The Loan Lady Blog

On January 1, 2010, changes went into effect on how the costs of getting a loan are disclosed to consumers.  This revision of the Real Estate Settlement and Procedures Act (RESPA) was done for all the right reasons, but in practice it has not helped to clarify closing costs for home buyers or home owners who refinance.

The intent was to make sure consumers know all the costs in advance of obtaining a loan, and have the ability to compare costs between lenders.

In practice this becomes very difficult.  To begin with, loan officers are required to list every possible fee in the transaction including fees that the seller is paying.  Including the seller-paid fees obviously inflates the total estimate for the buyer.

The loan officer is also supposed to include fees that may be part of the real estate purchase, such as inspection fees.  Normally the loan officer is not involved in the inspections, which the Realtor orders for the client.

If any fee the borrower ends up paying is greater than what is originally disclosed, the loan officer must pay it.  The effect of this is the most loan officers "over-estimate" fees to make sure every possible fee is included, and at a level that is higher than the actual fee.

It does not provide clarity to a consumer to receive a Good Faith Estimate that includes fees paid by the seller, or fees that are over estimated to prevent out of pocket losses by the loan officer.

The intention of the new RESPA rules is good, though.  There are some loan officers who might lure a client in with exceptionally low fees, so that the unfortunate borrower has to come up with unexpected fees at closing.

The RESPA revisions are still new and lenders as well as loan officers are learning what works, what makes sense, and what needs more revision.  When it is finally sorted out in a way that makes sense, and is consistent from lender to lender, it shoudl provide clarity and protection for the consumer.

With or without the RESPA rules, the best thing a consumer can do is to find a trustworthy loan officer to explain all the fees and give an accurate estimate that is consistent through to the end of the transaction.