Though any one of these items can increase more than 10 percent from the upfront estimate to closing, the combined total of all the fees in this category cannot jump by more than 10 percent. This is crucial, especially in title insurance and settlement charges, where some of the biggest surprises pop up at closing.
Charges that can increase without limit include lender-required services where the borrowers choose a title insurance, escrow or other settlement company that is not on the lender's list; the cost of homeowners' hazard insurance; daily interest charges on the loan; and the amount of the initial deposit by the borrower into an escrow account.
Besides getting rid of closing cost surprises, the new good-faith estimate encourages loan applicants to shop around before committing to a particular lender. The form includes space for comparing up to four competing lenders' GFEs on interest rates, rate locks, prepayment penalties or balloon payments, among other factors. The cost estimates you receive from each competitor are required to remain available for 10 business days. Interest rates can change unless locked by the lender and borrower.
Paired with the new GFE rules scheduled for Jan. 1 will be a new standard closing cost statement, the "HUD-1." Unlike the settlement statements in use today, the revised HUD-1 is hardwired into the GFEs to allow consumers to directly compare what they were told upfront by the lender with what they're being asked to pay at closing. The final page of the new form itemizes the three categories of fees from the GFE and compares them directly -- line by line -- with the actual fees at closing.
Still another pro-consumer feature of the new HUD-1: For the first time ever, it requires disclosure of the widely misunderstood fee splits of title insurance premiums between the insurance underwriter -- the company actually insuring the title -- and the title agent, who is often the settlement agent. Consumers may be stunned to learn that in some markets, 80 percent to 90 percent or more of the premium they pay at closing actually goes to the agent -- not to pay for the insurance itself.