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Why are lender's fees going down?

Posted by Rona Fischman August 16, 2012 01:55 PM

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CNN Money reports that the cost of mortgage closing costs has fallen by 7 percent. They attribute this to disclosures that have been in place for the past couple of years.

CNN Money reports:

The decline can be attributed to new regulations that require lenders to be more accurate when estimating closing costs for borrowers, said Greg McBride, Bankrate's senior financial analyst.

The regulation, which was put in place two years ago as part of the Real Estate Settlement Practices Act requires lenders to provide a "good faith estimate" of third-party fees that is within 10% of the actual amount the buyer will pay.

About a month ago I wrote an entry outlining the disclosures they are crediting with the lowering of fees.

Do you think that these disclosures are what caused the change? Is the GFE what is helping a borrower compare costs and making lenders be competitive about their fees? What’s your experience?

A factor that supports crediting the GFE with lower costs is that the “bait and switch” in lending is dead. Before the reform of the past few years, borrowers had no idea what the total they needed to bring to closing would be until the day before closing. Back then, I saw lender’s fees increase by thousands over the original estimate. The GFE, back then, was less accurate and not binding on the lenders the way it is now. In the middle of the mortgage processing, the fees could change (read: increase) for any reason. Because a borrower was on the hook to meet a mortgage deadline, the borrower was stuck with a sudden increase to the estimate given at application. Those really were the bad-old-days. I kept a list of lenders who pulled that trick on my clients, so I could help future clients avoid them.

Now, the GFE has accurate fees. But the GFE is not a good tool for comparing lender to lender, in relation to fees. It takes some time to prepare, so the lenders do it only when borrowers apply. Many lenders will not prepare a completed, binding GFE until the borrower has put in a good bit of effort and paid an application fee. Many will give a non-binding estimate, so that borrowers can compare apples to apples; those apples, however, are not binding.

How did you fee-shop when you got your last mortgage? Did a GFE come into play at all?

Another factor for lowered fees may be the ease of information-gathering for consumers. I think that consumers are talking to one another, in person and online through social media. They are comparing notes and voting with their feet about what fees they will pay and what they won’t. The lending industry had to accommodate.

Have you gotten advice on finding a lender with reasonable fees via on-line sources?

This blog is not written or edited by Boston.com or the Boston Globe.
The author is solely responsible for the content.

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About boston real estate now
Scott Van Voorhis is a freelance writer who specializes in real estate and business issues.

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