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Ethnic minorities pay higher broker fees than whites.

Borrowers with less education pay higher broker fees than those with more education.

Borrowers who choose men over women brokers likely spend more to pay the broker.

And even comparison shopping consumers looking for a break, can wind up paying more for brokers fees, depending upon how they compare mortgages.

Those findings and more are among an expert witness's independent analysis of 2,700 loans originated between 1996-2001 which were specifically scrutinized to measure mortgage brokers' fees -- typically the single largest closing cost item in a purchased or refinanced mortgage.

"Consumer Confusion In The Mortgage Market," was released last week by Susan Woodward, a former chief economist for both the Securities and Exchange Commission (SEC) and the U.S. Department of Housing and Urban Development (HUD).

Now president of San Francisco-based Sand Hill Econometrics, which measures venture capital risk and return, Woodward studied loans written by thousands of mortgage brokers for a single lender and found differences in the fees broker charged based on race, sex, education and even comparison shopping.

"The data confirm that shopping for a mortgage is not easy," Woodward reported. "Taking out a mortgage loan is not only the largest, but also the most complex transaction most consumers ever undertake."

Woodward's study found that the average brokerage fee was $2,425, more than half of the average total closing costs of $4,050 on the average loan of $130,000.

The brokerage fee included fees paid to brokers by the borrower, plus the cash paid in the form of a "yield spread premium" (YSP) to the broker from the lender (which can raise the cost of the loan), minus any credits the broker extends to the borrower (which can lower the cost of the loan).

Serving as an expert witness in a dispute about mortgage lending practices, Woodward measured broker compensation from three sources, the HUD-1 settlement sheets, the lender's electronic records, and for a small subset of 108 loans, one mortgage broker's records.

The 2,700-loan sample was chosen by the court, it included loans from all regions of the nation and the court evidence is considered representative of the national mortgage loan pool, Woodward said.

The study found:

  • African-Americans pay an average of $500 more in broker fees than whites. Hispanics pay $275 more.
  • Female brokers charge an average $570 less than brokers who are male.

    "This result appears to arise from the female brokers' lower inclination to exploit clueless borrowers," Woodward wrote.

  • Borrowers with a bachelor's degree pay an average $1,500 less than applicants with only a high school diploma. It pays to be smart.
  • Borrowers with less than perfect credit pay an average $1,500 more (on top of higher interest rates) than borrowers with excellent credit records.
  • Borrowers who live in metropolitan areas with high household incomes are charged an average $500 more than those in areas with lower household incomes.

    Underscoring the difficulty in navigating the mortgage maze, Woodward also found that even mortgage shoppers who comparison shop may not always get the best deal.

    Mortgage borrowers who comparison shop by rolling the broker's fee and closing costs into the interest rate pay broker fees that average $1,500 less than borrowers who use other strategies, including trading off rates and points.

    "Borrower confusion is strongly related to the level of interest rates. The higher the rates are, the more borrowers try to pay points to reduce their rate, and the more mistakes they make, to the broker's benefit. This costs them about $440 for each percentage point rise in the level of interest rates," Woodward reported.

    "The RESPA (Real Estate Settlement Procedures Act) proposal to allow settlement service providers to offer firm price packages ( Energy Efficiency Home Improvements Renovations Energy Savings ) to borrowers will help them sort out the deal and encourage competition that reduces total settlement costs."

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