Friday, July 25, 2008

Good Faith Estimates

Okay folks, I need to hear your honest opinions here. I have two questions:

1) If someone (like, say... a bank) give you a "Good Faith Estimate" for how much something will cost, then how accurate do you think that estimate should be?

Then, let's say, purely hypothetically speaking, that you review the estimate and think that they significantly underestimated something, so you call them and specifically ask them about the item you think they miscalculated or underestimated. Let's say, again hypothetically speaking, that the customer service representative on the phone tells you, "We're [insert name of BIG name reputable bank here], we do this all the time and we STAND BY OUR ESTIMATE."

2) So question #2 is: How would YOU interpret said big name bank representative saying they "stand by their estimate"?

Go ahead... Take your time... Give it some thought.

Now, click on "comments" below and tell me your answers to the two questions above.

After you've told me what you think without being biased by my opinion, then scroll down and I'll tell you what my take on all this is.





[Cue final Jeopardy theme music]





Okay, so let's just say that WASN'T such a "hypothetical" situation I gave you above.

My realtor has been pressuring us to use a local Virginia mortgage broker who she works with on a regular basis. So I asked for the Good Faith Estimates (GFE) from both the local mortgage broker (LMB) and from the big name bank (BNB). We've been loyal customers of the BNB for many years, and our past two home mortgages have been with them.

Comparing the two GFE's, the BNB's closing costs were about $2,200 LESS than the LMB (monthly payments were about the same). Between that and the fact that I didn't know or necessarily trust the LMB, we decided to sell our souls to get our mortgage from BNB.

Now, come to find out that BNB's GFE was a pretty substantial UNDERestimate... by about $3,100!!!! The underestimate is due to the EXACT thing that I pointed out to them in the first place. Now, BNB says, "Well sir, it IS an ESTIMATE, so it's NOT exact."

This brings me to my first question up above. Yes, I acknowledge it's an ESTIMATE and there is going to be SOME variability. But how much variability is "reasonable"?

10%?

20%?

30%?

The original GFE's closing costs were approximately $7,300. Now they're saying it's going to be $10,400????? That "good faith estimate" missed the mark by 42%!!!! It would have been cheaper to go with the LMB, and the LMB had accurate numbers in the line-items in question.

Let's move on to my second question above. After pointing out what I thought was probably a big underestimate on the line items for county taxes and title fees, the loan agent on the phone told me, "we stand by our estimate." I said to myself, "Self, surely you aren't the first person to ever buy a house in Loudoun County and use BNB for your mortgage." They do this all the time, so I'm sure they know what they're talking about. Besides, when he said, "we stand by our estimate," in my mind I interpret that as, "if it IS a miscalculation (especially after you've brought it to our attention as a potential error), then BNB is going to cover it."

Are these foolish or unreasonable interpretations???

In hindsight, I'm kicking myself. Maybe we should file this one under the category of "stupid kevin tricks." I was foolish and did something that I don't normally do. I accepted a non-commital ambiguous response on faith. I should have asked the loan agent point blank, "What if the estimate is wrong? What if the county taxes and title fees really ARE $X,XXX, then what is going to happen? Are YOU, BNB, going to pay for the difference?" Chances are, he would have said no.

3 comments:

Kel said...

Well hello there! It's nice to "meet" you...glad to have you stop by my blog!

Anyway...I think I would have taken the BNB statement the same way you did and I'd be pretty upset with the HUGE difference between the estimate and the actual...I mean over 40% is kind of crazy if you ask me!

Ruth Burkett said...

Okay, so I'm old enough to remember when movers did this sort of thing routinely and then help your household goods hostage charging storage costs while you came up with the $$$$$. The fed stepped in and new regs said they couldn't be more than x% over. Sounds to me like banks are in for some new regs.

For me, Life Lesson Learned #2,542: Ask the specific questions and then, once again, get it in writing--email, FAX, whatever--so you can hold them to it in court when you sue for the dif.

JoLee said...

""
My realtor has been pressuring us to use a local Virginia mortgage broker who she works with on a regular basis."" This is where on the Clark Howard Radio show http://clarkhoward.com/ he would have the alarms & bells going off. Trust me - your realtor is getting a "kick back" when she refers a loan to a specific mortgage broker.

My understanding from the realtors around us and having gotten a mortgage from said BIG BANK in the last 4 years - they clearly stated to us that they can give you a good-fair estimate up front - but until you actually get their estimate in WRITING from them... the written ESTIMATE is the only one they'll hang their hat on.

Glad you got it all worked out. Oh, and you also might want to check out Clark Howard had to say about closing old credit accounts.