Home Improvement (Some Republicans want higher mortgage closing costs)

The Wall Street Journal ^ | May 27, 2002 | WSJ Editorial Board

[Dems_R_Losers]

If homeownership is the American Dream, then mortgage closing costs are the wake-up call. Housing and Urban Development Secretary Mel Martinez is pushing reforms that would make it simpler and less costly to purchase a new home or refinance an existing mortgage. But resistance is coming from, among others, select Republicans in Congress who benefit from the status quo.

[Dems_R_Losers]

Mel Martinez is doing a great job with this, but is getting beat up by Republicans doing the bidding of some special interests, especially title insurers. Some Republicans say they love deregulation -- until the folks who bankroll them complain because deregulation will cost them profits!

[trebb]

Senator Richard Shelby of Alabama, who heads the Banking Committee, has made it known that he prefers the home loan industry as is. Less known is that Mr. Shelby is also chairman of the Tuscaloosa Title Insurance Co., which is shielded from competitive pricing pressure under the current Respa regulations.

Seems like they should have a law in Congress that, if you have a vested interest in a bill because of personal business ties, you don't get a say or a vote.

[freedombrigade]

Lots of banks in my community are now offering "no closing costs" mortgages for first time home buyers. Competition is driving down the costs at least at some level. This may have a boomerang effect of cutting the costs and lessening the need for real competition, allowing banks to wipe out the no closing cost mortgage loan idea.

Has anyone else seen this trend?

[Alberta's Child]

Some Republicans say they love deregulation -- until the folks who bankroll them complain because deregulation will cost them profits!

Kind of like those Republicans who campaign against "big government," but then end up voting for record Federal budgets year after year.

[ken5050]

What the article doesn't mention, surprisingly, is that in most instances...the largest cost item in a closing is the attorney's fees...which are a % of the price...and not reflective of the work done.....i.e. a $500k, or a $5 mill house..it's the same...and several states REQUIRE an attorney..they won't allow a closer from the title company to do it.....but the biggest rip off is title insurance..especially on re-financing...that's where you can really work a deal.....

[Always Right]

Besides the hidden loan costs of some mortgage brokers, the biggest rip off at the closing is title insurance which never seems to cover any claim as far as I can tell.

[Always Right]

...but the biggest rip off is title insurance..especially on re-financing...that's where you can really work a deal.....

I have seen many people burned by problems with title, but have never seen Title Insurance step up and pay a claim or even help out in any way. And as you mentioned, it is especially a ripoff to have to do it on a refinance when the property is not even changing hands.

[Sender]

I think you'll find that "no closing costs" means that they have added the closing costs into the mortgage amount financed. You still pay all those attorneys fees and title fees, you just stretched them out over 30 years, with interest.

As a side note, I'm trying to buy another house in my neighborhood for my parents. A partnership of local businessmen own the house and several others, and they lease them out. When I discussed buying the house with the owner, he tells me he can do the entire closing using his attorney easily for under 500 bucks. When we bought our house, we paid a couple thousand in closing costs. So who gets all that extra money? Inquiring minds want to know.

[Phantom Lord]

Mel Martinez is doing a great job with this, but is getting beat up by Republicans doing the bidding of some special interests, especially title insurers.

Title Insurance is worth EVERY PENNY! Generally $2 per thousand borrowed on a purchase, and $1 per thousand on a refinance.

I do mortgages for a living and I had something happen 2 weeks ago that I have never heard of before. I did a refinance loan for $384,000 on a $600,000 house. The "right of recession" passed, the funds dispersed to the attorneys trust account. The customer got the "cash back" they wanted, we got our fees, but the loan being refinanced was NEVER PAID OFF! The attorney had a heart attack and has been in the hospital ever since. His trust account ended up being over $1 Million short through accounting failures and other mishaps because of his heart attack. 5 mortgages were never paid off. My customer was looking at having TWO $384,000 mortgages to pay off because the attorney didnt pay off the old mortgage because of his heart attack. Well, title insurance paid it off. Worth every penny of the $384 it cost to buy.

