The buyer in a real estate transaction has often felt like a puppet on a string at the closing table, when unforeseen charges come up that were no where to be found on the good faith estimate. To protect the consumer from these practices, a new good-faith estimate will be going into use starting the first of the year. It will spell out the charges at the time of application, with some of the fees written in stone, some with small allowable adjustments and some with unlimited adjustments if the buyer goes outside of the process. It is described below:
(Washington Post) Here's what's about to happen: Starting Jan. 1, loan charges and settlement fees will be spelled out on a revised, more consumer-friendly version of the good-faith-estimate form that borrowers are supposed to receive within three days of their mortgage applications.
Charges will fall into three broad categories on the form:
-- Fees that cannot increase from upfront estimates to final closing.
-- Fee estimates that come with wiggle room, and can increase by as much as 10 percent in the aggregate from upfront estimates.
-- Fees that can increase without limit, mainly because the lender has no control over them or because they are difficult to predict weeks in advance.
Charges in the zero-increase category include the lender's or broker's mortgage origination, processing and underwriting charges, where junk fees sometimes sprout out of nowhere -- or increase significantly -- from upfront estimates to closing. Also in this category are the lender's or broker's loan discount charge or "points" based on the interest rate quoted to the borrower, and local transfer taxes.
Charges subject to a 10 percent aggregate increase include services required by the lender but where the lender chooses the providers, such as appraisals; expenses such as lender's title insurance and settlement services where the borrower chooses a firm on a list approved by the lender; owner's title insurance when the borrower chooses a company on the lender's approved list; and recordation charges by local governments.
Though any one of these items can increase more than 10 percent from the upfront estimate to closing, the combined total of all the fees in this category cannot jump by more than 10 percent. This is crucial, especially with title insurance and settlement charges, where some of the biggest surprises pop up at closing.
Charges that can increase without limit include lender-required services when the borrower chooses a title insurance, escrow or other settlement company that is not on the lender's list; the cost of homeowners hazard insurance; daily interest charges on the loan; and the amount of the initial deposit by the borrower into an escrow account.