| USAToday
Consumers can find out upfront the cost of most services they buy. Many lawyers charge by the hour, Realtors take a percentage of a house sale, and credit card companies must disclose their rates and fees.
But when the biggest purchase most folks make - a home - is involved, consumers can only guess at the fees they'll pay for a mortgage, appraisal, title insurance and other items needed to finalize a loan. Because of lax federal rules, mortgage lenders, title companies and others involved in the transaction can hide behind "estimates" of fees that can turn out to be hundreds or thousands of dollars higher at settlement.
In New York, which has strong consumer-protection laws, state regulators collected about $1.8 million in refunds last year for borrowers hit with undisclosed or inflated fees at settlements. Washington state's Division of Consumer Affairs says it gets hundreds of complaints a year about fees exceeding estimates, sometimes in the thousands of dollars. And a 2002 analysis by the U.S. Department of Housing and Urban Development (news - web sites) (HUD) found that "all too often, consumers are surprised at closing" by inflated fees.
That year, HUD proposed reforms designed to put certainty into settlement fees. Under its proposal, lenders would have to honor estimates of closing fees or offer borrowers a guaranteed-fee package. HUD predicted the new system would help millions buying or refinancing homes by spurring competition for lower fees and cutting borrowers' closing costs an average $700.
But this spring, HUD withdrew the reforms after title insurers, appraisers, real estate agents and other industry groups lobbied against major parts of the plan. That prompted calls in Congress to kill it.
Without stronger safeguards, the system is ripe for abuse. Among the problems:
• Lax rules. While a 1974 law requires lenders to provide applicants with "good-faith estimates" of closing costs early in the process, it does not penalize lenders, title companies or settlement agents for failing to honor those estimates. Undisclosed extras for couriers or credit reports and hikes for services, such as title work, sometimes push costs higher, according to news accounts.
•Confusing protections. Borrowers have a legal right to see itemized costs one day before settlement, but some see the final bill only at the settlement table, consumer advocates say. Walking away from a deal then can cost consumers a favorable interest rate or the home they want to purchase.
•Little recourse. Home buyers cannot cancel a loan after the papers are signed. Those who refinance have three days to cancel; if they do, they must start the process again, with no guarantee it will go better.
Some critics of HUD's reforms say guaranteed-fee packages wouldn't tell consumers enough about the services they'd be buying. That ignores the major problem now: Consumers get specific estimates, but providers don't have to stick to them.
Some lenders are acting on their own by offering guaranteed closing-cost packages. Mortgage lender ABN Amro, for one, has offered a "one-fee" plan since 2001, and about 180,000 borrowers have chosen it.
That points the way to voluntary industry reforms. Absent such initiatives, the government needs to insist on the firm fees and full disclosure consumers deserve.
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