[eeman]

I think the "no closing cost" means that the costs are rolled in along with the principal so that you are financing these costs for the life of your loan.

"Countrywide" has "guaranteed" closing costs, but only for the cost they control. The big fees like the escrow and title insurance are not guaranteed.

On the internet, when you start looking at these "low closing cost loans" they are not including everything and what they are including in their "clsoing costs" are not that cheap relative to any other mortgage service.

[Phantom Lord]

My company offers "no closing cost" options for purchases or refinances. The basic deal is that the mortgage company will pay all of your closing costs and you get a little higher interest rate. At smaller loan amounts (under $150K) it is often not in the customers best interest. But on larger loan amounts is often is.

[blackdog]

I've seen it too, but they get a higher loan rate. Loan fees are also tax deductable and in cases of relocations at the employers request, reimbursable.

I'm no great fan of mortgage banks or the scam system that baits and switches loans, but the industry has been doing some unhealthy things lately. Customers who are not credit worthy are getting mortgages. No down payment loans, etc....There used to be a sub-prime market for these risky loans but under the cover of political correctness they are enjoying the high rates, three to four percent higher in some cases and pumping all those risky loans into the system. Those type loans used to only be from private mortgage banks that did not have to use fed rules.

[Phantom Lord]

Read post #9

[Phantom Lord]

Read #9

[Phantom Lord]

I think you'll find that "no closing costs" means that they have added the closing costs into the mortgage amount financed. You still pay all those attorneys fees and title fees, you just stretched them out over 30 years, with interest.

Not true. With a true "no closing cost" mortgage there are NO CLOSING COSTS. You pay a little bit higher interest rate than if you had closing costs.

Lenders get what is called "Yield Spread Premium" from the investors. The higher the interest rate the higher the YSP. To do a "No Closing Cost" transaction, the lender bumps the interest rate to the point that the additional YSP covers the expenses for closing that the lender has to pay.

[ken5050]

I have seentitle insurance pay off several times...the problem is that the rate is always a % of the property value..it doesn't reflect the risk...some properties obviously have more risk associated with a clear title....however, it's changing..as more of the courthouse record go on the net..you don't have to have people pay the grunts who slog through the abstracts....also, since now about 2/3 of all mortgage closing are re-fi's....people are learning to ask for a discount....general rule of thumb is that if it's within 5 years..they'll do it for half-price....also, if your original lender kept your mortgage...you can often ask them to lower your rate..and you save on everything..

[Phantom Lord]

Escrow, while paid at closing is NOT a closing cost. You are going to pay your property taxes and hazard insurance wether you refinance or not.

[eeman]

That is quite a story, but do you think, title insurance would become more competitively priced if you could shop around for it like life insurance? I am not saying that it is not worth having

[Always Right]

I am kind of in shock. All I ever hear are lame excuses why the title insurance doesn't cover the situtation. Usually they only cover fraud or defects that were missed on the title search.

[ken5050]

I agree...but the cost should be competitive....BTW, in the example you cite....the state insurance fund for lawyers, which is supported by the interest earned on lawyers escrow accounts...would have eventually paid off on the laywer's errors..though ti would take a while...I'll wager you that the title compnay got every penny back from the fund...

[eeman]

I realize that but isn't there a significant fee for setting up the escrow account? I guess I should have made my point more clearly.

[Wright is right!]

"Besides the hidden loan costs of some mortgage brokers, the biggest rip off at the closing is title insurance which never seems to cover any claim as far as I can tell."

Back in the Olden Days, there were some states (OK comes to mind) where you could opt either for title insurance OR a Title Abstract. The Abstract was basically a search and was to indicate any possible title claims at that time. Abstracts were cheap compared to Title Insurance, and a lot of pipple went that way. Nowadays, Title Insurance seems to be a policy protecting only the lender - and not necessarily the buyer.

The mortgage-closing bidness has gotten a lot more complex lately, and the number of fees has dramatically increased. Not only that, but it's not uncommon to see credit reports listed at $150.00, although you can go to any of the 3 bureaus online and get yer own dern credit report for as little as $9.

