Conducting a thorough Good Faith Estimate (GFE) audit is crucial in the realm of lending and finance. The GFE, a standardized form required by the Real Estate Settlement Procedures Act (RESPA), outlines the estimated costs associated with a mortgage loan. Auditing this document ensures transparency and accuracy, benefiting both lenders and borrowers alike. Here’s an in-depth look at the best practices for conducting a loan GFE audit.

Understanding the Importance of a GFE Audit

A GFE serves as a vital tool in the mortgage process, providing borrowers with an estimate of their loan’s terms and costs. For lenders, it establishes compliance with RESPA regulations, promoting fair lending practices. An audit verifies that all fees and charges listed on the GFE align with actual costs incurred during the loan process, preventing discrepancies and fostering trust between all parties involved.

Best Practices for Conducting a Loan GFE Audit

1. Reviewing Completeness and Accuracy: Begin by ensuring that the GFE is complete and accurate. Verify that all required fields are filled out correctly, including loan terms, interest rates, and closing costs. Any discrepancies should be flagged for further investigation.
2. Comparing with Actual Costs: Compare the estimated costs on the GFE with the actual costs documented in the Closing Disclosure (CD). This step highlights any deviations and allows for adjustments if necessary, ensuring that borrowers are not overcharged.
3. Analyzing Fee Variances: Pay close attention to fee variations between the GFE and CD. While some fluctuations are expected, significant discrepancies may warrant clarification or corrections to maintain compliance and transparency.
4. Checking Compliance with RESPA Guidelines: Ensure that the GFE complies with RESPA guidelines regarding fee tolerances and disclosures. Any violations should be addressed promptly to avoid penalties and legal repercussions.
5. Documenting Audit Findings: Keep detailed records of the audit findings, including any discrepancies identified and actions taken to resolve them. This documentation serves as a reference for audits and inspections, demonstrating compliance and due diligence.
6. Communicating with Stakeholders: Maintain open communication with borrowers, lenders, and other stakeholders throughout the audit process. Address any concerns or questions promptly to enhance transparency and trust in the lending process.

 

Step-by-Step Guide to Conducting a Loan GFE Audit

1. Reviewing Completeness and Accuracy

The initial stage of any GFE audit involves a thorough review of the document’s completeness and accuracy. This ensures that all essential information required by RESPA is properly documented. Here’s how you can approach this step:

• Check for Required Fields: Verify that all necessary fields on the GFE are filled out correctly. This includes details such as the loan amount, interest rate, loan term, and any prepayment penalties. Incomplete fields should be flagged for further investigation.
• Validate Borrower Information: Confirm that borrower information, including names, addresses, and property details, matches the information provided in other loan documents. This step helps prevent identity errors and ensures consistency across all loan disclosures.
• Verify Loan Terms: Review the loan terms specified on the GFE, such as the type of loan (fixed-rate, adjustable-rate), interest rate, and any associated points or credits. Ensure that these terms accurately reflect the agreed-upon terms between the lender and borrower.

2. Comparing with Actual Costs

Once the GFE’s completeness and accuracy are verified, the next critical step is to compare the estimated costs listed on the GFE with the actual costs documented in the Closing Disclosure (CD). This comparison helps identify any discrepancies and ensures that borrowers are not subjected to unexpected charges. Here’s how to conduct this comparison effectively:

• Obtain the Closing Disclosure (CD): Secure a copy of the CD, which is typically provided to borrowers at least three business days before the loan closing. The CD details the final loan terms and closing costs, providing a basis for comparison against the GFE.
• Line-by-Line Comparison: Conduct a detailed line-by-line comparison of the costs listed on the GFE with those on the CD. Focus on major cost categories such as origination fees, points, appraisal fees, title charges, and prepaid interest.
• Identify Discrepancies: Highlight any significant discrepancies between the estimated costs on the GFE and the actual costs on the CD. While minor variations are common due to fluctuations in third-party fees, substantial deviations may require further investigation and corrective action.
• Document Variances: Document all identified discrepancies, noting the specific items and the magnitude of the variance. This documentation serves as a record of the audit findings and facilitates the resolution process with borrowers and regulatory authorities if necessary.

