The new Real Estate Settlement Procedures Act (RESPA) rule and Good Faith Estimate (GFE) has changed the entire sales process for our $2 trillion per year mortgage industry. What if you could transform industry chaos into your secret weapon to crush the competition and make 2010 your best year ever? Here are three strategies to help you do just that:
Number one: Do not give a GFE too soon in the loan process
Once you have a “loan application” as defined by the U.S. Department of Housing & Urban Development (HUD), you need to give the borrower a GFE within three business days. There are six elements of an application according to HUD:
1. Borrower’s name;
2. Borrower’s monthly income;
3. Borrower’s Social Security Number to obtain a credit report;
4. Property address;
5. Estimate of property value; and
6. Loan amount.
The ironic thing is that if you give a borrower a GFE without having all six pieces of information outlined above, you cannot revise the GFE at a later time once you receive the missing piece or pieces of information! HUD says that later receipt of one of these six items does not qualify as a “changed circumstance” that would result in your ability to issue a revised GFE.
For example, imagine that Jane Doe Borrower calls you up and says that she is in the market to purchase a home. You take her loan application in order to approve her for financing. However, she does not yet have a property address because she is still shopping for a home. If you give Jane a GFE at this stage in the loan process, you will be bound by the terms of the GFE and you will not be able to change your estimate of closing costs (appraisal fee, etc.) once Jane actually finds a home and signs a purchase agreement.
Our industry has grown accustomed to giving borrowers a GFE even if the property address is still to be determined (TBD). Under the old rules, this wasn’t really a problem, because you didn’t have to guarantee the fees listed on the initial GFE. However, under the new rules, giving borrowers a GFE without them having a bona fide property address could be very detrimental to you. Remember, you are on the hook for guaranteeing all the fees you estimate on the initial GFE. Why should you eat the extra costs if the property they select requires a more elaborate appraisal with higher fees?
With this in mind, the first thing you can do to transform the new GFE into your competitive advantage is simply don’t give a GFE too soon in the loan process! Only give borrowers a GFE once you have all six pieces of information required by HUD. In the meantime, if you want to help borrowers compare their loan options, as any true mortgage professional should, utilize software programs like Mortgage Coach Analyze.
With Mortgage Coach, you could illustrate the borrower’s cash to close under different scenarios, compare loan options and illustrate various cash flow opportunities. Perhaps most importantly, Mortgage Coach makes the numbers come alive by making them relevant to the client’s life. It is ideal for illustrating which mortgage strategy would best help the client send their kids to college, retire comfortably, care for elderly parents, become debt free sooner, and achieve the things in life that are most important to them. This brings us to the next point.
Number two: Do not fill out the voluntary portions of page three of the GFE
Remember, the GFE is all about you and your story as a loan originator—what are your fees, how much you are making on the loan, etc. If you really want to win the battle over the hearts and minds of clients, you need to fight the battle on a battlefield where you know you can win—by making the conversation about the client and their story. You need to answer the question, “What’s in it for me?” from the client’s perspective. The GFE does not allow you to do that, because the GFE is all about you and your story. So, while your competitors are tripping all over themselves helping clients shop them out of business by focusing on page three of the GFE, you fight the battle for the client on a battlefield where you know you can win. It empowers you to make the conversation about the client, about their story, about their life, about what’s in it for them.
Number three: Do not guarantee the interest rate on line one of the GFE beyond today’s date if the borrower is unwilling to lock the rate
There is a lot of confusion in the industry as to how long you need to guarantee the interest rate and settlement costs listed on the GFE. Here’s the scoop: The settlement costs (Line 2 of the GFE) need to be guaranteed for at least 10 days. However, the interest rate (Line 1 of the GFE) does NOT need to be guaranteed at all if the borrower does not lock in their mortgage rate. HUD specifically states that it is up to the loan originator to determine how long they want to keep the rate available. For example, the interest rate on the GFE could expire in five days, three days or within one day; in fact, if your company doesn’t offer rate locks, you could even fill out Line 1 of the GFE by writing in “Not Available” or “NA” in that field.
With this in mind, the smartest way to deal with Line 1 of the GFE is simply don’t guarantee the interest rate unless the borrower is willing to make a commitment and lock in their rate. You could best explain this policy to clients and prospects by illustrating market volatility using RateWatch, a service that tracks the prices of mortgage backed securities (MBS). It’s really very simple:
►Show clients and prospects a picture of the market using the RateWatch charts
►Focus on volatility—illustrate how the market moves every minute of every day and how this impacts mortgage rates
►Offer to be the client’s “personal shopper” when it comes to tracking mortgage rates and locking in at the appropriate time
The new RESPA rule and GFE represents the biggest change our industry has seen in its sales process in over 30 years. This is an unprecedented opportunity for you to transform industry chaos into your opportunity to outshine the competition. To that end, CMPS certification includes exclusive training and resources to help you transform the new RESPA rule and GFE into your secret weapon to crush the competition and make 2010 your best year ever!
Gibran Nicholas is the founder and chairman of the CMPS Institute, which administers the Certified Mortgage Planning Specialist (CMPS) designation. The CMPS Institute has enrolled more than 5,500 members since its founding in 2005. Gibran is also the chairman of Published Daily, a customizable online magazine, newsletter and marketing service that helps professionals transform their clients and prospects into a referral-generating sales force.