||Ask Dr. Don
Getting a good faith estimate
Dear Dr. Don,
My mother received a solicitation from her mortgage
company asking her if she would like to refinance her loan. But in
order for her to have the application processed, she must send in
a nonrefundable $400 fee. She was refused a Good Faith Estimate prior
to the payment of this fee. Is this legal? Many thanks for your time.
Lenders have to comply with the Real Estate Settlement Procedures
Act (RESPA) when it comes to providing a Good Faith Estimate (GFE)
of closing costs on a mortgage. The following is excerpted from
the Department of Housing and Urban Development's Web
RESPA REQUIRED DISCLOSURES:
At the time of loan application
When borrowers apply for a mortgage loan, mortgage brokers and/or
lenders must give the borrowers:
- A Special Information Booklet, which contains consumer
information regarding various real estate settlement services.
(Required for purchase transactions only).
- A Good Faith Estimate (GFE) of settlement costs,
which lists the charges the buyer is likely to pay at settlement.
This is only an estimate and the actual charges may differ. If
a lender requires the borrower to use a particular settlement
provider, then the lender must disclose this requirement on the
- A Mortgage Servicing Disclosure Statement, which
discloses to the borrower whether the lender intends to service
the loan or transfer it to another lender. It also provides information
about complaint resolution.
If the borrowers don't get
these documents at the time of application, the lender
must mail them within three business days of receiving the loan
If the lender turns down
the loan within three days, however, then RESPA does not
require the lender to provide these documents.
The RESPA statute does not provide an explicit penalty
for the failure to provide the Special Information Booklet, Good
Faith Estimate or Mortgage Servicing Disclosure Statement. However, bank
regulators may choose to impose penalties on lenders who fail
to comply with federal law. Please read the section on RESPA enforcement
for more information.
What's key here is whether your mother is applying
for a loan. It's reasonable for the lender to require a nonrefundable
loan application fee at the time your mother applies for the mortgage
loan. Applying for the loan would start the clock ticking on the
lender's obligation to provide your mother with a Good Faith Estimate
for settlement costs.
On the other hand, the lender should be able to give
your mother a ballpark figure for closing costs on the loan without
your mother applying for a loan. Neither the ballpark estimate nor
the Good Faith Estimate are binding on the lender although HUD is
working on changes to RESPA that will make the GFE more reliable
and restrict lenders' ability to low-ball the closing costs on a
loan. Ask the lender to provide her with a ballpark estimate of
closing costs. If they won't, then shop
their competition using Bankrate.
-- Posted: Sept. 23, 2003