PARAMOUNT MORTGAGE - LENDER'S BLOG

Mortgage closing costs are on the rise

Palm Beach, FL - BankRate.com has released its 2010 annual nationwide survey of mortgage closing costs.

For borrowers looking to finance a new home purchase, interest rates have never been lower saving them thousands of dollars over the term of their loan.

However, BankRate.com says that the other costs of getting that loan have risen sharply.

Big jump in fees?

Holden Lewis of BankRate.com reports, "On average, the origination and third-party fees on a $200,000 purchase mortgage added up to $3,741 in this year's survey. That's 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," continued Lewis.

The average closing fees ranged from the most expensive in Texas at an average of $5,623 to Arkansas where the average was just $3,007.

Missouri ranked 44 in the 52-state survey with an average closing cost of $3,356, up 27.6 percent over the state's 2009 average closing cost of $2,429. Closing costs in Missouri are 10 percent below the 2010 national average.

Did fees really go up that much? Lenders say fees did rise, but a more fundamental change happened on January 1st of this year. The government began requiring lenders to provide accurate good faith estimates of closing costs, or GFEs.

The new rules which update the Federal Real Estate Settlement Procedures Act (RESPA) require mandatory usage of a new GFE, newly revised HUD-1/HUD-1A settlement statements and compliance with newly prescribed estimate tolerances.

Prior to January of this year, lenders were not penalized for underestimating fees in the good faith estimate. Now they are penalized for lowballing fees.

What about overestimating fees? Regulators discourage lenders from overestimating third-party fees, but there are no penalties for doing so.

Because BankRate's survey takes its numbers from online GFEs, some of this year's increase can be attributed to the regulatory requirement for higher accuracy.

Lenders say they strove to hold the line on their own fees, even though their labor costs have increased to achieve regulatory compliance.

More labor is required to process loans. Under Fannie Mae's Loan Quality Initiative, for example, every applicant's tax documents are checked against an IRS transcript.

Lenders match up Social Security numbers, conduct fraud checks, and pull credit reports just after application and right before closing. Third-party fees including title insurance showed increases in this year's survey.