One thing I did the last time I needed bank financing (for the motorhome), I took a copy of my Equifax report, gotten online that very day, to the bank with me when I made the app. I told the loan officer that I realized they'd want to pull their own report but we could both save ourselves a lot of time by looking at the Equifax - and if there was anything about it they'd shoot me down on, to know that now instead of days later. He said, "You're right - and you're right - and, no, there's nothing on there de-rog, so should be no problem." Was approved later that afternoon.

The better informed you are when you apply for ANY kind of loan, the better off you're going to be.

Michael

[Phantom Lord]

You can shop for title insurance, sort of. Try to use a closing attorney that you know or is recommended to you by someone that knows them. There are multiple Title Insurance companies out there. The "shopping" problem is that the attorney is the one who obtains the insurance, not the customer. Work with an attorney you know and have them shop for you.

[Phantom Lord]

They also provide what is called a "insured closing letter". This guarntees the closing and paying off of the previous mortgage if something goes wrong.

I have been doing this for 6 years and I had never seen anything like that before. And there was really nothing that could be done. The attorney had a heart attack and it was a one attorney practice. He was the business.

[Bob Buchholz]

I used to think that title insurance was bogus, but recently found out that it serves a good purpose. I bought a house to remodel and resale. Just after I closed on it, the owner of a house on the side street put up a fence across my yard. When I confronted him, he produced a deed that showed that he had purchased the lot several years back from the owner at the time. We contacted the title-insurance company and they handled the dispute. It turns out that the ex-owner had sold the man the property but never recorded the deed and then sold the same property later to the fellow that I bought it from. The other fellow lost out, but it would have cost me a bunch in lawyer's fees if not for the insurance.

Now if you want to to discuss a useless requirement, let's talk about flood insurance. We had a 500 year flood in our area a few years back, my house wasn't even close to being flooded, but now we have to pay an extra $700.00 yearly because we live in a flood plain.

[Phantom Lord]

I'll wager you that the title compnay got every penny back from the fund...

That may be the case. But in the short run the Title Insurance has saved the peoples butt. The additional cost of 2 mortgages would have bankrupted them in short order. They don't have the time or ability to wait around for it to be taken care of.

[eeman]

Thank you. Also My qestion in 21 was directed at you but I replied to my self. In general, I don't talk to myself, well not too much of the time anyway.

[Phantom Lord]

The "fee" for setting up an escrow account is a "fee" that you are going to have to pay anyway. Escrow accounts pay your property taxes and hazard insurance. There is no "fee" for setting it up. And if there is, they are breaking the law!

[eeman]

Thank you

[Phantom Lord]

The mortgage-closing bidness has gotten a lot more complex lately, and the number of fees has dramatically increased. Not only that, but it's not uncommon to see credit reports listed at $150.00, although you can go to any of the 3 bureaus online and get yer own dern credit report for as little as $9.

If you ever see a charge that high for a credit report tell em to suck it and take your business elsewhere.

Yes, you can go online and get your own report. But Mortgage Lenders can NOT use it. By LAW the credit report has to be in the name of the lender.

Plus almost all mortgages today are approved by automated underwriting systems (DU, LP, etc...). These automated underwriting systems are driven by the downloaded credit reports pulled from the 3 agencies.

[Phantom Lord]

Now if you want to to discuss a useless requirement, let's talk about flood insurance. We had a 500 year flood in our area a few years back, my house wasn't even close to being flooded, but now we have to pay an extra $700.00 yearly because we live in a flood plain.

I agree and disagree. How many billions of dollars have been paid out by FEMA the past couple years to people who lost their homes in floods?

Want to have flood insurance? Fine. Don't want it? Fine. But don't come begging to Joe Taxpayer to bail you out when you have a $100,000 mortgage to pay off and no home to live in.

[optik_b]

"Kind of like those Republicans who campaign against "big government," but then end up voting for record Federal budgets year after year."

That's because many members of both parties are more concerned with being re-elected and winning votes than doing the right thing and fiscal responsibility.

