With the dramatic change in the mortgage application and closing process that was implemented by the government on January 1, we have seen some early results and it’s amazing how dramatic a change we have on our hands. Both lenders and clients are confused as to the new rules and how they impact the mortgage selection and closing process. We are still early and have not sent the new loans to closing, but we have originated a few and the early results are interesting to say the least.
Critically, there is a big change in when, how and under what circumstances a good faith estimate is issued to the consumer. Amazingly, it was originally thought that the New Good Faith Estimate of 2010 (2010 GFE) would result in confusion for a few weeks but resolve once everyone knew the new rules. It turns out that the expectations of a shopping tool that were set by the government and the willingness of lenders to commit to pending transactions are conflicting.
However this conflict comes from the same place. There six items that must be present for a quote to exist. A 2010 GFE should not be issued without them. The other side of that is that the 2010 GFE must be issued once all six of these are in place (though lenders can add an additional requirement to all applications they take). Having the info on these six items allows lenders to have enough information about the transaction to give an accurate quote. The data points are easy to remember if you keep in mind the acronym PENCIL. Here is what each letter in the acronym stands for:
P: is for Property Address.
E: is for Estimated Value (by the consumer not an appraiser)
N: is for Name of the Borrower
C: is for Credit which means giving your Social Security Number and other info.
I: is for Income which will allow us to calculate potential payments
L: is for Loan Amount
Once all of this information is handy, a 2010 Good Faith Estimate can be issued. Until all of this information is available any discussion that a borrower has with a lender about rates, terms, payments and other details is just that, discussion. Nothing can be set until you have your PENCIL ready.
More information on the mechanics of the new 2010 GFE will follow in later posts to this blog. Check back frequently for information.
