Written by Richard Triplett, CMB*

In keeping with the previous articles written on general RESPA reform, Page 1 and Page 2 of the revised GFE, this article will cover the last page (Page 3) of the revised GFE. The page itself is titled "Instructions". Despite the fact that the page is identified as an instruction page to the applicant, this page in conjunction with "Important Dates" on Page 1, and the tolerances regarding charges on Page 2, has the potential to offer various levels of confusion to the typical applicant, in any transaction but particularly in a wholesale transaction. I will discuss what I perceive as areas that still tend to offer confusion with some additional comments below regarding what I call the "Wholesale Triangle". There remain multiple areas of the new mandated GFE in which clarification will be necessary to alleviate some of the possible liability to mortgage brokers and lenders alike. I will start with covering the content of the page and then delve into those confusing areas of the new disclosure.

Understanding which charges can change at settlement

In the previous article on Page 2 of the new GFE, I have taken this chart and identified the tolerance in the dollar amount column for each section. The concern I have with this table in conjunction with Page 2 is the monitoring and updating to systems (and ultimately the comparison to the charges on the HUD-1) regarding the service providers identified by the lender, those identified by the mortgage broker (if applicable) and those chosen by the borrower. In terms of managing these tolerances, the lender will ultimately be responsible for not only the comparison of the charges but additionally responsible for identifying what service providers were independently chosen by the borrower versus those services performed by the service provider identified by the mortgage originator (meaning the mortgage broker or lender), and document the appropriate selection for regulatory examination of the loan file, quality control analysis, potential law suits and consumer complaints (both directly by the consumer and/or via consumer complaints to regulatory agencies). Given all of these variables, I foresee the management of meeting these tolerances as a very cumbersome process, especially in a wholesale transaction with the addition of the mortgage broker into the mix. You will need to consider this as you work through the process, procedures and implementation of this new disclosure. All of this is, of course, assuming the borrower(s) actually reads and understands the GFE. However, even if they do not understand it, the regulator will.

Additionally, you should also consider the fact that the HUD-1 will indicate the comparison between the disclosed charges on the GFE and the charges at settlement, so be prepared to allow for additional potential conversations between you, the settlement agent and the borrower for clarification of any variances.

Using the tradeoff table

Completion of the first column (The loan in this GFE) is required by the mortgage broker and/or the lender. The two additional columns are optional. This is identified on the GFE for the applicant and further states that if this table is not completed, the applicant should ask for any additional information.

Should you make the choice to complete this section for your applicants, this section is for comparing alternative interest rate and point options for the same loan. It is not for comparison of alternative products. In other words, the comparison is for the same loan amount, identical number of payment periods, the same requirements for balloon loan and prepayment penalty, the same adjustable rate program margin/index and adjustment schedule, etc. The tradeoff table is for use in demonstrating the options available to the applicant based on rate & point options for the same loan for which this GFE is issued. This is not for indicating differences between fixed versus ARM loan, government versus conventional loan, 30-year term versus 15-year term, and so on. This section will likely present some challenges from a form mapping perspective, specifically if your loan pricing models/rate sheets, etc. are not already programmed into your origination systems.   

The final rule is still somewhat unclear regarding the requirements for re-disclosure if the applicant chooses to proceed with the loan request using one of these alternative rate/point structures. The instructions from the final rule issued by HUD within this section indicates, "...an applicant may request a new GFE, and a new GFE must be provided by the loan originator".  That being said, the GFE itself indicates to the applicant, "If you would like to choose an available option, you must ask us for a new GFE". My recommendation would certainly be that in any case if the applicant chooses an alternative loan rate/point structure, it would be wise to establish procedures to issue a revised GFE in all cases, due to ultimate comparison of the charges between GFE and the HUD-1 at the time of loan settlement and the charge tolerances.  

Additionally, if you elect to complete this section and are operating as a wholesale lender (or have a wholesale lending division) you will need to consider what has already been issued by the mortgage broker and align your re-disclosed GFE accordingly, should you make the election to issue the GFE in addition to the one issued by the mortgage broker.

Using the shopping chart

Although, this section seems fairly straight forward as a chart for use by the applicant to compare different loan costs and programs between lender/brokers, it does in my opinion continue to present some confusion to the applicant and originator for the following reasons:

• Neither the instructions nor the form itself has any indication regarding whether or not the originator has responsibility for completing the column titled, "This loan".
• Specifically in a wholesale transaction, where the applicant receives a GFE from the mortgage broker and may potentially receive any number of GFE's from various lenders in which the mortgage broker has submitted the same loan request for consideration. The applicant is highly likely not to fully understand this for a couple of reasons:
  • The GFE makes no distinction between whether this has been issued by a mortgage broker versus a mortgage lender. It only identifies the "mortgage originator".
  • Unless there is some form of identification via cover letter, modifications to the promulgated form or identification by the mortgage broker regarding lenders in which the broker has submitted the loan request, the applicant will not understand that there may be any number of GFE's they may receive that are all in conjunction with the same loan request.

The "Wholesale Triangle"

In terms of implementation of the new GFE, I can't help but refer to the mortgage broker, the wholesale lender and the applicant together as the "Wholesale Triangle". For mortgage brokers and lenders alike, there are multiple additional considerations that are going to have to be pondered in order to effectively implement the final rule with regard to the new GFE format. I especially feel that the wholesale environment presents unique opportunities for additional processes and procedures, communication, and stress levels in working through your implementation. Considering the fact that if a mortgage broker has issued the new GFE to an applicant, the lender is not required to provide an additional GFE, however, we will still need additional clarification regarding the liability placed on the lender in this scenario for inaccuracy. The final rule only indicates the lender has the responsibility of ascertaining whether the GFE has been provided by the mortgage broker.

Additionally, consider the issue of charge tolerances in conjunction with those service providers in which the applicant has a choice, or chooses from a listing provided by the originator or a single service provider identified to the applicant by the originator. You will have to work through the distinction of which entity actually chose the provider versus the applicant. Although this scenario currently exists it adds another level of scrutiny and additional time from the origination of the loan application up until the settlement date relative to the new charge tolerances.

Specific sections of the new GFE format that I believe are particularly troublesome and will add additional scrutiny, should the lender decide to issue a GFE in addition to the one issued by the mortgage broker are:

• Page 1 - Important dates - you will need to consider what was issued by the mortgage broker in this section. This section deals with the expiration of the interest rate offered in this GFE, expiration of the estimated settlement charges (minimum of 10 days) and rate locking time periods.
• Page 2 - Settlement Charges -you will need to disclose the settlement charges in the same manner as disclosed by the mortgage broker.
• Page 3 - Using the Tradeoff table - you will need to consider how the mortgage broker issued the GFE in terms of the pricing structure, i.e., did the broker go off of rate sheet pricing to establish the interest rate quoted to the borrowers? If so, you will need to make the same consideration if your policy is to complete this optional table.

Whew! That is a lot to think about for just these few items alone in a wholesale transaction. My intention is to cover more issues that you will need to consider regarding this scenario and others in a forthcoming article involving considerations that will need to be made as you work through the actual implementation of the final RESPA rule.

* Richard Triplett, CMB, is an AllRegs Academy instructor and Chief Compliance Officer for Gregg & Valby, LLP in Houston, Texas. This article first appeared in the AllRegs Weekly Digest and may be viewed in its original format at http://www.allregs.com/ealerts/updates090120_RevisedGFE03.htm. Copyright © 2009 AllRegs. Reprinted with permission from AllRegs, http://www.allregs.com/.