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The Honolulu Advertiser

Posted on: Friday, May 14, 2004

Do some homework to avoid surprises in closing costs

By Andrea Coombes
CBS MarketWatch

SAN FRANCISCO — Home buyers navigating the closing-cost maze won't get help from the federal government any time soon, but that doesn't mean they can't help themselves.

The Housing and Urban Development department's March decision to scrap mortgage-loan reforms means consumers are on their own amidst a confusing array of variable, and often steep, fees.

HUD said the reforms would have saved consumers about $700 on average, or $7 billion in annual savings overall.

The reforms were taken off the table after several members of Congress voiced concerns about the rules and wanted a full briefing.

"The issues that led to HUD trying to make these changes are still going to be there," said Allen Fishbein, director of housing policy at the Consumer Federation of America. "It's difficult to compare costs, (and) the good-faith estimate is often not sufficiently close to the mark so consumers know what the closing costs will actually be."

But consumers can protect themselves from being hit with unexpected, and often unnecessary, closing costs, said James Nutter Jr., chief executive of James B. Nutter & Company, a mortgage banker based in Kansas City, Mo.

Here are some tips:

• Start by researching lenders' fees, rather than focusing solely on interest rates. The lowest rates sometimes come with the highest closing costs, Nutter said.

"It is not chump change," he said. "It can easily be in the thousands of dollars."

• Home buyers should get the lender's good-faith estimate as soon as possible — some lenders will provide it before borrowers even file an application.

"If a consumer hasn't received their good-faith estimate from a lender within the first three days after they've made an application, it would be a red flag," said Neal Krumper, executive vice president with Sterling National Mortgage, in Great Neck, N.Y.

• Query the lender about fees, Nutter said.

"Most of these companies that have huge extra charges are very up-front about it," he said. "When you see a $500 processing fee on there, that's a huge red light."

Note that some lenders don't charge application, processing, underwriting or document preparation fees, Nutter said.

"Those are superfluous extra fees which go straight to the pocket of the mortgage lender," he said, noting that his company only charges third-party vendors' fees.

Legitimate charges include those for appraisals, credit reports, title policies, recording fees, surveys and state registration fees, he said.

Ultimately, consumers have the power to say " 'I'm not going to pay this,' " Nutter said.

• Consider researching the author of the good-faith estimate — the loan officer.

"The good-faith estimate is only as good as the loan officer," said Terry Watson, a broker with GM King Realty in Chicago.

Watson suggested asking the following questions: How long have you been in business? How long have you been with this company? What percentage of your good-faith estimates change at the closing? Are there any other fees that I can expect to see at the closing that you have not disclosed to me?

Generally, lenders provide the settlement statement detailing final costs at the closing table, but borrowers should ask for that information in advance, said Rick Gillespie, chief marketing officer with GMAC Mortgage.

"If you get that in advance, you can review it. There should be no surprises at the closing table," Gillespie said.

"Some settlement sheets are adjusted right up until the last minute, but for the most part, closing packages are arranged no less than 24 hours in advance," he said.

With that statement in hand, "the borrower has the right to challenge anything they want to prior to closing," he said.