Home buyers should watch out for excessive fees, 'junk' fees at settlement

Posted: Friday, November 01, 2002

NEW YORK (AP) -- Millions of Americans are taking advantage of low mortgage interest rates to buy new homes or refinance their existing loans. But some aren't getting the best deals they could because they're being charged excessive fees when they close their new mortgage loans, experts say.

''I call them 'junk' fees, and they can sometimes get into the $2,000 to $2,500 range,'' said James Nutter Jr., president and chief executive of James B. Nutter Co., a mortgage banker in Kansas City, Mo.

He says that some loan officers will tell borrowers, ''Oh, these are standard fees. Everyone charges them.''

''That's not the case,'' Nutter says. He urges consumers to make sure they know in advance what fees and other charges will be included in their closing, or settlement, costs -- and seek another lender if they're too high.

''Consumers should be mad as heck about this,'' Nutter said. ''They shouldn't take it.''

Under federal rules, home buyers have two opportunities before they get to the actual closing conference to learn what their settlement fees are going to be.

The Real Estate Settlement Procedures Act requires that consumers be given a ''good faith estimate'' of settlement costs when they apply for a mortgage loan. One day before the actual loan signing, consumers have the right to see the settlement statement, which should itemize all services that have been provided in processing the loan and the exact fees.

The Department of Housing and Urban Development, which administers RESPA, is in the process of revising the rules to require lenders to provide firmer estimates so would-be borrowers can more easily comparison shop.

''Americans enter into mortgage loans -- the largest single investment most families will ever make -- without the clear and useful information that they receive with every other major purchase,'' HUD Secretary Mel Martinez said earlier this year.

''We're taking the most meaningful and comprehensive step in years to clarify a settlement process that is cloaked in confusion and uncertainty.''

The agency's Web site, www.hud.gov, includes a section titled ''Your Settlement Costs'' that outlines the various fees and premiums most borrowers must contend with.

Larry Goldstone, president of Thornburg Mortgage Inc. in Santa Fe, N.M., believes the new rules could help stem abusive treatment of low-income buyers or those with poor credit records. But all borrowers, regardless of their financial situation, can benefit by educating themselves about fees -- and shopping for a lender who holds them down.

''There are four fees you'll typically find -- an application fee, processing fee, underwriting fee and document preparation fee,'' said Goldstone, whose firm specializes in adjustable-rate mortgages. ''Sometimes these are lumped into a category of 'lender fees.'''

He suggests that a borrower add them up and compare the totals. ''What you're being charged for and how much you're being charged does vary from lender to lender.''

What kinds of things will a careful borrower be able to avoid? How about $65 for a credit report that actually cost a financial institution $15 to get? Or $250 for photocopying charges? Or $500 document preparation fees?

''I've even seen a 'waiving of escrow' fee,'' Nutter said.

Many fees, to be sure, are unavoidable. Reputable lenders do charge application fees, but some assess a flat fee and others a percentage of the loan. Appraisals and title searches are almost universally required, to protect both the lender and borrower. Cities and states may levy recording fees or ''tax stamp'' fees.

In some markets, lenders also demand ''points'' or ''discount points.'' These are one-time charges to lower the interest rate on the mortgage loan. Each point equals 1 percent of the loan, or the equivalent of $1,000 on a $100,000 mortgage.

''When you're comparing lenders, try to get 'no points' quotes from everybody and, say, 'half-point' quotes from everybody -- along with total fees -- so you're comparing apples to apples,'' Goldstone said.

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On the Net:

www.jamesbnutter.com

www.thornburgmortgage.com



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