Copyright 2002 The San Diego Union-Tribune The San
Diego Union-Tribune
July 21, 2002, Sunday
SECTION: REAL ESTATE;Pg. I-1
LENGTH: 884 words
HEADLINE:
Impact of closing cost reform is questioned
BYLINE: Emmet Pierce; STAFF WRITER
BODY: The Bush administration has called for reforms
to cull hidden closing costs from the mortgage lending process, but there is
disagreement over whether the effort will benefit San Diego County consumers.
The initiative "will absolutely have no affect on anybody
getting or not getting a loan and it is not going to save anybody a dime," said
Alan Nevin of MarketPoint Realty Advisors, a San Diego real estate research
firm.
While real estate practices vary from region to
region, Nevin holds that California's mortgage escrow process protects home
buyers from unexpected loan settlement costs. "There is no mystery to the costs
of closing."
In contrast, Robert Turner, a former
banker who specializes in financing affordable housing, holds that consumers
here often are surprised by last-minute revelations. He welcomes federal
reform.
"Although the escrow process does require
disclosure, sometimes it comes so late in the process you don't have the
opportunity to challenge the costs," Turner said. "You are at the 11th hour and
you need to close the transaction and you are stuck here with various fees and
charges, some of which you don't know until the end."
Citing the need for a "Homebuyers Bill of Rights," Housing and Urban
Development Secretary Mel Martinez recently called for a reform of the Real
Estate Settlement Procedures Act. The act requires lenders to educate borrowers
about all closing costs, servicing and escrow account practices.
Americans spend approximately $50 billion each year on settlement fees
without knowing exactly what they are buying, Martinez asserted. Consumer guides
say closing costs typically account for between 2 percent and 5 percent of a
home's overall cost.
In California, such costs may
include title fees, escrow fees, lender fees, appraisal fees and taxes, said
Craig Bramlett of Cal Pacific Mortgage.
Not all
settlement fees are tied directly to the acquisition of property, however.
"Settlement fees can be very, very confusing," because they include recurring
expenses, such as fire insurance, pro-rated property taxes and homeowner
association fees, Bramlett said.
He said he would
welcome any clarifications the Bush administration's "bill of rights" might
offer. He questioned whether the proposal would bring any true savings to San
Diego-area home buyers, however. Reputable lenders here already make full cost
disclosures, he stressed.
"I think that shaving the
fees on a loan is somewhat impossible," he said. "The fees are what they are.
There are title fees. There are escrow fees. There are bank fees. If there are
surprises, something is really wrong."
The Martinez
proposal would reform the regulatory requirements under the Real Estate
Settlement Procedures Act (RESPA) that govern settlement fees paid by
home buyers. New regulations are subject to congressional and public review.
As broadly outlined, the proposed reforms include:
o Making sure consumers receive settlement-cost
information early in the loan process.
o Toughening the
enforcement of federal real estate regulations.
o
Policing the industry to ensure that early disclosures of costs are as firm as
possible.
o Encouraging competition and technological
innovations that could lower settlement costs.
Turner
holds that settlement fees have the biggest impact on low- and middle-income
buyers, who must spend to the edge of their incomes to afford homes in pricey
markets such as San Diego County.
"You have lenders and
brokers and agents looking to get paid on a transactional basis," Turner said.
"They are going to make their money on this one deal and probably not deal with
this one customer for many years, if ever again. If it is a low- or
moderate-income family, they are not buying a $500,000 house, so the commissions
are not going to be as large.
"No one is going to be
paying the attention they would on a larger transaction, where everyone is going
to have a large payday," he added. "They just want to get this deal and move
on."
Professor Jim Short, who teaches real estate at
San Diego State University, said laws already are in place to protect consumers
from surprise settlement fees. He views enforcement as the real issue.
"If one followed the letter of the RESPA law, it
should not be a surprise to anyone when they go to settle," Short said. "I am
not sure RESPA has been fully enforced. There is, in fact, a lot of
evidence of overcharging and miscellaneous fees that are excessive and that just
crop up at the last minute."
Bobbie Christensen,
spokeswoman for the San Diego Housing Commission, found nothing to quibble about
in the administration's call for reform.
"Any time
government can make things clearer for customers, that is a positive," she
said.
Rod Alba, director of government relations for
the Mortgage Bankers Association of America, said all states could benefit from
the Martinez proposal.
Mike Dunn of Mike Dunn &
Associates, a longtime local mortgage broker, agreed with Nevin and Bramlett
that consumers in California are well protected from hidden settlement costs. He
said he had no problem with tighter regulations, however.
"President Bush is on the right track, trying to do the right thing,"
Dunn said.
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