You saved for the down payment, something that is an accomplishment in today’s economy. You found a home you like. But somewhere along the way, before you get the keys, you realize some of the costs associated with your home purchase are much steeper than they should be.
Home buyers deserve to know exactly what they are paying for, and federal law requires it. Lenders must itemize each fee for buyers, but with so much paperwork and so many hoops to jump through, it’s easy for things to get overlooked. Particularly those things most buyers take for granted as routine.
Perhaps the best example of something buyers assume is a simple and routine part of the process is the credit report fee you are charged on your mortgage. It is easy to see why buyers assume the fee they are charged on their mortgage is accurate, but when you look under the hood, it gets much murkier.
Thanks to an issue called closed-loan, or success-based pricing, you might not just be paying the credit-report fee or the application fee. The fee you’re paying might help cover the lender’s costs for pulling credit reports for applications from people who never ended up closing on a loan.
Closed-loan pricing sounds like something best left to mortgage executives and accountants. But when a business’s billing choices reach a family’s closing statement, they become a consumer issue.
Here is why it deserves a closer look. In some cases, closed-loan bundles are publicly marketed as a way for lenders to recover costs and reduce their out-of-pocket expenses. The natural question becomes: where does the buyer fit into that promise?
For example, credit scoring company FICO advertises one mortgage scoring option for only 99 cents per score. However, there is another $65 fee per borrower when the mortgage goes through. Is that charge getting passed to the homebuyer?
What is apparent, however, is that a lender’s smaller bill upfront does not necessarily mean a homebuyer’s smaller bill at closing.
If borrowers closing on a home are being asked to cover credit costs associated with unsuccessful applications, then they deserve to know that. When young families are struggling to buy homes, they shouldn’t have the added hassle of untangling a lender’s business arrangements to understand each fee.
Think about what a fee labeled “credit report” tells a buyer. It suggests a service connected to their mortgage. If the calculation reaches beyond their own specific credit report, that should be explained to them. Whatever dollar amount is printed on a form is, as it turns out, only part of the story.
In North Carolina, we need advocates who will step in and do something. Our Attorney General, Jeff Jackson, should look at this and compare what borrowers actually paid with the costs of pulling their specific credit reports. They need to ask whose expenses are included and whether buyers were given a straight answer.
Federal rules provide a starting point for this discussion, as official guidance from the CFPB says averaging cannot be used to inflate settlement-service costs overall. But officials need to investigate whether current systems and procedures violate those rules or any applicable protections in North Carolina.
Buyers can ask questions also: What services does this fee cover? Is it based solely on my application? Can you explain the calculation in writing?
But protecting consumers cannot depend entirely on whether a buyer knows the right questions to ask. Families deserve an understandable explanation of the fees they will be charged while choosing a lender, with time to compare and decide what option is best for them.
This is an opportunity for AG Jackson to do something concrete and stand up for working families. Find out whether the fees mean what people think they mean. Insist on clear explanations. Ensure fairness for home buyers.
A family that reaches the closing table has earned the right to celebrate without lingering questions about whether they are being taken advantage of. Our leaders in North Carolina should make that a priority.
Mike McCaskill
Broker/Owner of Prestige Properties of Fayetteville
4083 Ardenwoods Drive
Fayetteville, NC 28306