In the wake of the housing crisis, HUD passed many new regulations over this past year. Most recently, they have revised the Good Faith Estimate (GFE) to include 3 pages of information for potential borrowers even before they step in the door (of the lender). Over the next few weeks, we will be analyzing and explaining the form (it is confusing), but first I want to point out one fact.

The Good Faith Estimate is a disclosure that lists the basic closing costs a borrower will have to pay at the closing. Again, it is supposed to be an estimate made in good faith. This form is prepared by the lender, and needs to be sent out within 3 business days of receiving a loan application package from the borrower. Until January 1, 2010, this form was completed by the mortgage or banker and given to a borrower in anticipation of getting a mortgage and/or finding a home.

HUD has stated that a GFE can no longer be issued without having a property address identified and must be issued directly by the lender (bank). If a loan does not have a GFE, the application cannot be submitted to the lender for pre-approval. Thus without an actual house, a borrower can no longer obtain a pre-approval. This will affect the way realtors do business now, in that their potential buyers can get a pre-qual (worthless document based on simple conversations with lenders) but not pre-approvals (an actual full blown mortgage application submitted to a lender for a mortgage approval before finding a home). Realtors prided themselves on demanding their clients have a preapproval prior to shopping. Even further a seller would be wary to accept a bid on their home without a pre approval. Now, they will both have to settle for a good old fashion (good faith) prequalification.

A pre approval enhanced one’s buying profile and made them a bona fide bidder on a home. Most importantly, it allowed a buyer to do their homework, get their ducks in a row as well as relieve themselves from some of the stress of home buying. Getting a mortgage is one of the most time consuming things to do after finding that home. Now, it is harder, more expensive and terribly arduous for all parties involved. What this did, was put some of the stress back in the pot for the buyer, realtor and seller alike and will only add to the timeframe for closing. Too bad, once again what was thought to be good for the consumer is once again bad!