Higher closing costs may not be
WASHINGTON - Aug. 31, 2010 - A new federal rule this year requiring mortgage lenders to give borrowers reliable estimates of closing costs appears to be working - whether it's also costing borrowers more money is uncertain.
A recent survey by Bankrate.com found that, on average, origination and third-party fees on a $200,000 purchase mortgage added up to $3,741 - a 37 percent jump over last year's average of $2,739.
The fees can include appraisals, credit reports, a closing or settlement attorney and surveys.
Some housing experts say costs are rising because lenders have had to hire more staff to comply with the requirements of the Jan. 1 rule. That includes auditors, inspection experts and others who make sure estimates are accurate.
"Lenders have had to hire compliance people," David Leoncavallo, president of GFEazy, a Salt Lake City provider of compliance and other data for lenders. "To go up from $2,700 to $3,700 overnight is insane. Consumers should be upset."
But others say closing costs haven't gone up. Rather, they say, the estimates simply seem higher because they more accurately reflect actual costs that buyers pay.
"Before, it wasn't an accurate assessment of closing costs," says Tim Dwyer, president of Entitle Direct, a direct-to-consumer title insurance service. "Now, it's a more accurate portrayal. Actual closing costs have not increased. The estimates have gotten closer to the actual costs."
The good-faith estimates also are aimed at protecting consumers by ensuring that lenders don't lowball the numbers, says Vicki Bott, deputy assistant director of the Department of Housing and Urban Development.
"Consumers get more accurate estimates upfront," she says. "It's not an increase in closing costs."
One reason lenders are ensuring accurate estimates is that, in many cases, they must now make up the difference between the estimate provided and the actual total.
Denis Orloff, a sales associate with Rhodes Van Note & Co. Realtors, says fees have risen because more people are needed to process the same number of loans.
He estimates borrowers pay $800 to $1,500 more than two years ago to have their mortgage application processed.
Bob Davis, executive vice president at the American Bankers Association, says some costs have gone up because it takes more time for lenders to comply with the estimates.
He also says new estimates have to be issued if, for example, the terms of a loan change.
"It's true the new requirements are more complicated and take more time to comply with," Davis says. "Anything that takes more time and effort adds an element of cost, but it's not significant."
© Copyright 2010 USA TODAY, a division of Gannett Co. Inc., Stephanie Armour