BluefoxToday blog : Buyers Beware, RESPA Cannot Protect You

Buyers Beware, RESPA Cannot Protect You

This post is inspired by Tim Bradford's blog on the new revised GFE that appears in January.

The revised GFE is another failed attempt to protect consumers,  The problem is, consumers cannot be protected with forms because those who wish to deceive will always find a way.  Consumer education is the only real consumer protection.

The new GFE requires lenders to guarantee their fees but it allows lenders to estimate fees for Title, Settlement, Prepaid Interest and Impounds.  Once again, it appears the rules are made by people with absolutely no understanding of real world lending.

Based on my experience, consumers are less interested in the individual fees than the grand total.   So, guess which fees will continue to be understated.

So, how can consumers be protected?  The answer is only with a little education.

Rule #1 All rate shopping should be on the same day and within a couple of hours

Rule #2 is really simple but, for some reason most people don't get it.

    ANY RATE QUOTE IS WORTHLESS WITHOUT ALL 3 OF ITS PARTS:

    The parts are:

  1. RATE... for equal comparison request a 30 day lock price.  
  2. POINTS...
  3. FEES!!!

    It bares repeating, RATE... POINTS... FEES.

Lets put it to music:
    1, 2, 3  umm papa Rateta da...Points tra la,  Fees tra la
    Like love and marriage, you can't have one without the otherrrrr.

    Ok, So I am not a song writer but it makes the point

Providing credit where credit is due; the revised GFE points out that total lender charges are a function of the interest rate.  The relationship of points fees and rate is an important piece of information.

Note: Forget about APR because it is the most gamed number in lending and with Rate, Points and Fees it is not needed to compare rates from various lenders.  APR is only as dependable as the lender.

Rule #3

Unless a closing date is known... PREPAID INTEREST MUST ALWAYS BE ESTIMATED AT LEAST 15 DAYS!!

Rule #4 requires a little help from Buyer's Agents.

  1. Impound amounts vary by the month and locale so every real estate agent should provide their buyers with a local impound schedule.
  2. Title and settlement costs vary by locale and every real estate agent should have average fees for title and settlement to provide their buyers.
  3. Agents should make their buyers aware of any special state or local fees or taxes.

Note: Most title companies have schedules for impounds, title and settlement fees.

Comment balloon 29 commentsBill Ladewig • December 18 2009 02:07AM

Comments

Poignant article, Bill. The problem here is that we are not scrutinizing the government's business as close as they look at and meddle in ours. A lot more of that and maybe some of this could be cleaned up for awhile.

Posted by Guy Thomas (WR Starkey Mortgage) almost 9 years ago

Guy, you absolutly nailed it.  We should be watching the government as closely as they watch us.  But we should not make their mistake and fail to understand how their game is played.

Posted by Bill Ladewig, Experience Is Your Advantage (LoanOfficerSchool.com) almost 9 years ago

AND, AND, AND, TERM.

This is why I shop rates for my buyers.  I know what to ask.  Consumers do not.

What I want to know is what is, for this scenario, what would the rate, points, lender fees be for a 15, 30, 60, 90 day lock.

I've known many buyers who selected the wrong lender because their rate was better for a 15 day lock compared to a 45 day lock.  Mmmmm.

Posted by Lenn Harley, Real Estate Broker - Virginia & Maryland (Lenn Harley, Homefinders.com, MD & VA Homes and Real Estate) almost 9 years ago

Lenn, good call.  Lock term will be immediately added to the blog

Posted by Bill Ladewig, Experience Is Your Advantage (LoanOfficerSchool.com) almost 9 years ago

Bill, Thanks for the mention in your post.   Hopefully, buyers read the post and we can assist in educating them.   Hopefully a win for them and lenders that want well informed borrowers.   

Posted by Tim Bradford, NMLS 250013 almost 9 years ago

Tim, thanks for the idea.  Education is the consumer's best friend and an educated consumer is best for everyone.

