Should Mortgage Brokers & Lenders Act in the Best Interests of their Borrowers?

It seems to me that mortgage brokers and lenders acting in the best interest of their borrowers would be a good way to conduct business. According to the NY Times that does not seem to be the case.

Now I am not a huge fan of government intervention but I don't see the downside of lenders considering what is best for their customer when loaning them money for a mortgage. After all, if too many people are unable to pay their mortgages you end up with a drain on the lenders and the overall economy (witness the subprime meltdown). The subprime market needs to figure out a way to do business so that everyone is protected. If someone does not qualify for a loan they should not get a loan. There is no point in putting someone in a loan that they will eventually default on because everyone involved will eventually face financial problems. We need to get back to proper loan qualification so that home buyers can enjoy their new home for years to come and brokers and lenders can count on mortgage payments from their borrowers instead of foreclosures and bankruptcies.

Mortgage Fraud in New Jersey - Star Ledger Report

The Sunday, June 16th issue of the NJ Star Ledger had a report exposing the increase of mortgage fraud in the state of New Jersey. According to the article NJ has seen the biggest increase in mortgage fraud in the US. See the report here. With the increase in property values and inefficiencies in the oversight agencies mortgage fraud has become a very lucrative business in NJ (and many other states). In fact many drug dealers and other criminals are finding mortgage fraud to be an easier way to make money than selling drugs. In some cases the home buyer particpates in the fraud but in many cases they are unaware of what is happening and end up paying the ultimate price. One of the reasons for this is because the buyers rely on their real estate agent or mortgage lender to refer title companies to their clients. This can lead to unscrupulous groups sending their clients to title companies involved in their mortgage fraud scams.
It may not make up a huge portion of the mortgage fraud going on but shopping for your own title insurance can offer one more layer of protection for consumers.

Closing Costs and Documents

Understanding all of the paperwork and fees in the real estate closing process can be a daunitng task. Today's post offers a complete breakdown of the paperwork and fees in real estate closings. I am doing this because we want consumers to be fully informed about what to expect when they close on their home. I also want consumers to be aware if they are being overcharged or being charged "junk fees". Please review the checklist of paperwork and fees below to help steer you through the closing process maze.

Fees Imposed by the Lender

• Administrative Fee - Covers underwriting and document preparation. Some lenders bulk the two together as an "administrative fee".
• Appraisal Fee - A fee charged by a professional appraiser to determine if the home bing purchased is actually worth the price.
• Credit Report - Charges by the lender to determine a home buyer's credit worthiness. (Sometimes charged by the broker.)
• Flood Certification Fee - The lender will require a flood certificate to see if the house is in a flood zone.
• Funding/Wiring Fee - The price for wiring the loan money to whoever is conducting the closing.
• Hazard Insurance - Also known as homeowners insurance. Lenders will require that you have a hazard insurance policy in effect at settlement. This policy protects against physical damage to the house by fire, wind, vandalism, and other causes.
• Interest - Lenders require you pay the interest due on your mortgage from the closing date to through the first day of the following month.
• Loan Discount - Refers to the points you pay to buy down your interest rat
• Underwriting Fee - A fee charged by lenders to determine the risk of doing business with a potential home buyer.

Fees Imposed by the Broker

• Application Fee - Covers the initial cost of processing your loan application.
• Document Preparation Fee - The cost of preparing documents related to the mortgage and closing.
• Loan Origination Fee - % of your purchase price, an "up front" point as compensation to the broker.
• Mortgage Broker Fee - Typically between !% and 5% of the loan amount. This is the broker's commission.

Fees Imposed by the Title Agent & Settlement Attorneys

• Abstract or Title Search - The fee charged to send an investigator to the courthouse to research the history of the property being purchased.
• Attorney's Fee - If an attorney performs the closing, this fee will be charged.
• Courier Fee - Imposed when a courier service is required to transport documents.
• Notary Fee - Title Agents must get certain paperwork notarized. This fee covers the notary charges.
• Release of Lien (Satisfaction) - A fee charged for getting the county to change the records from a previous homeowner to the new purcvhaser.
• Title Administrative Fee - Sometimes the document preparation and courier fees are grouped together as a "Title Administrative Fee".
• Title Examination - The fee title agents charge to analyze the results of a title search.
• Title Insurance - The total cost of title insurance (fees determined by state).
• Title Insurance Binder - A fee that promises to provide title coverage once the sale is finalized.

Fees Imposed by the Government

• Recording Fees - This is what the county clerk charges to record your purchase of the property.
• Tax Stamps - A tax when a property changes hands. The fee is based on the purchase price.

Real Estate Closing Paperwork

• Good Faith Estimate - Estimate of charges you are likely to incur at your loan closing. This document must be given to the borrower within three days after submitting a mortgage loan application,
• HUD-1 or Settlement Statement - The Real Estate Settlement Procedures Act (RESPA) requires the lender to give you a copy of the HUD-1 prior to going to closing if you request it. This is the final statement of closing costs and will show you all of the fees you are expected to pay at your loan closing.
• Monthly Payment Letter - This document reveals the break down of your monthly payment into principal, interest, taxes, insurance, and any other monthly escrows.
• Mortgage - This document puts a lien on the house as security for the loan.
• Name Affidavit - This document is certifying that you are who you say you are.
• Note - Legal document that obligates the borrower to repay the mortgage at a specified interest rate for a specified period of time.
• Proration Agreement - These describe how you and the seller are dividing up the costs of the house for the month in which it is being bought.
• Title Document Preparation - The cost for preparing all of the paperwork.
• Truth in Lending Statement (TIL) (Regulation Z) - This paper will disclose the interest rate, annual percentage rate, amount financed, and the total cost of the loan over it's life. These are important numbers to check and double check before signing.
• Warranty Deed - This document should include the names of the buyer, the seller, and a description of the property. Often this deed also guarantees that the seller has the right to sell the property. With the signatures of the seller and buyer, this piece of paper transfers the title of the property.
  

California Delays Title Insurance Rate Cap Until 2011

California's insurance commissioner Steve Poizner has decided that rate caps on title insurance that were proposed by his predecessor John Garamendi will be delayed until 2011. He wants to give the title insurance companies some time to actually make rate reductions themselves before creating regulatory caps. Being averse to government involvement I like the idea of letting the industry fix things themselves. Now whether they actually do it or not is a different story. Let's hope that California title insurers take the lead and start reforming their rates and business practices themselves. It would be a huge step forward for consumers and the title insurance industry if they could.

The Escrow Institute of California responded to Mr. Poizner's claim that the way title insurers market to real estate professionals instead of consumers by saying "Despite the Department's claims to the contrary, the escrow industry in California is fiercely competitive," the statement said. "In fact, the number of licensed escrow companies in California is at a record-high level." He is right, it is competitive but the problem still lies in the fact that they are competing for realtor, mortgage broker and attorney business instead of marketing to the consumer. This needs to be a focal point for change if they are to keep the state from forcing rate caps.

It should be about the consumer and as soon as everyone in the industry realizes that we can start seeing real competition and fair pricing for title services.

myClosingSPACE.com and The Somerset Patriots

myClosingSPACE.com is a featured sponsor of the three-time Atlantic League champion Somerset Patriots minor league baseball team. The team from myClosingSPACE.com will be at select games this season. Visit the Somerset Patriots page to find out which games myClosingSPACE will be attending. Take note of the special event nights where they will be holding special contests and chances to win great prizes.