Mortages: Problems With New Good Faith Estimate Forms

But industry experts say the three-page, line-by-line disclosure — which lenders must provide within three days of receiving a loan application — still falls short of telling borrowers exactly what they will be paying. Some in the mortgage industry complain that it can even distort or obscure the true cost.

The new Good Faith Estimate form “is better than it used to be, but it’s not up to snuff,” said Kathleen Day, a spokeswoman for the Center for Responsible Lending, a consumer advocacy group. “There are things that need to be unbundled and made clearer,” she said.

The disclosure form, designed by the Department of Housing and Urban Development, became mandatory on Jan. 1, 2010, under the Real Estate Settlement Procedures Act that emerged from the mortgage crisis.

With the exception of certain fees, for services like title services and appraisals, lenders are bound to the costs they quote, notably those for origination and interest-rate locks.

The form also lists the services a borrower can shop around for, versus those selected by the lender. Charges for required services that the lender selects or that the borrower shops around for, using companies selected by the lender, can rise no more than 10 percent at closing. (An exception is fees for escrowed amounts and property taxes, costs that are beyond the control of the lender.)

The revised form, according to a consumer compliance alert issued last year by the Philadelphia branch of the Federal Reserve, is intended “to make the mortgage loan process more transparent to consumers, with fewer surprises at closing” in the form of higher fees.

But there are notable gaps.

The form, for example, does not break out seller-paid costs, such as transfer taxes, which are levied when a property changes hands, instead lumping those costs into the “total estimated settlement charges” figure at the bottom. (Transfer taxes, based on the sales price, vary by state; the combined New York State and city rate is 3.025 percent.)

As a result, borrowers are sometimes unknowingly looking at a larger final figure than they will actually have to pay. Nor does the new form account for down payments in the “total estimated settlement charges” column. Borrowers might then be looking at a smaller final number than they will need to pay.

This lack of clarity, according to Melissa Key, a spokeswoman for the Mortgage Bankers Association, can lead to delayed closings or even the loss of a locked interest rate.

Amid the uncertainty, a growing number of lenders have been furnishing consumers with their own custom “work sheets” as a supplement to — or in a few cases, in lieu of — the required disclosures, according to Brian Sullivan, a spokesman for the federal housing department. They were being used “to weed out window shoppers and borrowers who haven’t provided enough information for the lender to be required to furnish a G.F.E.,” he said.

But these work sheets may differ from the Good Faith form, further adding to the confusion.

Because Good Faith Estimates are binding on the lender, Mr. Sullivan said, some lenders appeared to be violating the new lending regulations by refraining from issuing the estimates, to avoid being locked into costs. He said that HUD would “intercede on the consumer’s behalf” if asked by the borrower, but only after lenders had been given a chance to correct any violations.

Still, the form may get yet another overhaul, by the new Consumer Financial Protection Bureau, itself part of the regulatory overhaul signed by President Obama last July. The bureau has said that it is considering revising the revised G.F.E. form to make all costs clearer to the consumer.

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