Closing 6/10/03
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Closing 6/10/03
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Mort.Calculator
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Closing-cost surprises sting homeowners
By Thomas A. Fogarty, USA TODAY
Not all mortgage loan settlements go as poorly as Vinny Worley's. But many do.
Check in hand, Worley went to a law office to close on a new home in Wilmington, Del. Only when the lawyer's assistant slid the settlement summary across the table did he learn he was $1,800 short. It was the classic settlement table surprise — the too-frequent chaotic climax of the biggest, most complicated type of business deal the typical American ever undertakes. Surging home sales and serial waves of refinancings have made such surprises routine. Last year, Americans closed on 16.9 million mortgage loans and paid an estimated $80 billion in settlement costs. Record low interest rates this year have unleashed a wave of mortgage business that is expected to swamp last year's numbers. Across the USA, tales of botched settlements have become standard chatter at cocktail parties and backyard barbecues. Responding to widespread dissatisfaction, the Bush administration last year proposed rule changes that would simplify mortgage deals and transform the way the industry operates. The key change would encourage lenders to offer loan applicants upfront a single guaranteed price for closing the transaction. For lenders willing to do business on that basis, the government would eliminate the thicket of regulations that now make it impractical. Supporters say improved efficiency from the pending changes would squeeze up to $1,000 from average closing costs. The changes also would let borrowers comparison shop for the first time on the basis of just two numbers: interest rate and the fixed closing cost. But if the proposal is to become reality, the administration will have to bull its way through opposition from tens of thousands of small mortgage-related businesses that have a financial stake in the way business gets done. In Worley's case, the lender and the settlement attorney had overlooked a local transaction tax. Worley eventually was permitted to close the deal with a personal check on a separate account intended as a reserve for the new home. It wasn't just the extra expense but the sheer sloppiness of the transaction that offended Worley, 33, an electrical engineer and a self-described fanatic for orderliness. "There ought to be a way to be precise about the numbers ahead of time," he says. Settlement surprises can result from plain incompetence or honest misunderstandings. Or they can be fraud by any of the many players needed to close a deal. John Courson, chairman of the Mortgage Bankers Association of America and a supporter of reform, told Congress this year that the complexity of the mortgage deal today is "an invitation of bait-and-switch." Regulatory thicket When Congress in 1974 enacted the law that governs real estate closings, a key objective was outlawing then-common kickbacks: lavish gifts and cash from lenders, title insurers, settlement agents, home inspectors and other industry players to real estate agents in return for delivering clients. The law also required extensive written disclosures so borrowers would know who was being paid what for services related to closing the mortgage. Over time, the industry has successfully pushed government to ease the original anti-kickback provisions. Now, key players such as real estate agents and mortgage bankers can steer customers to related service providers if the link is spelled out in writing. Critics say changes in the law over the years have produced a confusing jumble that does more to confuse borrowers than to protect them. Borrowers are not so much enlightened by the blizzard of mandatory disclosures as buried in them, critics say. "Disclosures have so much information that they're meaningless to most customers," says Ira Rheingold, director of the National Association of Consumer Advocates. How the law now fails to protect: • Lenders must provide loan applicants with a "good faith" estimate of closing costs early in the process. However, they are largely free to ignore their own numbers. • Borrowers have a legal right to see their settlement sheet — the document that itemizes all the costs — a day before closing, but few know to demand it. • Borrowers can cancel the loan for refinancing up to three days after settlement. It is rarely done because it means starting the painful borrowing process over and possibly increasing the interest rate. In a purchase, the borrower has no comparable cancellation right. Back to top
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© 2006 Century 21 Real Estate LLC. CENTURY 21® is a registered trademark licensed to Century 21 Real Estate LLC. Equal Housing Opportunity. Each Office is Independently Owned and Operated. "When You're # 1, You Can Do Things Others Can't" - Source: 2006 Ad Tracking Study. This survey included 1202 telephone interviews (via computer assisted program) with a national random sample of adults (ages 25-54) who have either bought or sold a home within the past two years or plan to purchase or sell a home within the next two years. Brand awareness questions are based on a sample size of 1202 respondents with a margin of error of +/- 2.4% at 90% confidence level. The study was conducted between March 6th-October 2nd, 206 by Millward Brown, a leading research organization. |
