What's missing from the new GFE? Transparency for the borrower is the puzzle piece that is missing. Even though Washington's intent was to make the mortgage transaction more transparent, they have missed the mark again.
The new GFE does help borrowers compare one lender to another - IF they are requesting the same lending product from both lenders. Something that most borrowers wouldn't know to ask for.
The new GFE may save the borrower a few bucks on junk fees and unnecessary lending charges, but what it doesn't do is prevent loan officers from hiking up the interest rate to increase the Yield Spread Premium. It also does nothing to prevent the loan officer from putting a borrower into a loan product that may not be in the best interest of the borrower. This is not a big deal now since most of the loans are conforming or FHA fixed, 30 year loans. But it will be a big deal when portfolio loans and low to moderate income loans come back into the marketplace sometime in the future.
I just recently talked with a loan officer that received training from a national mortgage company. In the training on the new GFE they were counseled to charge the maximum they could in case things change in the process of underwriting and closing the loan. That way if things did change they would still make money and if things didn't change they would make "a bonus". This is a significant challenge to both the loan officer and the borrower. First of all loan officers need to make money to stay in business so you can understand the rational. On the other hand because a GFE can't be changed once its issued it becomes etched in stone that may not be a good deal for the borrower. Sounds like both parties would lose in this scenerio.
In the past, borrower abuse was in undisclosed Yield Spread Premium (YSP) in higher interest rates charged to the borrowers not in the extra $700 in junk fees that may have been charged which some would pose as the major problem. To me the extra $700 in fees was the least of the problems.
Even now, WITH the new GFE, the YSP, underwriting charge, administrative fee, processing fee and about five other fees are all lumped together on page two under "origination cost". The new rules prohibit the itemization of these origination costs underscoring the fact that it's the only line where the broker can list hidden fees! With tongue in cheek--TRANSPARENCY at its finest. So in that regard, the new GFE has changed nothing. The borrower sees an offsetting credit to their origination fees, but can't determine what the credit is offsetting. The YSP is a wash, and the rest is just a lump sum.
Looking at the new GFE with simplistic eyes is putting your head in the sand and saying everything will be alright. The new GFE falls short of accomplishing what Washington was hollering for, "BORROWER TRANSPARENCY".