Closing costs big variable in getting mortgage

It's tough getting a mortgage these days, and even if you manage to pull one off you might end up paying more than your fair share in closing costs.

That's what the federal Department of Housing and Urban Development believes.

To back that up, HUD released a study late last week from the Urban Institute that found that confusion during the mortgage process generally leads to higher closing costs. Those costs vary by wide amounts, even among borrowers with similar traits.

HUD would like to see standardization when it comes to closing a home loan.

"Closing costs are all over the map. The willy-nilly standard is the only standard," said HUD spokesman Brian Sullivan.

The Urban Institute found significant variations in loan charges, title fees and other costs charged to homebuyers when they close escrow. Minority buyers also pay hundreds of dollars more in total loan origination fees than do nonminority homebuyers.

"This report demonstrates once and for all that the process consumers endure when they buy their homes is entirely too confusing," HUD Deputy Secretary Roy A. Bernardi said in a statement. "Clearly, we need to open the window and allow consumers to understand the fine print and shop more effectively for the largest purchase of their lives."

HUD has proposed that all mortgage lenders and brokers provide consumers with a good-faith estimate, giving buyers a realistic estimate of how much they'll actually be paying for that house.

Good luck with that.

The study focused on more than 7,500 mortgages originated in May and June 2001. That seems like a long time ago, but it was a period of relatively stable interest rates. And it was also before the market got superheated and the refinance boom ensued.

The study found that:

Fees can vary by thousands of dollars from borrower to borrower, even for the same loan amount.

Even in the same state, disparities in title costs among identical borrowers can be more than $1,000.

The average borrower sees no reduction in out-of-pocket fees when they agree to higher interest rates.

Black homeowners pay an average of $415 more and Hispanic borrowers pay $365 more in loan origination fees than nonminorities.

Consumers obtaining "no-cost" loans, or those for which comparison shopping is easiest, saved an average of $1,200.

HUD's proposal for standardized fees quickly met with opposition.

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Appraisers played role in loan crisis

As soaring home prices set the stage for America's great housing meltdown, a critical step in making sure those home sales were a fair deal - the real estate appraisal - was undermined from within.

After the nation's last major banking disaster, Congress set up a system to catch rogue appraisers. Their game is to inflate the value of homes at the direction of equally unscrupulous real estate agents and mortgage brokers, whose commissions are determined by the size of the deals.

But a six-month Associated Press investigation found that the system is crippled by the bumbling of regulators, as well as their inability to effectively punish those caught committing fraud.

Critics say there's ample evidence that appraisers are being pressured into inflating home values - sometimes to support loans that are more than buyers can afford - but that regulators have made a conscious choice not to act.

"The system is completely broken," said Marc Weinberg, the former acting director at the federal agency charged with monitoring the appraisal industry. "It's amazing that the system ever worked at all."

The AP conducted dozens of interviews and reviewed thousands of state and federal documents. It found:

-- Since 2005, at the height of the housing boom, more than two dozen states and U.S. territories have violated federal rules by failing to investigate and resolve complaints about appraisers within a year. As a result, hundreds of appraisers accused of wrongdoing remained in business.

-- The only tool federal regulators have to force states into compliance would essentially halt all mortgage lending, so has never been used.

-- State and federal agencies are inadequately staffed to handle the hundreds of complaints made each year.

"The appraisal reforms of the late 1980s were good reforms," said Susan Wachter, a real estate professor at the University of Pennsylvania's Wharton School of Business. "But they were not sufficient to prevent what we have seen ... because regulation without teeth is not regulation."

This is the way the system is supposed to work:

Typically, an appraiser receives an order from a real estate agent, lender or mortgage broker to inspect a property. Based on a physical inspection of the home and comparable sales in the area, they develop an estimated value that is used by banks to set the home's value as collateral for the mortgage.

Appraisers are supposed to come up with a value free of any outside pressure. But more than three dozen appraisers interviewed by the AP said they often felt pressure to "hit a number."

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