MORTGAGE SETTLEMENT COSTS LOWERING July, 2002 By Jim Woodard Mortgage lenders are responding to the growing consumer demand for lower settlement costs and a simpler way to understand all related costs in obtaining a mortgage loan. And consumers want a more efficient way to compare one lender’s offer with others. Pressure for these changes is fueled by a strong stand being taken by the office of Housing and Urban Development (HUD), and the intensified enforcement of the Real Estate Settlement Procedures Act. HUD is now urging lenders to provide consumers with bundled settlement services, allowing for simpler and clearer disclosure and providing greater certainty to consumers applying for a mortgage loan. In an increasing number of cases, you can now receive a guaranteed, flat fee mortgage – easy to understand and compare with offers from other lenders. Instead reviewing a long list of estimated settlement costs (that often change before closing), you have one bundled fee covering all costs along with a guaranteed interest rate. HUD predicts the trend toward bundled services and guaranteed rates will result in increased competition and will drive down mortgage settlement costs to consumers. “We applaud HUD’s position on bundling services and a simpler, clearer disclosure,” said the executive vice president of one major mortgage lender – ABN AMRO Mortgage Group (AAMG). “This will greatly benefit mortgage borrowers and will give companies like ours the ability to offer one-fee mortgages to a much broader audience.” AAMG, the fifth largest mortgage lender in the nation, is a pioneer in the offering of one-fee (bundled) mortgages. They have processed more than 40,000 of these loans for consumers, funding an excess of $6 billion in loans. Other lenders are taking note of this success and are developing similar programs. With the OneFee mortgage program, AAMG guarantees the interest rate and a guaranteed one-fee amount at the time the consumer locks-in their interest rate. Typically, a customer obtains only a “good faith estimate” of likely costs associated with their loan. These costs are often different at the closing table. The one-fee plan includes all typical fees in a single guaranteed fee, with no uncertainties or surprises at closing. “Our OneFee plan has allowed us to improve customer service by allowing time to focus on process, product and counseling our customers as opposed to centering on an estimated fee break-down,” said William Newman with AAMG. “Simply, this one-fee plan provides consumers with higher quality service through more accurate disclosure than any other loan product available today.” From the consumer’s perspective, a key advantage of such a plan is that it provides clearly defined information that can be used efficiently in comparing the offering of one lender’s plan with others. MONEY-SAVING REFI LOANS Now that we’re in the midst of another boom period in home mortgage refinance applications, it’s time to point out a few ways consumers might save money in this area. A bit of negotiation with your loan officer could save thousands of dollars over upcoming months and years. Or if the idea of negotiation intimidates you, just ask questions and make strategic requests of the officer. For example, first contact the chief loan officer at the lending firm that processed your current mortgage. Let him know that you want a mortgage carrying currently prevailing low interest rates. If the rate can be lowered with your existing loan, that would satisfy your needs. If not, you may have it refinanced by another firm, you can explain to the officer. He obviously doesn’t want to lose you as a customer, and may offer to modify your current mortgage giving you the lowest possible rate. This would be the best scenario, because you save the new loan processing fees. It will probably cost you a fee for the modification action, but that would be very small compared to costs of processing a new loan. However, many lenders resist lowering interest rates on existing mortgages. After all, those new loan fees supply much of their total income. But the customer still has clout muscle they can flex. “We won’t reduce the interest rate on our existing mortgage loans,” said Linwood McNeill, first vice president of mortgage lending for Washington Mutual Bank. “However, we will give our customers what we call `streamline processing’ of a new refinance loan.” These loans, he explained, are simplified, expedited and economized. Many of the costs are cut to a minimal amount. But it’s still a new refinance loan with all necessary processing steps and related costs. “Our streamlined processing is almost as good as just cutting the interest rate on an existing loan,” he said. Whether you save money by having your current mortgage modified with a lower rate, or negotiate lower processing fees with a new refinance loan, you will only receive those financial benefits by asking or making certain requests. Speak up, and save hard-earned money that can be put to good use in other ways. You will probably find that mortgage loan officers are more than willing to work with you regarding your special requests. TITLE INSURANCE … OR … The folks at Radian Guaranty, Inc. are saying most borrowers of refinance or equity mortgage loans are paying too much for title insurance coverage. They now offer a substitute protection plan – the Radian Lien Protection Product -- that can replace the need for title insurance, saving the consumer nearly half the cost of traditional title insurance in many cases, they say. This has sparked a major battle between leaders in the title insurance industry and Radian. Title insurance has grown into a huge industry, involving attorneys and abstractors in addition to many title insurance companies and their agents. They generated about $7.9 billion in revenues last year, according to a report from Radian. On the other hand, there are very valid reasons for consumers to stay with conventional title insurance coverage, it was noted by Jim Maher, executive vice president of the American Land Title Association. “If the mortgage being processed is less than $150,000, the consumer will pay more for Radian coverage than with a title insurance policy,” Maher told this writer. “And even in cases where the cost of title insurance is more, it’s a better deal for the consumer. Title insurance protection is much broader and deeper than the Radian plan offers. Thus it is less likely that a problem will come back against the consumer when title insurance is used.” The Radian report notes that in recent years the pressure has been building for a more economical and cost-effective plan that would cover risks incurred by mortgage lenders. Title insurance policies pay out relatively little money each year in losses. For example, in year 2000 only 6.6 cents of every dollar spent for title insurance protection was paid out in losses. Compare this with 42.3 cents in the Surety Insurance industry, Radian suggests. Expenses consume the vast majority of money flowing into the title insurance industry. It should be noted that the Radian Protection Product is not available for transactions where the mortgage is used to finance the purchase of a home. But it is available in most states for secondary transactions – refinance loans, second mortgages and home equity loans. For those loans, the risks of defective title are quite small. The major work of researching a home’s title was completed when the purchase loan was processed. There’s no logical reason why the homeowner should be required to pay out another large title insurance fee when acquiring a secondary loan, according to Radian. The title insurance industry is somewhat insulated from price competition. “It’s the middlemen, not consumers, who benefit because title insurance companies don’t compete on price,” said Birny Birnbaum, an economic consultant who recently served as an expert witness at title insurance rate hearings in Washington, D.C. “The consumer isn’t in a position to exert market pressure to drive down the price of title insurance.” | 
