Thursday, 29th of May 2008 at 11:29:45 AMU.S. Department of Housing and Urban Development (also known as HUD) released a study today: A Study of Closing Costs for FHA Mortgages by a noted economist Dr. Susan Woodward. Basically Dr. Woodward took a national sample of 7,560 FHA-insured, 30-year fixed-rate home purchases and compared the fees that the buyer/borrower paid for mortgage broker services, title services, and real estate agent costs. There was significant variations of costs for these areas. What I found to be disturbing was that these variations appeared to be based on education level, geography, race and ethnicity.
Key findings of the report include:
- Total loan fees can vary by thousands of dollars from borrower to borrower even for the same loan amount.
- Loan charges and title fees vary considerably from state to state even for similar loans. Even in the same state, disparities in title costs among identical borrowers can be more than $1,000.
- On average, borrowers see no reduction in out-of-pocket fees when they agree to higher interest rates. Ideally, consumers ought to receive a dollar-for-dollar credit for paying a so-called “yield spread premium” that results from agreeing to a higher interest rate loan. In fact, many borrowers see no reduction at all and even pay more in total loan fees.
- African-American families pay an average of $415 more in total loan origination fees than non-minorities.
- Hispanic borrowers pay an average of $365 more in total loan origination fees than non-minorities.
- Consumers obtaining loans for which comparison shopping is easiest, so called “no-cost loans,” enjoyed an average cost savings of $1,200.
I can remember representing a seller at the beginning of my Real Estate career and seeing the HUD-1 (a summary of closing amounts), I was in shock at how much the buyer was paying in closing costs for what I considered to be a below average loan. The thoughts that came to my mind was that the buyer must be very high risk. The buyer was a first time buyer in his late 20s and 5 years history as a high school teacher, nothing that stood out as high risk to me, but I wasn’t privliged to his financial background.
A couple days after closing his agent called me and asked if I felt the lender fees were a bit high, I told him that I felt they were excessive, nearly $6,000 for a $180,000 loan with 5% down. He said that they were meeting with the lender to review those fees and see if they could get a rebate. I asked him where he found the lender and he said the buyer brought him. Then I asked him what the good-faith estimate said and he said that he never saw the good faith estimate.
My business has evolved over the years and that transaction is the foundation for one reason why I have a relationship with the lender for my buyer clients. The buyers have brought me in to help protect their interest in all parts of the transaction, so even if they bring the lender to the table, I want to know the lender, talk to the lender and see the good faith estimate.
So back to the report, a conclusion of this report is that purchasing a home is just too complicated for the everyday buyer. There is just too much going on for them to know everything about it. Brian Montgomery, HUD Assistant Secretary for Housing and Federal Housing Commissioner, said, “The core problem is that too many Americans sign a mountain of documents they don’t understand and pay thousands of dollars for services that they’ve probably never heard of. This report proves that the more informed you are, the less you pay. Our common goal should be to increase competition and transparency, and to help take the mystery out of buying a home.”
Remember, you have the right to know everything about your transaction, if a number seems high, ask questions, understand, check with your Realtor, Title Agent and Mortgage Agent for opinions. You have the right to shop for mortgages and other services to get the best value for your money.
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