3. Analyzing Fee Variances

Fee variances between the GFE and CD are common due to changes in market conditions or adjustments during the loan processing period. However, it is essential to analyze these variances to ensure compliance with RESPA guidelines and transparency in lending practices. Here’s how to approach the analysis of fee variances:

• Understand Fee Tolerances: Familiarize yourself with RESPA’s guidelines on fee tolerances, which dictate the permissible variations between the estimated costs on the GFE and the actual costs on the CD. These tolerances vary depending on the type of fee:
  • Zero Tolerance Fees: Fees that cannot increase from the GFE to the CD. These typically include fees paid to the lender or mortgage broker.
  • 10% Tolerance Fees: Fees that can increase by up to 10% from the GFE to the CD. These may include third-party services where the lender selects the provider.
  • No Tolerance Fees: Fees that can change without restriction. These include fees paid to third-party service providers not selected by the lender.
• Categorize Variances: Classify fee variances based on their tolerance categories. Identify whether the variances fall within the zero tolerance, 10% tolerance, or no tolerance categories.
• Evaluate Explanations for Variances: Review the reasons provided for fee variances, such as changes in market rates, revised loan terms, or adjustments in service provider costs. Evaluate the validity of these explanations to determine if corrective action is necessary.
• Communicate with Borrowers: If significant variances exceed RESPA’s tolerance thresholds, communicate these discrepancies to borrowers promptly. Provide a clear explanation of the reasons for the variances and any adjustments made to ensure transparency and borrower understanding.

4. Checking Compliance with RESPA Guidelines

RESPA sets forth specific guidelines and regulations aimed at protecting consumers and promoting transparency in mortgage lending. Compliance with these guidelines is essential during the GFE audit process. Here’s how to ensure compliance with RESPA:

• Review RESPA Requirements: Familiarize yourself with RESPA’s requirements related to GFE disclosures, fee tolerances, and timelines for providing loan disclosures to borrowers.
• Verify Disclosure Accuracy: Verify that the information disclosed on the GFE aligns with RESPA’s requirements regarding fee disclosures, loan terms, and borrower rights. Ensure that all disclosures are clear, accurate, and provided in a timely manner.
• Monitor Fee Tolerances: Monitor fee tolerances to ensure that any fee variances between the GFE and CD comply with RESPA’s tolerance thresholds. Take corrective action if variances exceed permissible limits, such as adjusting fees or providing credits to borrowers.
• Document Compliance Efforts: Maintain detailed records documenting your compliance efforts with RESPA guidelines. This documentation should include audit findings, actions taken to address discrepancies, and communications with borrowers regarding fee variances.

5. Documenting Audit Findings

Documentation is crucial throughout the GFE audit process to maintain transparency, facilitate audits, and demonstrate compliance with regulatory requirements. Here’s how to effectively document audit findings:

• Create Audit Reports: Generate comprehensive audit reports detailing the findings of the GFE audit. Include information such as the date of the audit, borrower details, GFE information, CD comparisons, and identified discrepancies.
• Record Variances: Document all fee variances identified during the audit, categorizing them based on RESPA’s tolerance thresholds (zero tolerance, 10% tolerance, no tolerance). Specify the reasons for variances and any corrective actions taken.
• Maintain Supporting Documentation: Retain supporting documentation, such as copies of the GFE, CD, communications with borrowers, and explanations for fee variances. These documents serve as evidence of compliance during audits and inspections.
• Ensure Accessibility: Store audit documentation in a secure and accessible manner to facilitate retrieval during regulatory examinations or borrower inquiries. Maintain confidentiality and data security in accordance with regulatory standards.

6. Communicating with Stakeholders

Effective communication with stakeholders, including borrowers, lenders, and regulatory authorities, is essential throughout the GFE audit process. Transparent and proactive communication fosters trust and ensures clarity regarding audit findings and compliance efforts. Here’s how to enhance communication with stakeholders:

• Provide Clear Explanations: Clearly communicate audit findings, including any discrepancies identified between the GFE and CD. Explain the reasons for fee variances and the steps taken to address them to ensure borrower understanding.
• Address Stakeholder Concerns: Respond promptly to borrower inquiries or concerns regarding fee variances or audit findings. Provide accurate information and solutions to resolve issues and maintain positive borrower relationships.
• Collaborate with Lenders: Collaborate closely with lenders to address audit findings and implement corrective actions as needed. Maintain open lines of communication to facilitate timely resolution of discrepancies and compliance issues.
• Engage with Regulatory Authorities: Maintain proactive communication with regulatory authorities, such as the Consumer Financial Protection Bureau (CFPB), regarding audit findings and compliance efforts. Respond to inquiries or requests for information promptly and accurately.

Conclusion

Conducting a thorough Good Faith Estimate (GFE) audit is essential for ensuring transparency, accuracy, and compliance in mortgage lending practices. By following these step-by-step best practices, lenders can effectively review the completeness and accuracy of GFEs, compare estimated costs with actual costs, analyze fee variances within RESPA guidelines, ensure compliance with regulatory requirements, document audit findings, and communicate transparently with stakeholders. This commitment to rigorous auditing processes not only enhances borrower confidence and satisfaction but also reinforces regulatory compliance and operational integrity in the mortgage lending industry.