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What Is A Mortgage Loan Worksheet?

Starting in 2010 the government introduced a new Good Faith Estimate form which required lenders to spell out loan costs in very precise and standardized language — information which lenders must honor at closing.

The new form from HUD has raised a question among some lenders as to whether a pre-approval letter or a pre-qualification letter is also an enforceable loan commitment. The issue — say some lenders — is that they cannot possibly issue such a letter without a lot of information from the borrower, information which they cannot require.

Of course, when toxic loans were popular, lenders issued pre-approval letters, pre-qualification letters and entire loans without too much checking in the case of so-called no doc and low doc loan applications. The result was a big part of the mortgage meltdown, especially when a lack of documentation was combined with option-ARMs and interest-only financing.

So now some lenders — but not all — do not want to issue pre-qualification and pre-approval letters. This is a problem for real estate buyers because such letters — known generally as hand-holding letters — help assure home sellers that a would-be purchaser has at least met with a lender and can qualify for a loan.

Hand-holding letters are not loan guarantees because they invariably contain an “out” making them subject to “changing market conditions” or the need to review an appraisal, credit report, or whatever. However, many lenders continue to issue pre-approval and pre-qualification letters with the understanding that they are not promises to make a loan, just evidence that a borrower has met with a lender to discuss financing.

Worksheets


“A worksheet,” says FHA Commissioner David H. Stevens, “is a document issued by a loan originator that may include generic information regarding interest rates and loan fees, or a document that may provide additional information to the consumer regarding the cost of the overall transaction outside of loan fees that are disclosed on the GFE.”

However, says Stevens, lenders must use care when issuing a worksheet:

A worksheet may be provided to a customer for a rate quote if the consumer does not want to provide the information necessary to generate a GFE. However, loan originators should ensure the following: (1) to eliminate consumer confusion, a worksheet should not look like a GFE and should not lead the customer to believe that it is a GFE and (2) a loan originator should NEVER use a worksheet in lieu of a GFE.

A loan originator may also use a worksheet to provide the consumer with additional information about his or her loan transaction, such as the amount of cash needed to close, seller credits, and other non-loan transaction fees that would be helpful to the consumer.

In other words, borrowers can find value in a worksheet but it’s plainly not a good faith estimate, it’s not binding and if it is presented as a GFE or the equivalent of a GFE then go elsewhere for mortgage financing.

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Posted in: Mortgages

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