An article in the Sunday paper of the Contra Costa Times, written by Kenneth Harney (Nation’s Housing), writes about a loophole in the new lending regulations, allowing them to not give a good faith estimate upon a new loan application. http://www.contracostatimes.com/search/ci_14193760?IADID=Search-www.contracostatimes.com-www.contracostatimes.com
He suggests that loan brokers are taking advantage of this “mistake” in the new regulations, to not disclose fees. However, it appears that this is another example of the unintended consequence of new laws, once again turning out to be counter-productive.
This new law has put mortgage brokers in an impossible situation, where they must disclose not only their own fees, but also all the fees of all the parties in the transaction. The mortgage broker must guarantee all fees, or the excess amount will be deducted from the broker’s earnings.
Fortunately for loan brokers, the definition of “application” has changed for purchase loans, so it’s not a loan application, until the property has been identified. This is fortunate for them, because how could a broker possibly know what the fees are before purchase contract is in effect?
- The purchase price is not established.
- The escrow company is not known.
- The closing date is not known.
- How can lenders know what rates and corresponding fees will be months from now?
- A loan broker cannot safely lock a loan in this market, before a buyer gets in contract on a home. This can often take months, especially when it’s a short sale.
At this time, there is a lot of confusion about what type of disclosure should be given when a buyer gets pre-qualified for a home purchase. Many brokers are giving the loan applicant an estimate of fees, calling them loan worksheets or loan scenario forms, which look almost identical to the previous “Good Faith Estimates” (GFE). The columnist mentioned above should understand that most loan brokers are trying to follow the changes in regulations, and it’s actually impossible to give a new GFE to loan applicants just getting started in the home shopping process. Also, because brokers are afraid that disclosed fees could actually be higher, they are now padding their fees to protect themselves. They may tell their borrows that they are doing this and now loan shopping just got harder. Once again, as the regulators try to force borrowers to shop around, they actually muddy the waters, and make shopping for a home loan more difficult.
