Closing-cost reform movement lives on -- Page 2
Some industry groups argued that the proposed mortgage
reform would raise prices by squeezing out the little guys, reducing
competition. Price increases seldom happen when Wal-Mart shuts down
the small shops in town, but it's the argument that the industry
Says Camden R. Fine, president of the Independent
Community Bankers of America: "HUD's proposed rule would likely
dramatically reduce the options and service of mortgage shoppers
while increasing their costs. We have strongly opposed the rule
because of the damage it would do to consumers, the mortgage finance
system and the small loan originators and small settlement-service
providers that participate in it."
A few guarantee closing costs anyway
Under current RESPA rules, it's difficult, but not impossible, for
a company to guarantee closing costs. A few do, including ABN AMRO
Mortgage Group and E-Trade.
Garth Graham, president of ABN AMRO Mortgage Group,
says the withdrawal of the RESPA proposal "is not going to
affect us at all. We think the value proposition and simplicity
for consumers is so compelling that it makes sense to continue to
ABN AMRO's guaranteed closing price product is called
OneFee, and about 180,000 borrowers have used it in the past three
years, Graham says. Growth would be even faster had RESPA reform
been adopted, but the company will continue to offer OneFee because
it's a good selling point.
"The biggest obstacle is that consumers
think it's too good to be true," Graham says. "They ask
what other costs will there be. They say, 'OK, how much is title
insurance?' We say title insurance is included. They like that."
Rob Bernabe, president of E-Trade's mortgage arm,
says the withdrawal of RESPA reform is bad for consumers but good
for his company. E-Trade guarantees fees when the borrower locks
the loan's rate and points. Tongue partly in cheek, Bernabe says,
"I think it's good that the law got pushed back because it
continues to give us competitive advantage. Clearly it's what consumers
E-Trade calls its fee guarantee the Up Front Price
Promise, and the company also offers Fair Compare, in which visitors
to the lender's Web site are instructed how to contrast the rate
and fees on an E-Trade loan with competitors' rates and fees.
Defeat won't stop the movement
The death of RESPA reform doesn't mean that the mortgage industry
will stop evolving, says Chris Larsen, president of E-Loan. It means
that evolution will slow down, he says.
E-Loan doesn't charge lender fees (such as application,
origination and document preparation fees), and it guarantees the
third-party fees once the loan is approved and the rate is locked.
For Larsen, the practice of guaranteeing a bundle of fees is not
an end, but a means to an end. The goal, he says, is transparency
-- allowing consumers to compare loans in a nonconfusing way.
Right now, Larsen says, the mortgage process has
plenty of disclosure -- each loan is accompanied by dozens of pages
of government-mandated forms for the consumer -- but not enough
transparency. "Disclosure can be overwhelming," Larsen
says. "A big part of reform was simplifying things to create
Some lenders might resist the drive toward
greater transparency, Larsen says, "but at the end of the day,
that's going to be the driver."