RESPA regulations state that when you issue a GFE, you must guarantee its terms for at least ten business days.
In the “olden days” it was a relatively simple matter to issue and send a revised GFE if you made an error… but those days are gone. And if you aren’t paying attention (and sometimes even if you are!) you might be creating a recipe for disaster.
Let’s use a very simplified hypothetical scenario to illustrate: By accident, a loan officer quotes an interest rate of 5.25% charging no points, with total origination fees of $3000 for a $300,000 loan. He states this on a GFE and delivers it to an applicant. It turns out he meant to state 5.5% as the interest rate.
The applicant calls him back and says, “Wow! That’s great… I’ll take it!” The MLO submits the file to an underwriter who tells him it’s going to cost 2 points ($6000) in discount. Since he only charged $3000 for origination, he's $3000 under water on this loan. RESPA law clearly says the lender must honor this GFE. BUT guess where the money actually comes from? The lender charges the broker and thus, ultimately, the ill-fated MLO who wrote this deal will pay.
GFE Rules:
A GFE is good for at least ten business days or longer. The period specified on line 2 of the GFE starts on the day after the GFE is mailed. If the applicant does not act within that specified period, the GFE does not have to be honored.
A GFE can only be revised and reissued if there are “Changed Circumstances”. Basically, only Acts of God or inaccurate information relied on pertaining to creditworthiness or property value qualify as Changed Circumstances.
A difference in loan amount may be a Changed Circumstance, but the points must be based on the originally quoted interest rate (meaning the MLO can’t simply change the rate to the 5.5% he meant to state).
A rate lock is a Changed Circumstance but only as it applies to the Important Dates section of the GFE.
Correcting the structure of the interest rate, origination fees and/or settlement charges CANNOT be considered Changed Circumstances.
In essence, if you make a mistake on a GFE… you'll pay for it!