How good is the GFE? How truthful is the TILA? Comparing mortgage loan disclosures to settlement documents

Prior to 2010 regulatory changes, lenders faced few penalties for disclosing inaccurate mortgage closing costs to borrowers during the mortgage application process. Given this policy context, lenders might have intentionally understated closing costs in order to lure unsuspecting borrowers into mortgages with greater true costs than initially disclosed. Further, lenders might have been more likely to understate closing costs for borrowers perceived to be less financially capable. The extent to which lenders’ estimates actually deviate from final closing costs has not been extensively studied. Based on an analysis of 600 loan applications from the National Mortgage Data Repository, the Good Faith Estimate (GFE) slightly overestimates total closing costs by $359, or by 3.9 percent of the mean initial estimate. Broker fees for brokered loans, however, were underestimated by 11.7 percent on the GFE. It does not appear that borrower demographics predict differences between initial GFE estimates and actual closing costs, which suggests that the accuracy of lenders’ cost estimates do not vary according to the perceived financial sophistication of loan applicants.