So here we are, in a Brave New World, 2010. As the mortgage industry continues to come under scrutiny, we are working with mountains of new guidelines and procedures designed to create better transparency and protection in the market. I agree we need it but it’s often like the drug commercials we see, where the side affects sound worse than the initial problem, but let’s move on.
There is a new Good Faith Estimate in place designed to improve clarity and accuracy in loan proposals. I will give you some basics on it and then talk about its real affects in the marketplace. The GFE has 11 boxes designed to simplify the proposal. Certain fees must be guaranteed while others have tolerance change levels ( 10% ). Other boxes have no tolerance levels , meaning no matter what it says on the GFE it can change to any number. These are usually pre-paid items and not loan costs. Anytime we can have better transparency in the process, I applaud the action. However, we are still working with commodities and not goods! No matter how much you try to simplify the mortgage, it will always be tied to the market.
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Now, there are some changes to the GFE that make no sense at all. The number 1 worse change, is that it no longer gets signed! All the effort and time to streamline a document and now the customer doesn’t even sign it. They sign another form that states that they have seen the GFE and got a copy. If anyone can make sense of this let me know. Also, we no longer itemize the fees, rather we lump categories of fees together in order to focus more on the totals rather than the individual costs. Missing is the old details of transaction, which would show the total breakdown of the loan proceeds with a clearer picture of the entire transaction. Two steps ahead, 3 steps back.
In end it’s just paperwork and people don’t read anyway. Those who read before are still reading and understanding what they are dealing with. The fact of the matter is not all people are strong with math. After you have reviewed 50 documents the picture gets fuzzier. It makes me think about the dozens of prospectives I get each year pertaining to my retirement account. I have tried to read them before and it goes right over my head. The same goes for mortgage paperwork to many people. Do you know the difference between a pre-paid item and closing cost? Do you understand the ins and outs of a rate lock agreement? The mortgage process can be a complicated equation and the lay person needs to be able to rely on the knowledge of a true professional. The real answer is that paperwork changes nothing! I am a big believer in Adam Smith’s hands off approach and I believe the marketplace will always cleanse itself. Someone will always get ripped off and some people won’t. If you ask around, check better business bureaus and ask for referrals of your friends and family, you will probably be able to find a reputable person in any vocation.
So let’s ask the question, do all these new laws and regulations really help or does it just keep other people working? There is nothing better as a bureaucrat than to create work and increase your budget in the name of protecting the people. If you have ever seen a magic show, you know the power of mis-direction.