- The Washington Times - Thursday, September 15, 2005

Anne Lynch has bought and sold three homes since moving to Maryland, but she always calls her mortgage broker back home in Ohio to close the deal. “I don’t know why, but closing costs are very high here,” says Mrs.Lynch, of Grasonville, Md.

“Every sheet of paperwork has a fee associated with it.”

Mrs. Lynch, a former real estate agent, relies on her old broker because there are fewer fees. Closing is done via fax in one simple step.

“Closing costs make home ownership very difficult for people,” she says. “First-time home buyers especially need a break in order to enter the market.”

Complaints from homeowners are prompting lenders and settlement companies to tidy up the home buying process. The response is “bundled” packages that waive many of the fees assessed at closing and give buyers credit for closing with participating lenders and title companies.

“Home buyers are becoming much more savvy about who is doing their closing,” says Anne Herndon Eskew, director of marketing for Federal Title & Escrow in the District.

“Ten years ago when you bought a house, you asked your Realtor where you were closing and that’s where you went,” she says. “Now they want to know exactly what their closing costs are.”

The firm’s 1Roof Credit program allows buyers to sign up online and receive an immediate quote.

Buyers using a Realtor who is signed up in the program can receive credits of $250 to $900 at closing, with fee waivers for services ranging from title searches to courier costs, Ms. Eskew says.

One-stop price packages are relatively new to the marketplace. The first products rolled out only a few years ago. They are modeled after streamlined home equity closings that waive some fees and offer credits to buyers who close with a specified lender and title company.

The packages are available for most conventional and jumbo mortgages and adjustable rate mortgages with savings based on the purchase price and size of the loan.

Companies can pass on the savings to home buyers because fees once reserved for real estate brokerages are cut out of the home-buying process though joint ventures set up by lenders and title companies.

Monarch Title Inc. of McLean, under an agreement with First Savings Mortgage Corp., was one of the first local companies to offer bundled packages about two years ago.

The Edge program guarantees closing costs and waives charges for credit reports, flood certifications and courier charges. Participating customers qualify for credits of $500 to $5,000, depending on the price of the home and the amount of the mortgage.

A typical closing includes credits of about $1,400, and the venture guarantees the closing price, says Jerry Boutcher, founder and president of Monarch Title.

“The industry is in need of reform,” says Mr. Boutcher. “A lot of times estimates are wholly unreliable, and there’s no enforcement. If a lender gives you an estimate that is off thousands of dollars, there are no repercussions.”

Bank of America rolled out a similar program in the past year incorporating all closing costs into a one-rate quote. The bank’s Mortgage Rewards program, available only to account holders and mortgage customers, waives credit fees, origination fees, application fees, flood determination fees, tax service fees and courier fees.

The lender also offers $200 credit to offset costs of the mortgage loan, says Julie Davis, a spokesman for the bank.

“Customers want a simplified mortgage process to reduce the costs,” says Ms. Davis.

On average, customers earn $2,000 in savings for a $200,000 mortgage, she says.

Bundling has caught on with buyers frustrated by junk fees totaling hundreds — sometimes thousands — of dollars at the closing table.

“There’s a lot of dissatisfaction out there … ,” says Mike McCarty, general manager for Ditech.com, a direct mortgage lender.

Bundling, he says, “is a trend that is definitely here to stay. Consumers are more savvy, and they are demanding this type of service.”

The company advertises closings of $395 for refinancings and first mortgages. The fee covers appraisals, notary and processing costs, lender title insurance and mortgage recording fees.

Buyers complain that good faith estimates are routinely changed at the last minute with fees jumping 20 percent or more.

The complaints are so severe that the federal Department of Housing and Urban Development is considering guidelines to streamline the process and cut junk fees.

Congress also is taking aim at changes when it revamps the Real Estate Settlement Procedures Act (RESPA) this fall, and is weighing proposals carrying penalties and changes to curb markups plaguing the industry.

A common source of complaints from frustrated buyers is bait-and-switch tactics wherein companies quote one price for such services as a credit report or appraisal, then jack up those costs at closing when the buyer is under pressure to agree to the higher costs or risk losing the purchase of the home.

Fees vary by state, but the Federal Reserve Board reports that a typical closing sheet should list the following: an application fee of $75 to $300; a loan origination fee of 1 to 5 percent of the loan; appraisals from $350 to $700; title search of $700 to $900; and a recording fee of up to 1.5 percent of the loan.

Firms offering one-stop shopping for closing usually waive some of those fees including credit reports, flood certification and courier charges.

As an incentive, buyers who close with companies offering bundled packages can receive credit at closing from hundreds to thousands of dollars.

But don’t get taken in, some brokers warn. Bundled packages do not cover other costs including hazard insurance, transfer taxes, local taxes or private mortgage insurance. So, they say, be sure to factor those in when weighing a good faith estimate.

Brokers also warn buyers the move to packaging may hurt the industry.

Smaller lenders and brokers could be put out of business by not being able to offer the discounts offered by large volume companies — giving a virtual monopoly to large volume title companies and lenders.

“One-stop shop doesn’t always mean it’s a savings,” says Allan Daniels, treasurer of the National Association of Mortgage Brokers, which is critical of the reform to packaging.

An itemized settlement allows a line-by-line review of costs that won’t be likely with an abbreviated settlement, he says.

“One-stop shop may sound simple, but there are a lot more unknowns,” says Mr. Daniels. “You don’t know what all the ingredients are.”

Without a detailed listing of costs, buyers won’t be able to shop and compare deals, he says.

Mr. Daniels advises buyers to make sure the package includes everything they need to cover at closing and to be sure to ask for a detailed listing before settlement to make sure there are no hidden costs.

“In the end, more information is better,” says Mr. Daniels. “It’s a disservice to consumers if they’re not comparing apples to apples.”

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