Posted by Bill Ladewig, Experience Is Your Advantage (LoanOfficerSchool.com) almost 9 years ago

Bill - Are you sure that lenders are required to guarantee their fee within a 10% margin? As far as I know, it should be something that MUST BE the same, not within a 10% margin. The 10% margin only stands true for title companies the lender do business with (on their preferred vendor's list).

As people in the industry, at least I know I educate my buyers about RATE SHOPPING and FEE SHOPPING. I also educate them about locks - which typically are not a part of the client's radar list because most of the people dont know to watch for that.

That's also the reason why we select local people to do business with. Not out of state, out of town lenders and realtors. However, I agree with you. Buyer's education is important.

Posted by Loreena and Michael Yeo, Real Estate Agents (3:16 team REALTY ~ Locally-owned Frisco TX Real Estate Co.) almost 9 years ago

Loreena, thanks, you are correct about the 10% margin and the blog has been corrected.

You are one of the exceptions because most agents do not educate their buyers on how to shop for rates.  If every agent provided their buyers with a simple check list on how to rate shop there would be a lot more happy buyers.

I know that one of the most upsetting parts of a real estate transaction is the "Closing Cost Surprise" where borrower costs have been grossly understated and I do not see where the new GFE eliminates that problem.

Posted by Bill Ladewig, Experience Is Your Advantage (LoanOfficerSchool.com) almost 9 years ago

Bill - I have been thru the RESPA training and guess what as a correspondent lender you don't have to show the SRP!!!!!  Wow, that means that RESPA is failing as they want to show the YSP!!!! So, here we go again, a bunch of worthless paper and more confusion to the borrower!!!  It is all just a big waste of time and energy!!

Posted by Christine Hynes, Orange County Senior Loan Consultant (American Capital Corporation) almost 9 years ago

Chirstine, you are correct; brokers must disclose YSP while banks and correspondent lenders are exempt when YSP used by all lenders. 

That rule was the first shot at brokers the second shot is the new rule that may go into affect in January which does not allow brokers to be paid YSP while allowing YSP to be paid to correspondent lenders and banks.

Posted by Bill Ladewig, Experience Is Your Advantage (LoanOfficerSchool.com) almost 9 years ago

Bill, this is a great blog that I will re-blog.  As a Real Estate Broker I just went through a very brief seminar on this today.  What kills me is that if a lender gives a GFE and does not include costs such as survey or advanced title insurance they could concievably "beat" out another lender because everything is lumped into the settlement fee.  More knee jerk reactions from Congress.

Posted by Damon Gettier, Broker/Owner ABRM, GRI, CDPE (Damon Gettier & Associates, REALTORS- Roanoke Va Short Sale Expert) almost 9 years ago

Bill- I re-blogged this because it is the best explanation of how hideous this new GFE is. 

Please accept my compliments from "one mortgage professional to another".

 

Posted by Melissa Anderson (Mortgage of Texas & Financial) almost 9 years ago

Damon, thank you for the reblog.  You point out the absolute need for informed consumers and why we cannot depend on others to police our industry.

Melissa, thank you for the reblog and your nice "professional" compliment. 

Posted by Bill Ladewig, Experience Is Your Advantage (LoanOfficerSchool.com) almost 9 years ago

Bill

Great job! :)

 I keep pondering just how many "industry professionals" were in on the drafting of this piece of genious work.  :)

Regarding the term issue....I do believe that the new format on Jan 1., will require the lender to state how long they will guarantee the rate quote on the GFE. It could be one day, 10 days or whatever the loan officer inputs.  Oh boy.....

Trina

Posted by Trina Nevrla (WR Starkey Mortgage) almost 9 years ago

I'm not worried about the new GFE, I think the old one was easier for the consumer to understand.

Posted by Melissa Anderson (Mortgage of Texas & Financial) almost 9 years ago

Thank you, Bill.  I am taking this to heart for my future buyers.  This is excellent information.  May I have permission to post this in my website - credit to you, of course?

Posted by Jane Peters, Connecting you to the L.A. real estate market (Home Jane Realty) almost 9 years ago

It is so true that we cannot protect with pieces of paper.  Especially when it is a smoke screen to protect those who caused the problems.