[stylin19a]

My last refinance, I picked the Title insurance Co. and closed with them. My Title Insurance only protects the lender, not me. I had to buy an Owners Title Insurance Policy, at additional cost, of course.

[Phantom Lord]

I should also explain how escrow accounts work and how they are set up.

Escrow accounts collect 1/12th of the annual cost of taxes and insurance in each monthly payment so after a years worth of payments there is enough in the account to pay the bill. They also build in a 2 month "cushion" incase you miss a payment or two there is still enough to pay so no liens are placed on the property and so insurance is maintained.

Now, taxes and insurance are due at a specific time regardless of when the home was bought or refinanced. So lets say that your property tax is due on August 1st. If you loan closes today (5/27), they will have to collect at closing enough money for the escrow account to pay the bill on August 1st. If your loan closed today, your first mortgage payment would be August 1st (if it is a refinance, July 1st on a purchase). So you will have made 1 payment toward your escrow account. So at closing they need to collect 11 months worth of taxes and the 2 month cushion. 13 months in total so there is enough to pay the bill when it is due.

If it is a refinance and you are currently escrowing the old escrow company must refund the balance within 30 days of closing.

[Sally'sConcerns]

No shock there since the lender usually insists they be in a first lien position and the lender's title policy guarantees to the lender they are in first lien position.

Owner's title policy insurance will protect the owner in the event of a defect in the chain of title or in the case of fraud.

[Dems_R_Losers]

Title Insurance is worth EVERY PENNY! Generally $2 per thousand borrowed on a purchase, and $1 per thousand on a refinance.

I do mortgages for a living and I had something happen 2 weeks ago that I have never heard of before. I did a refinance loan for $384,000 on a $600,000 house. The "right of recession" passed, the funds dispersed to the attorneys trust account. The customer got the "cash back" they wanted, we got our fees, but the loan being refinanced was NEVER PAID OFF! The attorney had a heart attack and has been in the hospital ever since. His trust account ended up being over $1 Million short through accounting failures and other mishaps because of his heart attack. 5 mortgages were never paid off. My customer was looking at having TWO $384,000 mortgages to pay off because the attorney didnt pay off the old mortgage because of his heart attack. Well, title insurance paid it off. Worth every penny of the $384 it cost to buy.

Believe it or not, the same thing happened to me when I bought my first home. The seller had gotten a partial private mortgage from the previous owner, and after we closed the attorney never paid off the original mortgage. In our case the guy was a crook who skipped the country! He had been bugging our realtor for business and ours was the first loan she gave him to close. However, we had to threaten to sue the title insurance company to get them to pay off the debt. From what I understand, this is a very rare occurrence - certainly the closing attorney having a heart attack is unusual!

[Phantom Lord]

In some states mortgages are closed by the Title Insurance Company and in some states by a real estate attorney. I live and work in NC and an attorney must close all real estate transactions.

[eeman]

Thank you very much for the valuable information!

[Wright is right!]

"Yes, you can go online and get your own report. But Mortgage Lenders can NOT use it. By LAW the credit report has to be in the name of the lender."

Even if it were NOT law, I nonetheless wouldn't expect them to use it. But it's a good way to head off potential problems at the pass by saying, "Here's what I'm going to look like when you pull the bureaus. See anything you don't like?"

Michael

[Phantom Lord]

I wish more customers would do that. Many think they have perfect credit and get whatever they want. Then get upset when they can't. Nothing wrong with saying, Hey, heres my equifax report and I have a Beacon of 713. Unless my income or other unforseen item is a problem can I most likely get approved for what I want?

But you would be surprised at the number of people who say "You don't need to pull a credit report. I just got a copy of it online and I can send it to you." And when I tell them I can not use it they get pissed and tell me they will go elsewhere. Fine, I tell them. They are gonna tell you the same thing.

[Sally'sConcerns]

Did they do away with that convoluted calculation on determining how much should go into the escrow account?

