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When Eight Isn't Enough...
Monday, 01 February 2010 00:00
Recent Respa Reform changes initiated to better inform today’s senior seeking a Home Equity Conversion Mortgage (HECM) have resulted in a new level of tolerance for both origination and underwriting processes. Checklists everywhere are being updated to include new or enhanced internal controls and workflows to address the higher level of consumer disclosure considered by many as a more simple and efficient means of determining loan costs and fees. But, is it productive?
While less than 30 days in effect at the time of this writing, it is important to note that from the onset, key elements, actions and information must come together in order for a successful transaction to occur.
Upfront and simply stated, eight basic elements of information aren’t enough to start the Good Faith Estimate (GFE) disclosure process. Nine is the key, and of the nine, one can’t help asking which came first, the chicken or the egg?
Borrower intent to proceed must be provided to the originator, as one of the 9 elements, BEFORE a completed GFE can be provided.
In order to truly provide a written estimate of costs and fees, the Borrower(s) must provide their full name, property address, date of birth, social security number, an estimate of property value and gross monthly income (if applicable). These elements when combined with the principal limit derived from the addition of product choice, expected interest rate and margin to the mix are not enough to create the disclosure.
Theoretically, the days of bringing a complete set of application documents to a face-to-face application appointment is in itself a dilemma. The word application becomes the operator as in essence, a GFE can not be issued until an application has been taken, and, an application is not considered an application unless the 9 basic data elements are provided (which includes the borrower intent to proceed). Does this sound like the dog is chasing its tail?
Wait! I know what you are thinking –
• How many borrowers are going to give you sensitive data over the phone or via e-mail?
• If you have the 9 elements before you meet face-to-face, is the application considered a telephone or mail application?
• Can’t I bring a printer to the face-to-face-meeting?
• So what’s the application date for a mail or electronic application package?
• How many borrowers will sign and complete a mail or electronic application package without a GFE?
• What happened to a pre-qualification?
Recognizing the effectiveness of the national wave of identity protection measures resulting from fraud, internet abuses and consumer targeting, are we not negating these measures by placing the senior’s need to know and be informed at a lesser level of priority?
“Yes Mr. and Mrs. Johnson, I can tell you what you are eligible for on a preliminary basis, but I have to do an application to provide you with a written statement of costs and fees. Alternatively, I will need the following information as well as your intent to proceed in order to provide you with the Good Faith Estimate you are requesting.”
A word of caution, while the above comment may seem somewhat awkward in presentation, and certainly a change in behavior and methodology for many, readers are urged to consult with your legal counsel before undertaking any form of “work around” to the application process and borrower request for a written statement of fees and charges.
No doubt the crafters of the reform failed to realize the pre-qualification process. Little or no guidance was provided with respect to the borrower need to review before proceeding, hence there have been a number of “basement” brewed documents to circumvent the intent of the reform.
By rule and regulation, the GFE is a binding document and attempts to send a “preliminary GFE” in the form of an altered GFE format and form have yet to fully be evaluated and commented on by HUD. Though initially considered a positive assist to the borrower by some originators, many of these initial adaptations increase origination risk and add more confusion to the process because of their lack of clarity and potential violation of disclosure requirements.
Likewise, “acknowledgement of receipt” documents that are popping up in the marketplace need to be fully vetted with legal counsel, prior to use.
For those electronic and mail originators, information elements are key to maintaining proper compliance with RESPA. Unless the borrower prior provides required information necessary to create a complete loan application package, providing a GFE upfront could seriously impact your ability to meet required date and evidence of disclosure rules.
A new underwriting determination has recently been added by many lenders, “Incurable Disclosure Fault”. Basically, the progression of disclosure, application, dating and re-disclosure actions are out of synch and the file is faulted, requiring a complete new origination action with the creation of a new loan application package.
When addressing an incurable disclosure fault, consider the additional ramifications of rules and guidelines which address the ordering of services prior to the date of the application, FHA Connection and Case file issues, time delays, updates and most important an explanation to the borrower which could raise issues of confidence and professionalism.
Eight isn’t enough today, but is nine the answer?
