January 21, 2010||Mortgages/Economy/Market

Keeping an Eye on Lending Practices


Hidden fees, bait-and-switch tactics, misrepresentation, non-disclosure.  These unethical lending tactics (as well as discrimination, predatory lending practices and, of course, old-fashioned, straight-up fraud) are pitfalls that may derail a well-intentioned buyer’s effort to successfully obtain a loan for a new home.

To protect buyers from these types of practices, laws exist that require lenders to provide very specific information to loan applicants early in the application process.  You may have noticed recent headlines announcing changes to some of these rules, so we want to take a closer look at what you should expect–and what you should watch out for–if you are starting the process of shopping for a loan.

First, the Background

  • What is RESPA? The Real Estate Settlement Procedures Act was passed in 1974.  The purpose of RESPA is to help consumers make the best possible decisions about the loans they choose and to eliminate some of the unethical practices that raise the cost of obtaining a loan.  This is the law that requires lenders to give you certain documents at the time you apply for a loan.
  • What is a GFE? The Good Faith Estimate is one of the required documents that you, as a buyer, receive at the time you submit a loan application.  This document lists the charges the you pay at settlement (at the closing table), including the costs the lender charges you to complete your loan process.  The GFE has undergone a revision recently that is intended to provide buyers with a clearer understanding of the charges associated with their loan and the fees for which they will be responsible at closing.

What to Expect from Your Good Faith Estimate

When you apply for a new loan, you will receive a GFE either immediately from your loan officer or within three days from the lender.  (Keep in mind that getting a general pre-approval is not the same as officially making application for a loan.  Be sure to discuss the process with your Mortgage Loan Originator.)

The new rules require that any lender fees be the same at closing as they are on the GFE you receive upon completing your application.  Costs associated with title insurance and closing fees can increase by no more than 10%.

Beware Attempts to Side-Step Regulations

Those who monitor the industry are reporting that some lenders are providing their clients with documents that are not official Good Faith Estimates, calling them “work sheets” and “loan scenarios.”  These types of documents are not subject to RESPA rules, so be very cautious about making decisions based on them.  Once you complete an official, full application, providing the lender all the information that they require, you should then receive your GFE.  Only then can you expect to be protected by the RESPA rules.

Resources for More Information

The US Department of Housing and Urban Development website has several resources that you can explore before meeting with a lender.  And, of course, your Realtor can also provide guidance through the process.

Here are a few links to get you started:

Looking for the Best Mortgage:  Shop, Compare, Negotiate (this a PDF booklet with worksheets from www.hud.gov)

Understand Your Borrower’s Rights

Protect Yourself from Predatory Lending Practices

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