The new Good Faith Estimate is a joke

I'm a firm believer that any law, no matter how logical it is, is a bad law if it is unenforceable.

An unenforceable law creates opportunities for the people who don't care about the law to circumvent it and the people who do care about the law to be at a disadvantage.

This is my biggest problem with the new Good Faith Estimate (GFE) that we had to start using on loan applications after Jan 1 of this year.

The intentions of the law are laudable: create a clearer disclosure of the fees involved in the mortgage transaction, hold originators to these fees with little or no tolerance for increases, and provide the ability for a consumer to easily shop around for the best mortgage.

Sounds great on paper, right?

In practice, not so much.

My first problem is that the whole point of the new GFE is to improve disclosure to the consumer, but HUD DOESN'T REQUIRE A BORROWER'S SIGNATURE!! THERE ISN'T EVEN A SIGNATURE LINE!

This creates an opportunity for loan originators (LO's) to not even have to prove to the person approving the loan that they ever even gave the GFE to the client!

The law abiding LO's will provide full disclosure to the client because that's what we do (even if we feel that the new GFE actually doesn't provide clear answers to important borrower questions) and other, less than forthcoming LO's will simply not give the borrower the GFE.

But that's not even the worst part.

The new GFE looks like it was created by people who have never sat down with a client and reviewed the important terms of their proposed loan.

Items that are missing on the new GFE:
Total borrower paid closing costs
Total seller paid closing costs
Total seller/agent/broker credits
Total cash to close
Loan Payment
Total prepaid items and a breakdown of these items
A breakdown of broker vs. lender fees
A breakdown of origination and discount points vs. other 'junk' fees (tax preparers are going to be pulling their hair out over this one)

Items that are on the GFE that make it really confusing:
Items paid for by the seller that have no relevance on the buyer (owner's title policy)

It really is a well intentioned, but poorly thought out form.

Additionally, the overdisclosure and masses of paperwork that every borrower needs to sign actually makes the disclosure process less effective.

When a borrower is signing paperwork 2 inches thick for an hour straight, where many of the forms look exactly the same, they eventually just stop reading and sign without contemplating.

The industry as a whole needs to do a better job of reducing the amount of relevant paperwork that goes into the loan process.

Imagine getting a loan where you only signed 5 or 6 documents. Every borrower would read every line to make sure that it was correct.