrowers on the good faith estimates over-estimate the true cost of the loan. “Lenders' estimates for services rendered by third parties such as appraisers and surveyors are supposed to be within 10 percent of the final figures,” The Chicago Tribune reports. “If the charges listed on the HUD-1 exceed the tolerance, lenders are required to eat the difference.” As such, many title agents report in a recent survey that some lenders “pad” their initial estimates so they ensure they come within that 10 percent limit at closing. “Overquoting” violates the law, says Michelle Korsmo, American Land Title's chief executive. Korsmo says that even if borrowers aren’t charged for items like document preparation and warehouse fees, lenders who provide inaccurate information on good faith estimates make it difficult for home buyers to shop around for the best closing services. Also complicating the picture, title agents report in a survey that often times borrowers are receiving more than just one good faith estimate. Sometimes borrowers are receiving two or even up to seven estimates of their potential closing costs. Source: “Beware of Bad 'Good Faith' Closing Estimates,” The Chicago Tribune (June 1, 2012)

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