Many Mortgage Lenders Transforming "Good Faith Estimates" Into Actual Guarantees
One of the most familiar and distressing consumer complaints regarding mortgages is that the “good faith estimates” of closing costs offered by lenders turn out to be off the mark. Hundreds or thousands of dollars off the mark. Because of this, writes syndicated columnist Kenneth Harney in the Miami Herald, many lenders are thinking of new ways to turn their settlement cost estimates into binding promises.
For instance, vague and undisclosed charges for ”processing,” ”administration,” and other services appear on the HUD-1 settlement form. All too frequently, an estimated $2,200 in total fees turns out instead to be $3,400 at the actual close. Which, in turn, forces consumers into a Hobson’s choice:
- Do they pay the extra charges even if they were not included in the good faith estimate?
- Or do they kill the whole deal — potentially losing the house they wanted to buy or the mortgage they needed in order to do it — over a lowball estimate?
Federal housing officials are working on possible remedies, but there’s some unexpected good news — so are mortgage lenders themselves. Many have gotten the message from customers — the people demand certainty about fees at the bottom line — and they are coming up with ways to turn a good faith estimate into an actual rock-solid promise.
SunTrust Mortgage, which is ranked among the 20 highest-volume lenders in the country, has begun rolling out what it calls ”good faith guarantees.” When retail loan applicants receive their good faith estimate disclosures, SunTrust has now added language that commits the company to deliver those prices at settlement.
“BUNDLING” SERVICES
LendingTree, another major industry force, has begun offering lenders on its network what it calls settlement ”bundles.” The packaged bundles include everything the buyer needs to close the mortgage from title insurance to appraisals to surveys and credit reports.
Participating lenders are thereby better positioned to offer accurate estimates of total closing charges, and even pass on the lower costs to borrowers. LendingTree typically promises its mortgage applicants competitive quotes from up to four lenders. Roughly 50 of its network of lenders are now buying sthe ettlement service bundles through the new LendingTree Settlement Services — the company’s own, in-house ”vendor management” agency.
‘We listened to our customers and they told us that the important thing to them is certainty about settlement cost estimates. So now we’re going to guarantee them,” said Sterling Edmunds, CEO of SunTrust Mortgage.
As an alternative to the guaranteed estimates, SunTrust also offers fixed-fee ”packages” of services, allowing applicants to compare SunTrust’s total costs with competitors such as ABN-AMRO Mortgage, Ditech.com and E-Loan, who promote other versions of guaranteed settlement cost programs.
Vendors typically have negotiated contracts with hundreds of individual providers of services across the country for lower fees in exchange for a higher volume of orders. Therefore, rather than buying your appraisal here, your title insurance there, your flood zone certification here, your credit report there, et cetera (with each service from a different source), you buy a package from a specialized settlement vendor — with a significantly lower total cost.
NOTE: The cost of Florida title insurance is set by the state and vendors are not allowed to offer discounts, though the costs of title searches and some other costs may vary.
LendingTree Settlement Services got into the business of offering bundled services as both a quality control measure and as a way to lower costs for lenders and borrowers alike. Research by LendingTree found that customers often were satisfied with the mortgage rates on the loans they obtained but unhappy about the closing process. Now LendingTree essentially buys the services itself — wholesale — and has better control over quality, timeliness and pricing.
Well then. With lenders stepping forward to deal with closing quagmires and consumer abuse, it looks like the “good” may be put back into the good faith estimate you receive on your Florida home loan quote.
