mortgage

New form helps to estimate closing costs

The second page looks sort of like an IRS form and allows the lender to summarize various categories of fees and taxes: origination fees charged by the lender, fees for services (such as appraisal) where the lender selects the provider, title insurance and title services, third-party services that you can shop for (such as pest inspection and flood certification), government taxes and fees, and property taxes and homeowner insurance. Each fee category has its own box: Box 1 to Box 11.

The lender's estimate of its own fees has to be right on the nose. With other fee categories, the lender can be off by up to 10 percent in each category. For example, one category (Box 4) is "title services and lender's title insurance." If the lender estimates these services at $2,000, the final cost can't exceed that amount by more than 10 percent, meaning that those services can't cost more than $2,200.

The third page of the GFE has a "tradeoff table," which encourages the lender to quote three scenarios: the loan described on the first two pages of the GFE, a loan with lower closing costs (but a higher interest rate) and a loan with higher closing costs (but a lower interest rate).

Below that is the "shopping chart," which encourages you to "compare GFEs from different loan originators."

"The new GFE unquestionably encourages consumers to shop for closing services," says Tim Dwyer, founder of EntitleDirect.com (a provider of title services) and CEO of Entitle Direct Group. He expects his company to benefit because "when people shop for title insurance, they will find us."

Alan Doran, EntitleDirect.com's vice president of closing services, expects consumers to comparison-shop using the figures on the second page of the document. That's the page that summarizes various categories of fees in Boxes 1 through 11.

Before now, lenders had leeway in deciding which fees belonged in which categories. "Now it specifically states that you put these charges in Box 4, put these charges in Box 5, so there truly is a comparison between the different subsets within the group," he says. "That wasn't the case before."

When devising the GFE, regulators wanted to encourage consumers to shop around -- not only among mortgage lenders, but for service providers such as title companies and pest inspectors. But this goal might not quite turn out as regulators intended.

Remember that 10 percent "tolerance" for various categories of fees? The lender has to abide by that 10 percent limit as long as the consumer chooses from the lender's list of approved service providers. If a consumer chooses a provider off the menu, the lender doesn't have to stand by the estimated fee.

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