The Veridian Blog

Strangely enough, many borrowers place a lot of… well, “faith” in the Good Faith Estimate (GFE), only to find out later that it falls short of the legal protection they expect.  The GFE is a HUD standardized form that lenders are required to disclose within 3 days of receipt of a federal loan application as a means to provide borrowers with as many transaction-related costs as possible in the spirit of full disclosure.  The enumerated sections basically include loan charges, title and escrow charges, and governmental charges. 

Despite the admirable intent of the form, it can and does fall short in some instances simply due to its non-binding nature.  Lenders are by no means obligated to meet the terms stated in the GFE.  They aren’t even required to update it as the loan progresses.  If charges change or suddenly appear later in the process, borrowers will will have a very difficult time establishing “bad faith” on the part of the lender.  They would probably have to show a consistent pattern of gross inaccuracies in GFE closing costs and that they have been damaged as a result. 

The GFE, like the Truth-in-Lending form, is a step in the right direction in terms of consumer protection, but still falls woefully short of what I would consider ideal.  We recommend a better strategy is to have the lender or broker write a simple letter showing exactly what closing costs they will be covering and which ones they will not.  Even if borrowers will never think seriously of going to court, they will at least have a much more powerful document in their hand to leverage negotiations against the lender.  If they aren’t willing to do this – then red sirens should be sounding off and it’s time to walk away to find another lending source.