Compliance Q&A: Good Faith Estimates
By Valerie Moss
Q If a mortgage transaction involves residential property that is new construction, and the mortgage may not close for months, will this impact when you provide the good faith estimate (GFE) to the borrower?
A Yes. In transactions involving new home purchases—where settlement is expected to occur more than 60 days from the date the GFE is provided—the credit union may issue a revised GFE up until 60 calendar days prior to the closing, according to the Real Estate Settlement Procedures Act (RESPA).
But the credit union is required to provide a “clear and conspicuous” disclosure to the borrower at the time the initial GFE is provided, advising the member that the credit union reserves the right to revise the GFE if necessary. If this special disclosure isn’t provided to the borrower, the credit union may not issue a revised GFE unless “changed circumstances” justify the revision.
Generally, the following are considered to be changed circumstances:
- Acts of God, war, disaster, or other emergencies;
- Information particular to the borrower or transaction that was relied upon in providing the GFE and that changes or is found to be inaccurate after the GFE has been provided (such as the credit quality of the borrower, the amount of the loan, or the estimated value of the property);
- New information particular to the borrower or transaction that wasn't relied upon in providing the GFE; or
- Other circumstances particular to the borrower or transaction, such as boundary disputes, the need for flood insurance, or environmental problems.
A credit union won't want to have to rely upon “changed circumstances” to have the flexibility to revise its GFE disclosure given to a member buying a home under construction, so remember to reserve the right to change the GFE later.
This flexibility is not typically available with the RESPA rules that became effective at the beginning of 2010. GFE estimates have to be very accurate or the credit union may have to absorb costs of inaccuracies.