Posted by Tim Lorenz, 949 874-2247 (TIM LORENZ - Elite Home Sales Team) almost 9 years ago

Trina, I am sure that it was drafted by industry professionals.  "Industry Professional" is a relative term and it could mean several janitors who work for B of A, Wells Fargo, Chase and Citibank. :o)

Melissa, I agree and neither protected the consumer as intended.

Jane, I would be pleased if this post is included on your website.  Thank you.

Tim, exactly!

Posted by Bill Ladewig, Experience Is Your Advantage (LoanOfficerSchool.com) almost 9 years ago

Hi Bill,

Excellent post you are right the only way buyers are going to be protected is by getting educated. Buyer education is the only way to be protected, 2010 wil be a very interesting year!

Posted by Dorie Dillard CRS GRI ABR, Serving Buyers & Sellers in NW Austin Real Estate (Coldwell Banker United Realtors® ~ 512.346.1799) almost 9 years ago

Bill, thank you for spelling out this critical information in a straightforward manner. The government and banks have a long was to go to clean up their acts, in the meantime we need to help our customers with solid information like this. You really got a great conversation going on this as well.

Posted by Frank Kliewer almost 9 years ago

Thanks for sharing this information with us with RESPA. It does not protect in private money deals.

Posted by Harry F. D'Elia, Investor , Mentor, GRI, Radio, CIPS, REOs, ABR (Real Estate and Beyond, LLC) almost 9 years ago

Dorie, thanks for your comment, 2010 will be a very interesting year.

Frank, thank you.  All it takes is a couple of minutes of an agent's time to provide consumers with lender education.

Harry, most lenders are honest and RESPA compliant which is a good thing for consumers but RESPA rules do not slow down the bad lenders.  The problem is, bad guys can screw consumers without violating any RESPA rules. 

Posted by Bill Ladewig, Experience Is Your Advantage (LoanOfficerSchool.com) almost 9 years ago

Great information, Bill. But now I cannot get that love and marriage tune out of my head.

Cheers,

Robin

Posted by Robin Rogers, CRS, TRC, MRP - Real Estate Investment Adviser (Robin Rogers, Silverbridge Realty, San Antonio, Texas) almost 9 years ago

Robin, GREAT!!! it worked :0)

Merry Christmas to you and yours

Posted by Bill Ladewig, Experience Is Your Advantage (LoanOfficerSchool.com) almost 9 years ago

Bill,

You have really laid it out here for buyers and buyers agents..

I love this post because it speaks so strongly to the buyers being aware and comparing lenders, programs, and mortgages on better comparison criteria. 

 

Posted by 1 ~Judi & Don Barrett & Chassy Eastep - Integrity, BS Ed, Integrity Real Estate Services -IDABEL OK (Integrity Real Estate Services 118 SE AVE N, Idabel, OK 74745) almost 9 years ago

Bill - Very succinctly said.  Thanks for making it easier for buyers to understand what's really going on.

Posted by Jill Schmidt almost 9 years ago

Judi, thank you for your nice comment and THANK YOU for the reblog.

Jill, succinctly thanks :o)

Posted by Bill Ladewig, Experience Is Your Advantage (LoanOfficerSchool.com) almost 9 years ago

Hi Bill,

I say that we the citizens and also loan officers revolt!!!!  What is happening in our industry is downright ridiculous.  I've thrown up my hands and just decided I've had enough.   I'm one of the good guys who charged one point on a loan and never put people into the neg ams and always looked out for my client and now its to the point where I have no control over the loan process.  Thanks government for making it that much harder to get a loan done.  Just what we need in these desperate times!  Good work to you and I wish you the best.   One less competitor in the business!  I for one refuse to waste my time over processes which I can not control.

Posted by xman over 8 years ago

Thank you for this post.  I have just written my own on the new RESPA rules and even went ahead and created a group, just for RESPA posts, like this one.

Would you please consider joining this new group and adding this post to the group.

Thank you in advance,

John

Posted by John Occhi, SRES,CPRES.ePRO - Temecula-Murrieta CA Real Estate (Mason Real Estate) over 8 years ago

Participate