If GFI-1 has not been complicated before, it worsens after TRID regulations rejected GFI in favor of closing statements and how seller loans appear. Not only homebuyers who do not understand closing statements with loans, but also bank employees, who are struggling.
The short-selling bank that needs to approve
Especially the short-selling bank that needs to approve the closing statement. The form is so confusing and horrifying that many deposit officers have taken it upon themselves to supply a worksheet recently so that all parties to a real estate transaction can understand what is happening.
This is progress?
A problem with customers lending to a customer at closing
The problem began with a revised Good Faith Assessment. It escalated to GFI. RESPA has decided that if the fee is shown on the Good Faith Assessment and is usually paid by the seller, then it must be reflected on the GFI.
In order for GFI to be in balance, if the fee is presented as a loan but it is not really a credit, then it must also be shown as a debit, which makes it a wash. Then the GFI went away, replaced by the closing statement.
It makes you wonder why to show it at all? Why? Because it’s in a loan appraisal. I know, that’s why you want to pull your hair out. Government regulations will do that for you.
What is a Buyer Credit to a Non-Credit Buyer?
Let’s start with the assumption that loans are generally viewed as a plus number, and debt is minus a number. If you add USD 100 and then subtract USD 100, you have zero.
Second, in many parts of the country, certain closing costs are usually paid by the seller.
It is also common in some areas to split those fees. The problem arises when it is at local customs that the seller pays a certain fee, but that fee is stated in the purchase evaluation of the loan. Examples of these types of fees are:
- Owner Insurance Policy, also known as the CLTA / ALTA Homeowner’s Policy.
- Settlement Fee, also known as Escrow Fee
- Tax Transfer Tax, also known as Document Transfer Tax
These fees, if shown in the sales contract as fees paid to the seller, will be reflected in the final account as credit from the seller to the buyer. Since these commissions are not really a credit to the buyer from the seller, they are then shown as a debit to the buyer, making zero returns.
But oh, does this procedure cause everyone, from Joe, Blow the home buyer to the bank executives, to knead their eyeballs. They are in agony. We can’t fix it unless the government fixes it. If the government tries to fix it, I have a sneaking feeling that it will only get worse. It looks like this is a Catch 22.
For this reason, I hope this simple explanation of the problem with so-called sales credits to the buyer on the closing statement will cause one small person to repeatedly bang their head back and forth on the door – just because it feels so good when you stop.
Why Buyers Credit GFI Issues Due to Short Sales Banks
Short-term banks have guidelines set by investors. These guidelines address how a bank can approve short selling fees. Some guidelines prohibit customers from making purchases, and some guidelines have a limit on the percentage paid to the customer.
When a negotiator unfamiliar with the closing statement sees a credit being noticed to the buyer, often this person will ask for the fee to be removed.
It’s hard to get some people to understand that the fee is already being eliminated as a debit. They can see it in black and white, right in front of their faces, but it doesn’t register up there. They just know that the seller cannot give the buyer credit.
The clerk or closing agent is not allowed to change the closing statement. Fees must be shown in accordance with federal law. Fees cannot be moved to match the short sales negotiator’s anguish.
I can send the negotiators a RESPA link that explains the rules, but many still don’t understand. So if you are one of those people, don’t feel bad about your ignorance. Many people are confused and in the same boat as you.
I mean, it may sink, but I’m too kind. Because the truth is, fees are not a credit to a customer.
If you are still confused after reviewing all this information, it might be a good idea to consider another line of work.