I worked in mortgage banking for 20 years and the year that came out was a nightmare. Different states had different regulations about how much, if any, pad you could have in the escrow account. Some states have taxes due twice a year and weren't spaced evenly every 6 months. Some counties had different tax due dates.

The very worst though was in the Houston, Texas area. Taxes due and payable on October 1st but the taxing authorities wouldn't determine their tax rate till November or December. The title companies would balk at adding the required language on Schedule B of the policy if they couldn't pay the taxes. Oh, and they almost all quit placing a calculated amount for taxes into escrow where they could make sure the taxes were paid.

[palmer]

let's talk about flood insurance

Before a closing in MA I had to convince the insurance company that I didn't need flood insurance. The property was 100 feet above the 100 year flood line but that didn't stop them, only my refusing to buy it.

[Phantom Lord]

I think you are talking about the "aggregate adjustment". It is used here in NC. Though it is calculated by the closing department at the investor. Luckily I don't have to do it.

[Phantom Lord]

An "elevation certificate" has always worked for me in getting the requirement for flood insurance waived for my customers. Though you are in a different state. Thus different rules.

[davisdoug]

There is no such animal. You will pay a higher interest rate and the greater premium will allow the banker/broker to cover your fees. You will pay a higher rate over the life of the loan and this could cost you BIGTIME depending on how long you hold that mortgage.
There is never a free lunch.

[palmer]

I'm in VA now about 300 feet above the surrounding terrain. But I can see how people might just give in to their insurance carrier because they don't want to jeapordize their closing.

[hunter112]

I worked in title insurance for 25 years, best to think of it as research and a guarantee on the research, including some rare, but costly matters that cannot be adequately researched, such as forgeries. It's true that it seems high for refinancings, but here in WA state, there's a price break given, often a person refinancing a $100,000 loan will pay less than a home buyer who borrows the same $100,000.

The stuff the title companies do would take more time, and ultimately cost way more in government spending to do, if we just had bureaucrats conducting title registration. Land (and its attached buildings) have been made the 'whipping boy' for our justice system. If you don't pay your state taxes (increasing the burden on others who do pay), your land is attached. If you skip out on your child support and your kid goes on welfare, your land is attached. Don't pay your debts, and judgments will attach to your land. Part of the way that all these people and entities get their fair recompense is through the system of attachment to real property. Title insurance protects new buyers and new lenders against this.

On the other hand, is your lender requiring too much? Many lenders that make second loans (junior mortgages) offer no-closing cost loans, they cut fees by asking title companies for brief reports that just list the vested owner of a property, as well as monetary liens on the land, only. When its the borrower paying for the title insurance, they want the Cadillac of coverage, with full copies of every obscure matter (expensive and time consuming to provide) that affects the property (old uneconomical-to-develop mineral rights, for example). The whole lending industry is mired in its ideas from the Depression, and this affects the costs of what they want you to provide to them in order to make the loan.

The title industry is making strides in improving delivery of its products and services, that's why I'm just finishing up a couple years of study towards my network administration degree, I hope to use my knowledge to help it improve its ability to deliver a quality product quickly to its lender customers, this will better help them serve the public that wants closings quicker.

[Wright is right!]

What was really amazing on this motorhome loan is that I'm self-employed and they didn't even ask for any tax returns. Of course, it helps that the lender is also my business' bank, so they could easily see the cash flow by looking at my account. And on the day I applied, there was a whole boatload of float in there, which no doubt helped. Plus, the amount I asked for was WAY below even the wholesale value of the security interest, so they really didn't have much to worry about.

Michael

[Sally'sConcerns]

When I was working I was the closing department and was the one doing the *&*^(* calculation as well as having to explain the dumb thing!

[hunter112]

All I ever hear are lame excuses why the title insurance doesn't cover the situtation.

It's surprising what people think it covers. I'll never forget the two dairy farmers back in 1978 who came into the company where I was a title officer, and expected me to settle who owned five feet of disputed property because of a fence. They each had hundreds of acres on each side of the fence, and they should have been in a surveyor's office. Those folks charge many thousands of dollars for their services, instead of a few hundred for title insurance.