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Remember the bad old days of 11th-hour mortgage settlement cost shocks and mystery junk-fee charges? Remember when the "good-faith estimates" your lender gave you upfront said closing costs would be about $2,000, but somehow they ballooned to $3,500 on the final settlement?
Worse yet, you had to come up with the extra money to handle the surprise costs or the home purchase or refinancing could not proceed. Those days are still here - consumers continue to be unprotected from closing cost shocks or intentional low-balling of fees - but in about eight weeks that should change dramatically.
Though banks and mortgage lobbies are pushing hard for a delay, on Jan. 1 new federal rules take effect covering home real estate and mortgage transactions nationwide.
The rules have a blunt message for lenders and others who low-ball upfront estimates or lard on junk fees at settlement: Play games like that, and you - not your hapless customers - will have to eat the difference.
Changes effective Jan. 1
Here's what's about to happen: Starting Jan. 1, loan charges and settlement fees will be spelled out on a revised, more consumer-friendly version of the good-faith estimates (GFE) form that borrowers are supposed to receive within three days of their mortgage applications. Charges will fall into three broad categories on the form:
Fees that cannot increase from upfront estimates to final closing.
Fee estimates that come with wiggle room, and can increase by as much as 10 percent in the aggregate from upfront estimates.
Fees that can increase without limit, mainly because the lender has no control over them or because the amount is difficult to predict weeks in advance.
Charges in the zero-increase category include the lender's or broker's mortgage origination, processing and underwriting charges. Also in this category are the lender's or broker's loan discount charge or "points" based on the interest rate quoted to the borrower, and local transfer taxes.
Charges subject to a 10 percent aggregate increase include services required by the lender but where the lender chooses the providers, such as appraisals; expenses such as lender's title insurance and settlement services where the borrower chooses a firm on a list approved by the lender; owner's title insurance when the borrower chooses a company on the lender's approved list; and recordation charges by local governments.
Though any one of these items can increase more than 10 percent from the upfront estimate to closing, the combined total of all the fees in this category cannot jump by more than 10 percent.
Charges that can increase without limit include lender-required services where the borrowers choose a title insurance, escrow or other settlement company that is not on the lender's list; the cost of homeowners' hazard insurance; daily interest charges on the loan; and the amount of the initial deposit by the borrower into an escrow account.
Shop and compare lenders
Besides getting rid of closing cost surprises, the new good-faith estimate encourages loan applicants to shop around before committing to a particular lender. The form includes space for comparing up to four competing lenders' GFEs on interest rates, rate locks, prepayment penalties or balloon payments, among other factors. The cost estimates you receive from each competitor are required to remain available for 10 business days. Interest rates can change unless locked by the lender and borrower.
Paired with the new GFE rules scheduled for Jan. 1 will be a new standard closing cost statement, the "HUD-1." The revised HUD-1 is hard-wired into the GFEs to allow consumers to directly compare what they were told upfront by the lender with what they're being asked to pay at closing.
