GFEs Not Working Out as Expected

The federal government spent years designing a tool to help consumers shop intelligently for mortgages -- comparing lenders' rates, terms and total settlement costs -- but mostly consumers ignore it or don't use it.

A new survey of 1,000 American consumers suggests that the "Good-Faith Estimate" (GFE) disclosures that all homebuyers and refinancers receive at loan application to facilitate comparison are not getting the job done.

Federally mandated GFEs spell out the lender's charges, all anticipated fees for title insurance, escrow and settlement services, plus other key costs. The most recent version of the GFE, released at the beginning of last year, contains space for consumers to take one lender's estimates and get competing quotes from as many as three others. It also requires lenders to stand behind their estimates within a nominal tolerance.

But the survey found that the GFE may not be improving shopping as intended. After receiving the disclosure, 56 percent of buyers say they did no comparison shopping among other lenders. 12 percent used the form to contact just one additional lender, and 10 percent weren't sure whether they actually used the GFE at all.

Forty-nine percent of buyers said the GFE disclosure was too omplicated,
"a waste of time," or they weren't sure. Just 37 percent rated it "useful." The survey had a statistical margin of error of plus or minus 3.2 percent.

Between 2003 and 2008, the Department of Housing and Urban Development proposed modifications to the GFE, but critics said the revised disclosure was too lengthy -- three pages -- and predicted that it would become just another part of the paper blitz that cascades over buyers and mortgage applicants. As it turned out, not only has it failed to simplify consumer shopping, it's actually confusing shoppers.

Meanwhile, Congress has shifted responsibility for GFEs and other consumer mortgage disclosure issues to the new Consumer Financial Protection Bureau, which is scheduled to spring to life in July. The bureau has announced that streamlining the GFE and combining it with federal truth-in-lending disclosures will be one of its high-priority projects.

But given the glacial pace of federal rulemaking, the three-page GFE is likely to remain in use for many months -- maybe a year or more -- before any new streamlined version takes its place. So if you seriously want to shop intelligently for a home loan, read your GFE. And use it to compare costs -- line item by line item -- among multiple lenders.