Naive homebuyers must keep an eye out for add-on fees that hike payments
A little-known provision in the Housing and Economic Recovery Act, recently signed into law by President Bush, is supposed to help homebuyers understand how much debt they are taking on to purchase their home.
The law requires clear disclosure to ensure that borrowers know their maximum monthly payment based on the maximum interest rate allowed under the terms of their loan.
The legislation requires that lenders disclose the information to borrowers no later than seven days prior to closing so borrowers can shop around if they are not satisfied with the terms.
This is a good but not great provision of the law.
While it's good that borrowers will get more disclosure before signing their loan documents, the information may still be coming too late in the process. It's highly unlikely many borrowers will stop the process so close to closing even after getting this disclosure.
Part of the reason we're in this mortgage mess is that many borrowers naively believed what mortgage professionals were telling them and didn't verify the information or shop around for a better deal. Some applicants didn't carefully examine the loan documents that would weigh them down with hundreds of thousands of dollars in debt for decades to come. Others didn't question many of the fees they were charged.
Since homes will continue to be sold and mortgages will be made, the take-away lesson from this crisis is to be better informed. And you can start by reading my pick for the Color of Money Book Club for August.
I've chosen "Mortgage Rip-Offs and Money Savers"($17.95, John Wiley & Sons), written by Carolyn Warren, who has worked 12 years in the mortgage industry. Who better to help you navigate the mortgage loan process than an insider who knows the many tricks and traps in the industry?
"Most homebuyers or people refinancing their loans know there are financial booby traps waiting, so they're on the lookout for scams and junk fees," Warren writes. "Nevertheless, they're still paying way too much."
Warren advises borrowers to watch for multiple fees that essentially cover the same service, although they may be described in different terms, such as an "administration" or "underwriting" fee. If a borrower asks enough questions they may find the fees - $800 to $1,200 in some cases - are often for the same thing.
"It's like double dipping," she said in an interview. "There's no purpose for both these fees other than to pad profit."
Warren said a new fee of $50 to $150 she's seen is for documents sent by e-mail. Some firms charge borrowers for having to print them out. "That's like a restaurant charging you more for napkins," she said.
Whether you are new to the mortgage process or a longtime homeowner, you'll find something in Warren's book that will help you spend less on your next loan.
Michelle Singletary is a columnist for The 
