Insider Tips
Protecting youself with a Good Faith Estimate
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Protecting Yourself with a Good Faith Estimate

Several years ago the US Congress tried to protect consumers from a few unscrupulous lenders by requiring all lenders to calculate and disclose the annual percentage rate (APR) you pay on your mortgage loan. Do yourself a favor. Forget about APR and instead direct your attention to the Good Faith Estimate of Settlement Costs (GFE).
Though Congress meant well, in practice the APR is not helpful and is confusing. If you are considering an adjustable rate mortgage (ARM), the APR can be manipulated to completely mislead consumers, without violating the disclosure laws at all. If you are looking for a good way to shop for the best product, rate and fees between lenders, start by getting a GFE from each of them for the product(s) you are considering. The next thing you need to know is how to read the GFE effectively.
Here is the secret. All lender related charges are in the 800 section of the GFE. What does that mean you ask? Next to every fee and charge listed on the GFE is a number. Those numbers run from 800 to 1400 depending on the type of charge. Lenders fees are in the 800s, title company fees in the 1100s, county or state fees in the 1200s, etc. Some lenders like my self would rather err on the high side when estimating the fees from other third party providers, while some would rather estimate just the minimum charge. So to find out who has the best price, ignore any charge other those in the 800s. All lenders know full well their own charges and they ought to be disclosed. But why not just go straight to rate and points you ask? The answer is that if you do only that much, you may end up paying more by mistake. Sure the 800 section includes origination fees and discount points, and that is a big part of the shopping process. But it also contains what we in the industry call “Junk Fees”. So let’s take a closer look.
In the 800 section you will certainly see a charges estimated for credit report, appraisal, and tax service fee. Those are legitimate charges for those services. Some lenders charge an “application fee” in place of the appraisal and credit report. Just make sure that if they are charging an application fee, that it goes to cover the cost of the credit report and appraisal. Because in almost every circumstance, any fees other than those I just underlined above are none other than junk fees. Here are some typical examples of junk fees. Lenders document preparation, underwriting fee, processing fee, administration fee, application fee, funding fee, and shipping fee are by far and away the most common junk fees. However, the labels given junk fees are only limited by the imagination of the lender drafting the GFE. So be aware and ask questions.
Are junk fees the worst thing in the world? The answer is no. There is hardly any lender you can shop that does not have some amount of junk fees. (In fact, I can only think of one wonderful loan officer who never charges any junk fees whatsoever) My guess is that the average in Colorado for junk is somewhere between $250 and $400. Many brokers get charged when they submit loans to their investors for underwriting and document preparation. They may feel they are perfectly right to pass those charges through to the consumer. However, there is a widespread and growing practice that is using these fees like a shell game. In other words if the consumer is only shopping for rate and points, then those lenders quote those items lower intentionally. However, they make up all the difference (and then some) by making up a whole list of junk fees to replace the missing revenue. So by knowing how to read a GFE, you are miles ahead of your fellow consumers.
If you would like to discuss this or any aspect of home financing, call the expert. Dan Smith can be reached at 303-674-2205. Or visit him at www.coloradohomeloans.com and check out the consumer library of related articles.


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