On January 1, 2010, mortgage lenders and brokers will be required to provide borrowers with a new easy-to-read standard Good Faith Estimate (GFE) that will clearly answer the key questions borrowers have when applying for a mortgage, including: What’s the term of the loan? Is the interest rate fixed or can it change? Is there a pre-payment penalty if the borrower decides to refinance at a later date? Is there a balloon payment? What are the total closing costs? HUD estimates that by improving upfront disclosures on the GFE, and limiting the amount estimated charges can change, consumers will save hundreds of dollars in closing costs.

HUD withdrew a proposed requirement that closing agents read and provide a closing script. Instead, there will be a new page on the HUD-1 Settlement Statement that allows consumers to easily compare their final closing costs and loan terms with those listed on the GFE. To help borrowers compare their Good Faith Estimate with their HUD-1 Settlement Statement, each designated line on the final HUD-1 will now include a reference to the relevant line from the GFE.

HUD’s new GFE was reduced from four pages to three pages, including an instructional page to help borrowers better understand their loan offer. 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 loan offers. HUD will specify the closing costs that can and cannot change at settlement. If a fee changes, HUD will limit the amount it can change.

HUD will require Yield Spread Premiums to be disclosed in a more meaningful way. Loan originators will be required to provide borrowers their Good Faith Estimate within three days after the loan originator’s receipt of all necessary information.

See the new Good Faith Estimate Form

See the new HUD-1 Settlement Statement Form

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