Friday, August 7, 2009

Good Faith Estimate my A$$

Why do banks lie? They give buyers a "good faith estimate" at the beginning of the process. Then, the day the buyers sign the paperwork, they figure out that the actual cost is substantially higher than anticipated. And when I say substantially, I mean at least 25% higher than quoted. Why? Why do lenders do this?

My suspicion is that they believe they are being competitive. They are competing with other banks and people want the lowest closing costs so they produce what they think will sell. The reality is that most people would rather hear the truth up front. You know, so they can plan for the cost.

You know what would make customers really happy? How about the closing costs being less than the good faith estimate. Wouldn't that be great? Think of how many customers would be gained if you consistently met or undercut the original estimate. Who wouldn't think you were the best thing ever then?

And the best part is that they wouldn't even have to change what they charge (although that's an entirely different post for another day). No, if the lenders just put the right numbers in the original documents, that would be enough for most customers. If you know a fee is going to be $600 because it's always $600, don't tell people it's only $300 because you assume the other party is paying the other half. Give customers the worst case scenario so they can plan for that. Then when it comes time to close and the costs are actually lower than anticipated (because the other party did pay half) the customers will be thrilled.

Now obviously some costs aren't fixed because they change depending on what day of the month closing falls on. Things like interest and taxes. But again, estimate high and deliver low.

I don't know that any kind of laws or rules should be implemented, but I do think banks and lenders should take a look at their practices. I also believe that they should make an attempt for the closing costs to stay within 5% of the good faith estimate.