Consumers Pay Too Much at the Closing Table: Yet Another Study Supporting Change in the Title Industry

A recent study, conducted by Dr. Susan Woodward, once again showed that consumers spend too much on closing costs. This study, titled A Study of Closing Costs for FHA Mortgages, analyzed 7,500 FHA mortgages that originated in May and June of 2001. Borrowers with similar or identical credit scores, loan terms, and mortgage amounts paid disparate amounts at the closing table. Even though there were some demographic differences that stood out even consumers who have similar demographic profiles were charged differently. In the end the report found one of the most important factors was that consumers simply do not understand closing costs and do what they are told by their mortgage broker, realtor, attorney, etc. It can be an overwhelming process and most consumers just want to get it done. Many do not realize that they could save a significant amount of money if they took a bit of time to learn about title insurance and closing costs by shopping around and doing a little bit of research online.

Just Another in a series of reports

While I believe this is another good study it is just reiterating what many of the title insurance bloggers and spokespeople have been saying for a while now. Closing costs are too high because consumers are being lead by their representatives in the real estate industry who may be receiving gifts or other compensation to refer their clients to a specific title insurance company. That company in turn passes on extra costs to the consumers to pay for those gifts. The consumer does not notice because he/she is overwhelmed by the whole process and relying on their representatives to look out for their best interest.

How do we fix it?

These studies do a great job of bringing more attention to the problem but IMO they are not reaching all of the right people, the consumer. Most of the people who are reading these reports are real estate or mortgage professionals. Consumers do not pay attention to reports like this until they need to buy or refinance. That means it is up to title companies and other real estate professionals to utilize these studies to make our service more consumer friendly. If we take the time to help consumers understand the whole process, let them know that the ultimate choice of a title insurance company is up to them, and charge them honestly we can help make the industry stronger and more well respected.

We are trying at myClosingSPACE

That is exactly what we have tried to do at myClosingSPACE.com. Our mission is to bring title insurance into the forefront and help consumers understand it so they can make their own decisions and save money on closing costs. Even if they do not use our service we want to make sure they are making their own choices while knowing all the facts. We will continue to push for consumer choice and attempt to provide useful information about title insurance to those consumers who are ready to buy their new home or refinance their current mortgage. There are other title companies who are doing the same thing and all of the information provided through blogs, studies such as this one, and other sources can help spread the message. Hopefully this will eventually lead to a change in the industry and put the consumer in charge. Change is difficult to achieve but with the flow of information inherent with the Internet we can continue to provide the information and hope that it reaches those who need it most, the person who is buying or refinancing their home.

HUD-1 RESPA Reform Comments Due Tomorrow - May 13, 2008

The Housing & Urban Development (HUD) proposed RESPA reforms proposed in March of 2008 will cease accepting comments from industry professionals tomorrow, May 13, 2008. The proposed reforms are designed to increase transparency in the closing process and help consumers shop for title insurance and save on closing costs.

A copy of the proposed HUD reforms is available at myClosingSPACE.com. If you have the time please take a minute to look at the proposed changes and file your comment with HUD. These reforms would make the closing process more consumer friendly and we encourage consumers and real estate professionals to take advantage of this opportunity to help craft the changes to make them more consumer friendly.

HUD-1 RESPA Reform Discussion

So, HUD has been soliciting feedback and ideas on RESPA reform and they delivered a document with some ideas that are being discussed. They are looking for comments and opinions on some of the ideas they are floating. If you care to offer an opinion or comment on these suggestions you have until May, 13 2008 to let your opinions known. According to HUD the overall objective is to make the shopping of loans and all the components to the closing easy for consumers. Here at myClosingSPACE we have found 4 important points that affect title insurance and we feel are important to achieving their goal and how we have already implemented some of the initiatives.

5 Important RESPA Reform Ideas

1. Grouping of Fees: Currently mortgage brokers, bankers, lenders, as well as settlement companies and Title companies charge a variety of fees. They want to group them in ways to make it easier and clearer for someone to shop around. They even changed the look of the settlement statement used at the closings, form HUD-1. At myClosingSPACE.com we group all fees and charges in an easy to read format and since we charge a flat fee these fees are consistent for all consumers.
2. Guarantee of Fees on GFE for 10 Days After it is Given: Since the consumer will have to shop around, the GFE needs to be guaranteed for a certain period of time. Obviously the rate is subject to change until locked, but the charges are suppose to remain the same. We guarantee all of our quotes. So when you get your quote from myClosingSPACE you can be assured that when it comes time to close you will pay the quoted closing costs.
3. Bundling of Settlement Services: Along with the bundling of settlement services HUD also want to allow for the reduction in fees based on work done and volume discounting. Currently the federal government due to RESPA sees the lowering of fees to a particular client, such as Wells Fargo, against the law, it is a kick back in order to get business sent their way. The government wants to change the rule and allow these types of discount in the name of saving the consumer money. Currently we charge a flat fee for all settlement work we do, regardless if it costs us more. We eat the fee in order to guarantee our quotes. We understand things change, we just do not want the consumer to feel it.
4. Closing Script: Script to be read at time of closing that illustrates all the points of the new loan such as rate, ARM adjustment periods. Because of all the mortgage fraud what you are paying for as well as the loan terms need to be told to the client. Currently prior to the closing we tell the consumer and all parties exactly what our charges are as well as the taxes and other escrow items that will be held at closing.

myClosingSPACE is Ahead of the Curve

As you can see myClosingSPACE has already implemented these consumer friendly initiatives (long before they were proposed). Our business model has always been focused on the consumer and we hope that HUD and RESPA can move the rest of the industry forward to become more consumer focused and transparent.

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.