“It’s a good thing for the author of this WSJ article that the Consumer Financial Protection Bureau doesn’t have jurisdiction over bad reporting about mortgages (at least I don’t think so?) or she might be in for a big, arbitrary fine for misleading consumers…
…Sorry, I couldn’t help myself commenting about this. I looked at the lender fees in this article and while I have been out of the industry for six years, I knew immediately that this was the wrong way for home buyers to look at this issue. I had lunch today with a friend in the industry and he told me that lenders generally make, before expenses, three or four times the figures below and on larger loans the lenders can make $10,000 or more (on one mortgage loan!). How is this? The fees below are just the fees charged to the borrower, they exclude the profit on the mortgage when it is sold into the secondary market (and most mortgages are sold into the secondary market). Everyone in the industry, including the industry’s regulators like the CFPB, know that the fees below are just one part of the bigger picture and the big picture is summed-up in the government-mandated Annual Percentage Rate (APR) disclosure. This APR is a “yield” (a cost to the borrower) that includes both the contractual rate of the mortgage note and all the lender fees. It’s the ONLY way a mortgage borrower can properly comparison shop for a mortgage. Finally, I would like to make another important point. Since Elizabeth Warren’s CFPB was created by Dodd Frank (and is well on its way to costing a billion dollars a year and much more as the years go by), they have produced a bunch of regulations, mandated disclosures, audited the heck out of firms, and used their unchecked power to act as judge and jury and executioner….coercing settlements and arbitrarily fining a bunch of firms. But where is the beef? Are mortgage borrowers economically better off today because of the CFPB? Absolutely not. From what I read, mortgage lender costs have risen by several thousand dollars per loan (my recollection is like $4,000 since the crisis), largely due to increased regulation and compliance. These costs are fully passed on to (paid by) mortgage borrowers. Also, mortgage lending profit margins post-crisis (because of reduced competition) are much larger than they were pre-crisis. Again, this costs mortgage borrowers thousands of dollars. And these amounts don’t count the guarantee and insurance fee increases by Fannie Mae, Freddie Mac, and FHA (to recapitalize themselves)…they have doubled, tripled and more. And there is really no non-government alternative; they guarantee about 90% of U.S. mortgages. Bottom line, since the financial crisis, Dodd Frank and the CFPB’s creation, I am guesstimating that mortgage borrowers are paying at least $5,000 and possibly $10,000 (or higher) more per mortgage than they did pre-crisis. The truth of the matter is that Elizabeth Warren’s CFPB is mostly about compliance and regulatory form-over-substance and the substance they have provided has unfortunately resulted in reduced competition (and fatter industry profit margins) and increased mortgage costs; all of which are borne directly by American mortgage borrowers.” Mike Perry, former Chairman and CEO, IndyMac Bank
How Home Buyers Can Lower Closing Costs
Tips on how home buyers can ease the sticker shock of closing costs, which vary widely across the country.
By Anya Martin
It’s closing time: Last call for every entity with even a small role in a home sale to collect their fees.
Home buyers—eager to get the keys to their new place—must first cover myriad costs, including agent commissions, attorney fees, lender fees, mortgage insurance, a title search, recording fees, real-estate taxes, survey costs and an appraisal (sometimes two on a jumbo loan).
Closing costs can vary depending on which lender is used, what state you live in, the price of the home and even the day of the month the closing takes place. Jumbo-loan borrowers—where amounts exceed $417,000 in most places and $625,500 in high-cost areas—often face the steepest closing costs because many fees are calculated using a percentage of the loan amount. But a little research and comparison shopping can help buyers reduce these out-of-pocket costs.
Borrowers can get a sense of what they will owe in the good-faith estimate document, which federal law requires lenders to provide within three days of the loan application. Lenders cannot change their own origination fees, but they are given a 10% leeway in estimating third-party charges, such as appraisal, survey, inspection and title services, says Peggy Lawlor, a mortgage-strategy executive with Bank of America .
The three states with the highest average closing costs are Texas ($3,046), Alaska ($2,897) and New York ($2,892), according to a 2014 Bankrate.com survey of lenders based on a hypothetical $200,000 mortgage. Nevada had the lowest average closing costs ($2,265), the Bankrate.com survey found. The final charges can be much steeper because some of the highest third-party costs, including taxes, weren’t included in the survey.
Differences vary not just by state but by individual localities, says Peter Grabel, managing director of Stamford, Conn.-based Luxury Mortgage. New York City, neighboring Westchester County and the Hamptons on Long Island have some of the highest transfer taxes, also called conveyance taxes, in the country.
In San Francisco, transfer taxes are graduated with a rate of $3.40 for each $500 portion of a purchase price between $250,000 to $1 million, says Mathew Carson, a broker with San Francisco-based First Capital Group. The rate jumps to $3.75 for purchase prices from $1 million to $5 million. In nearby Oakland, home buyers pay a county tax of $1.10 and a city tax of $15 per $1,000 of the home’s purchase price.
Some geographic areas also have different expectations as to whether a buyer or seller pays certain fees. In New York City, a condo buyer will typically pay conveyance taxes, but sellers pick those up for co-op purchases, as well as for single-family homes in Westchester County, Mr. Grabel says.
Title insurance also can vary widely across the U.S.—and even by type of home, says John Walsh, president of Milford, Conn.-based Total Mortgage, which lends in 33 states.
In New York City, Westchester County or the Hamptons, a $1 million condo may cost a borrower $5,900 in title insurance and recording fees, but co-ops may have closing fees as low as $500 because they don’t require title or mortgage insurance, Mr. Grabel says.
The day of the month when the mortgage closes can also affect costs, Mr. Walsh says. “If you close on Nov. 5, you have to pay the per diem interest from the 5th to the 30th, but if you close on Nov. 28, it’s only three days,” he adds.
Borrowers can also reduce out-of-pocket expenditures by wrapping the closing costs into the loan, but lenders will charge a slightly higher interest rate, Ms. Lawlor says. When considering that option, borrowers should balance how much cash they can bring to the closing table versus how long they plan to stay in the home, she adds
More tips that may help lower closing costs:
- Shop around. Apply with more than one lender to compare origination fees quoted in good-faith estimates, says Greg McBride, chief financial analyst for Bankrate.com. “Be prepared to comparison shop and to negotiate to get the best deal,” he says.
- Relationship discounts. Lenders may offer lower origination fees for their customers, Ms. Lawlor says. For example, Bank of America just rolled out a “Preferred Rewards” program that offers up to $600 in reduced rates depending on the dollar amount of a customer’s deposits.
- Closing attorney. Many borrowers stick with a lender-appointed attorney to represent them at the closing, but they are not required to do so and can hire their own, Ms. Lawlor says.
- Title insurance. Some states dictate the rate that title insurance providers charge, but not all, Mr. McBride says.
Corrections & Amplifications
An a previous version of this article inaccurately paraphrased Mr. McBride’s comment to say that some states require a borrower to use a lender-selected title insurance provider, but not all states do.