SANTA CRUZ (DATE) - It took HUD nearly five years but the old one page Good Faith Estimate has been replaced with a new three page version that is proving to be more confusing than helpful. HUD designed the new format to theoretically make it easier for the borrower to understand the costs of obtaining a mortgage and to allow the borrower to compare one lender’s offer with another lender’s offer.

Neither goal has been achieved and much confusion has resulted. One good thing is that the lender’s total charges will be bundled into one figure, called “adjusted origination charges”. This figure includes the loan origination fee as well as the administrative fees associated with obtaining a mortgage such as processing, underwriting, document preparation, etc. The IRS allows a borrower who is purchasing his principal residence to deduct the loan origination fee, which is referred to as ‘points’, in the year of purchase. A point is one percent of the loan amount. One point on a $400,000 loan is $4,000. Besides the points, if any, the other lender costs that a borrower would pay typically total $1,000 - $2,000. Additionally, there will be title and escrow fees, property taxes, insurance, interest and an appraisal fee.

There is no place on the new form that identifies the full monthly house payment, or PITI (Principal, Interest, Taxes, Insurance) nor does the form identify what type of loan it is. It could be a 30 year fixed rate or an interest-only adjustable rate mortgage. Only the interest rate is identified and, unless it is locked, it can change.

Another area that is often confusing is the property tax pro-ration. There is no place on the new form to indicate how much the homebuyer will have to pay the seller to reimburse for the property taxes that have already been paid. For example, assuming that the seller has already paid his property tax through the end of the current tax year (which runs from July 1, 2009 – June 30, 2010) a homebuyer closing escrow April 1st will have to reimburse the seller for the three months remaining (April, May, June) in the current tax year. Three months of property taxes can add as much as $1,000 - $2,000 to the buyer’s closing costs.

Buyers are bound to be confused about the bottom line; that is, how much cash will be required to close escrow. The old GFE summarized the credits and liabilities and gave the borrower the lender’s best estimate of the bottom line. However, the new form not only does not give the borrower that number, it makes no reference to any credits that the seller has agreed to pay. The buyer will have to refer to the purchase contract for that information.

Lastly, the timeframes that HUD has mandated for the initial disclosure and then for re-disclosing any changes will most certainly delay some escrow closings. In the event of last minute changes (officially referred to as ‘changed circumstances’) such as locking of rates, changes in sales price or loan amount, etc., the lender will not only need time to generate a new GFE but will also need time for the buyer to acknowledge receipt before moving forward with loan documents and/or close of escrow. In fact, such changes could delay the close of escrow for 7 or more days.

This column is written every Saturday by Peter Boutell, Certified Mortgage Planner and a principal at Santa Cruz Home Finance. You may reach him at (831) 425-1250 of email him at Peter@SantaCruzHomeFinance.com.