You give [my good faith estimate] a bad name.

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In an ever increasing competitive business and with increasingly cautious buyers, the Good Faith Estimate (GFE) has become much more than just an estimate. At the beginning of the loan process, the GFE is what loan-shoppers use (and should be using) to compare different offers from different lenders; and after the closing (and even at the closing table) it becomes the measuring-stick for borrowers to test whether or not they “got the deal” they were told they were getting.

Certainly there exists a small percentage of idiots, crooks and criminals — those who lack any moral-compass whatsoever — in the business who will intentionally quote a customer one thing and deliver another. And, hopefully, through the process of bad-business and self-elimination, they will continue to weed themselves out of the business — only to be forced back into their old jobs as used-car salespeople and vinyl-siding salesmen (sorry car-guys; no apology for the siding-guys). If you have taken my advice in how to do your shopping, I would hope this will not be an issue. If you feel like you have been told one-thing and sold another, you should (until you are satisfied with the answer) take it up with the loan originator first, then with his or her manager, then to the next management level up, and on to the state regulatory division for mortgage companies (in Georgia, it is the Georgia Banking and Finance Department).

For this post, let’s assume that you are working with a decently-well-meaning mortgage professional. Is it possible, or reasonable, to be quoted one thing at the time of loan application (and good faith estimate) and then be delivered something different at the closing table?? Yes, it is. And here is why . . .

On a good faith estimate there are a few categories of fees.

1 — lender/mortgage company fees — these fees include things like the origination fee, processing fee, underwriting fee, tax service fee, etc. These fees should NOT vary when compared to the original good faith estimate, unless the loan amount has changed; origination and discount points are a percentage of the loan amount. (As an aside: please don’t be fooled by the “$0 in lender-fees” or the “only $799 in lender-fees” advertisements; they are a variation of the whole 1% origination vs. 0% origination discussion).

2 — third-party fees — these fees are set-fees charged by other parties related to the processing of the loan. Examples include the credit report fee, the appraisal fee, and the flood certification fee. These are ‘generally-set-fee’ services. Most should be identical to the good faith estimate, but there are a few small exceptions. For example, I quote $250 for an appraisal fee, but in a few outlying counties or in the North Georgia mountains, where data is harder to come-by, the appraisers I use charge a little bit more — like $300. Or, in the case of new construction, if the property is not 100% complete at the time the appraiser goes to the house, the appraiser has to go back out for a final inspection and there is a small fee associated with that work (usually $50 to $100). In the instance of generally-set fees, I have a responsibility to manage those relationships to help my clients get the best service at the best prices.

3 — state related fees — these fees vary from state to state. In Georgia, borrowers pay a tax on the amount of money borrowed, at a price of $3.00 per $1,000 of the loan amount called the Georgia intangible tax, as well as a $6.50 fee paid to the state for every loan.

4 — prepaid expenses — per diem interest, one-year pre-paid insurance and funds to set up the escrow account. These figures are totally estimated on the good faith estimate and will vary based on a number of factors: the calendar day of closing, the actual insurance premium for the policy you choose, and the actual amount of the property taxes. At closing, these costs will be the same regardless of who you have chosen to use for your mortgage financing.

5 — attorney, title and closing related fees — these fees are associated with the title work and closing of your loan (and are the main focus for this post, although I realize it has taken me a while to get here). Certainly, attorney-related fees are also third-party fees, but I put them in their own category for good reason. The attorney controls the prices of many of the costs at closing — the attorney’s fee, the title search fee, the lender’s title insurance premium and the owner’s title insurance premium, recording-type fees and any other ancillary fees associated with the closing — all determined by the closing attorney. So, who determines the closing attorney??

The attorney’s role (or title company in some states) is to represent the lender in the transaction. In the past, the closing attorney for the transaction was usually selected by the lender (or mortgage company). This allowed mortgage professionals to manage those third-party relationships, helping clients (or at least being responsible to helping their clients) get the best service at a competitive price. With the recent epidemic of joint-venture title companies (where a Real Estate company will form a title company in partnership with a closing attorney) more and more transactions are being closed at attorney’s offices chosen by the Realtor. This is not necessarily a bad thing, but it has the potential to be.

The issue becomes a problem when the fees charged by the attorney are drastically different than the fees quoted on the good faith estimate. I make it a point to tell all of my clients that if I am able to choose the closing attorney, then I can absolutely guarantee all of the costs on my good faith estimate; however, if the closing attorney is chosen by anyone else, then the costs could and most-likely will, vary. Thankfully, the firm that I use (when given the choice) has 40+ offices in Georgia and is the largest real estate closing firm in the southeast — I have a great working relationship with them and the fees I quote are the fees they charge my clients.

Bottom-line: Before you agree to use a closing attorney chosen by someone other than your lender, ask your loan officer to check-out how that decision is going to affect your bottom-line at closing. It may seem like a decision that is small, harmless and somewhat meaningless . . . but, at first-look, so do the phrases ‘tax search fee = $10’, ‘courier fee = $50’, ‘binder fee = $75’, ‘document handling fee = $40’, ‘post-closing fee = $50′, ’email fee = $15′ (idiotic, but true). Add those costs to an extra $50 on the attorney fee, an extra $25 on the title search, an extra $50 on the lender’s title insurance and an extra $50 on the owner’s title insurance premium . . . and you just spent an extra $400 at the closing table . . . and with that, there goes your new self-gifted housewarming-present 80 gig video iPod . . . loaded up with your favorite 80’s rock-n-roll.

Hence the tribute . . .

(sing) ” Your post-closing-fees got a hold on me . . . more fees on the HUD, and you’re to blame. You give my good-faith a bad name. I quoted my fees, not knowing your name, you give my good-faith a bad name. Yeah, you give my good-faith a bad name.”

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