It is by far the most common consumer complaint to the federal government in the homebuying process: Uncertainty about the costs of obtaining and closing a mortgage.
Unlike other major purchases, most homebuyers cannot be absolutely sure what fees they’ll be expected to pay at settlement to their lender, title company and other service providers connected with the transaction. Though buyers routinely receive “good-faith estimates” of their expenses, there’s a gaping hole in the law, which allows those costs to balloon – sometimes dramatically – between the time they are made and final settlement. Federal law does not require any service provider to make good on the estimates.
For example, if an unscrupulous lender tacks on $600 in junk fees at settlement that were never mentioned in the good-faith estimate, that’s your financial problem, not the lender’s. If the title charges were understated by half and total $2,400 on the settlement sheet, not the estimated $1,200, that extra cost is on you, not the title company.
But the game of real-estate gotcha may be on the way out. Major mortgage-lending and brokerage groups are either recommending or actively considering reforms that would guarantee buyers’ good-faith estimates.
The National Association of Mortgage Brokers, the principal lobby for the country’s 60,000-plus loan brokers, now favors mandatory “redisclosure” by lenders and brokers whenever a buyer’s closing fees are 10 percent higher than the original good-faith estimates. It also favors giving consumers the right to sue the lender or broker if fees exceed 10 percent of the original estimates and no redisclosure is made before settlement.
The National Association of Independent Mortgage Bankers goes one step further. It supports ironclad, upfront guarantees on all charges that are under the direct control of the lender. These include appraisals, underwriting, application fees, underwriting fees, processing, credit reports, flood-zone certifications and tax-service fees, among others. The same group also wants similar guarantees on all loan-origination charges and points once the mortgage rate is locked. It also demands that title-insurance costs – often the source of the biggest surprises at settlement – be guaranteed to the home purchaser once the title company confirms a specific charge to the lender or broker.
Still another influential group, the Consumer Mortgage Coalition, which represents some of the largest banks and mortgage companies in the country, supports mandatory guarantees on settlement costs as well. It also has drafted a plan that would spell out and guarantee all lender fees, lender title insurance, and all taxes and other expenses upfront, at the time of the quote. The offer to the consumer would disclose exactly which charges are not guaranteed and beyond the lender’s control, such as homeowners insurance, optional owner’s title insurance, flood insurance, daily interest charges and escrows.
All of the recent flurry of proposals have been stimulated by the Department of Housing and Urban Development’s ongoing campaign to persuade the key participants in the home purchase and lending process to come up with and support pro-consumer reforms on settlement-cost uncertainties.
But a small number of lenders already offer fixed-price package deals. You can also harden good-faith estimates on your own. As you shop for a mortgage, ask whether the broker or lender is willing to guarantee all estimates of its fees and charges and to stipulate it in writing.
