Buyers of homes pay more with new rules

Diann Tyler, president of Everest Home Mortgage LLC in Philadelphia, says she’s received and begun processing multiple applications since Oct. 3, and nearly every one carries higher loan-fee charges than would have been the case under the old rules. Why? Because most clients are opting for longer rate-lock periods, and those longer locks cost more money. Typical rate locks guarantee borrowers that they will pay no higher rate than what is stated in the loan quote. They can run anywhere from 15 to 60 days or more, and involve capital market hedges by the lender to obtain the rate guarantee.

Tyler’s standard rate lock used to be 30 days, but now clients need at least 45 days. That can add an extra $500 onto her quotes for average-sized loan requests, she told me, depending on market conditions and the bank or investor she’s using to fund the mortgage.

Sometimes the extra charge won’t be obvious to the borrower because the money is being subtracted from the “lender credit” they receive. “But the fact is they’re paying more” than they would have on the identical transaction before Oct. 3, Tyler said.

In Huntington Beach, Calif., Dennis Smith, co-owner and broker at Stratis Financial, says that in order to cope with the strict compliance requirements of the new disclosure rules, he has had to hire another staff person. He’s not yet certain how this additional expense will factor into individual borrowers’ fees — that will depend on application volume and “market factors moving forward” — but one can assume the added salary and benefits will be reflected in charges somewhere.

Tim Kleyla, president of The Mortgage House in Holland, Mich., says because of the tight time requirements of the new rules, higher rate-lock costs and the danger that shorter-term locks will expire before closings, “we are throwing (short locks) out the window and will be locking for 45 to 60 days.” Given the higher costs for these longer locks, higher underwriting fees from funding sources and his own higher compliance expenses, typical borrowers could see “another $500, and I am sure eventually more” on their total transaction costs, he said.

Michael Fratantoni, chief economist for the Mortgage Bankers Association, says the expenses added by the new settlement rules come on top of a long series of federal regulatory changes in the past several years that have pushed the cost of originating a typical mortgage from $4,500 to $7,000. “A lot of it is personnel, quality control, spending on new technology” and re-programming systems.

So what can a homebuyer do to limit some of these costs? Probably not a lot, except shop vigorously and compare lender fees and lock policies. As time goes on and lenders and settlement agents gain experience in managing deadlines under the new rules, maybe 30-day closings will become more common again, making longer locks unnecessary. For now, though, you’re likely to see higher, not lower, charges.

But given the fact that the new regulations also require delivery of your final closing disclosure three days ahead of the settlement date, giving you plenty of time to spot problems and dispute charges, who knows? Maybe the rule changes could actually end up saving you money.

Kenneth R. Harney of the Washington Post Writers Group is a past member of the Federal Reserve Board’s Consumer Advisory Council and is currently on the board of directors of the National Association of Real Estate Editors. Reach him at KenHarney@earthlink.net.