Internet-based Closing Means Good Faith Estimates Could Get Better

The Mortgage Banker’s Association’s Tech 09 Conference, held on March 14-18, 2009, saw the announcement of new procedures that could revolutionize the real estate closing as we know it. Tony Farwell, ClosingCorp’s CEO (closing.com), announced that there was a move to standardize closing procedures for real estate and make it more accessible online. Consequently, closing procedures - including good faith estimates - will get clearer, more accurate and less vulnerable to abuse by unscrupulous lenders.

What does this mean for the ordinary mortal? Well, for one, it could make the “Good Faith Estimate” (GFE) – the itemized statement of fees and costs associated with a mortgage – better. Right now, the so-called Good Faith Estimate is not really good, nor should you put your faith into it. Many people have found that their final closing costs are a lot more than what they were led to believe from the initial estimate.

The rates oft-quoted in a GFE are what they are at the moment - not what they are upon the signing of the loan papers. The GFE can be manipulated with little difficulty. "Oops, there was an extra fee there! Oh, did we forget to tell you about costs that we don't have to disclose on the GFE?" Ethical lenders will do everything they can to clearly explain the fee structure and interest rates, but as today's struggling market attests, not all lenders are ethical.

What Farwell announced could have a positive effect on these statements – for home buyers, at least. With these standardizations come calls for making the government require more accurate estimates and less leeway for lenders to hide high fees within the financial confusion of a home purchase. It also paves the way for more Internet-savvy buyers to play a greater part in the closing of a real estate deal, something that gives them more access to information and the power to make choices about what they spend their money on and why.

A reform of the Real Estate Procedures Settlement Act by the U.S. Department of Housing and Development requires that lenders provide borrowers with a GFE. Now, the lender must provide the borrower with an estimate that gives them information about the term of the loan, type of interest, penalties, payment structure and total closing costs. While this is an improvement over the previous Act, it still does not require that the GFE in any way represent the terms that the loan will finally settle at. “Uniform Closing Instructions” will help improve this in favor of the buyer, by requiring GFEs to more accurately represent the final costs of closing.

Right now, most real estate services are not set up to fully function on the Internet, but that time is coming, if the vision of the people at Tech 09 is correct. The eventual aim of the movement towards more Internet-friendly real estate transactions may mean that one day we might conduct our entire real estate search, evaluation, loan shopping and transaction from the comfort of our own homes. For now, though, it may just mean that legislation is journeying towards fairer treatment of real estate buyers.