Did the government do consumers any favors by enacting more mortgage legislation? Many banks and credit unions believe the new legislation is driving up the cost of getting a bank or credit union mortgage.
The cost of a credit union mortgage is more than just the interest rate you are able to obtain. Closing costs typically include origination fees charged by the lender, as well as fees charged by third parties (such as for appraisals and title insurance). At your credit union mortgage closing, you will also see charges for property taxes, recording fees, homeowners insurance, and prepaid items such as a partial month’s mortgage interest. Finally, there may be discount points (money paid to lower the interest rate) if you choose to buy down the interest rate.
Highest and Lowest Fees
According to a recent Bankrate.com study, if you are lucky enough to live in Arkansas, North Carolina, Iowa, Montana, or Wisconsin, you had the lowest closing costs on your credit union mortgage in the country. However, for those living in New York, Texas, Utah, California, or Alaska, your closing costs were the highest in the country. The same study found that on average, the origination and third-party fees on a $200,000 purchase mortgage added up to $3,741; a 36.6 percent increase over last year’s average of $2,739. Fees charged directly by lenders went up 22.8 percent, while fees charged by third parties — for things such as appraisals and title insurance — rose 47.2 percent.
Did Fees Really Go Up?
Did fees actually go up that much? That depends on who you ask. According to lenders, fees did rise — but only modestly. However, the government began requiring banks and credit unions only one chance, at the beginning of the lending process, to provide accurate good faith estimates of closing costs. The natural reaction of lenders is to overestimate closing fees in order to avoid violating the new regulations. Lenders will now be penalized for underestimating fees.
Lenders costs have gone up because they have to devote more labor into scrutinizing every loan. Regulators, as well as Fannie Mae and Freddie Mac, require each loan to undergo more oversight this year than previously.
Third Party Fees
Until this year, about 10 percent of mortgages were double-checked after they closed, Koss says. But under Fannie Mae’s so-called Loan Quality Initiative, every applicant’s tax documents are checked, fraud checks are conducted, and credit reports are pulled just after application and again right before closing.
It’s a different story with third-party fees. Title insurance costs have increased. In addition, Bankrate.com, also noted that several lenders quoted charges for buyer’s mortgage insurance, whereas in previous years they had charged only for lender’s mortgage insurance.
Be aware that you can and should comparison-shop for third-party fees. The most profitable item to shop for is title insurance, which can vary substantially from insurer to insurer. Average total third-party fees rose 47.2 percent, to $2,277 in 2010, from 2009’s average of $1,547.
Bankrate.com’s annual survey of online lenders is conducted by obtaining online good faith estimates for a $200,000 mortgage in the most populous city in each state, plus Washington, D.C. (The exception is California, where San Francisco is surveyed in addition to Los Angeles.) The hypothetical $200,000 loan is a purchase mortgage on a $250,000 for a borrower with excellent credit.