Yesterday, the Real Estate Settlement and Procedurs Act, commonly known as RESPA, expanded the guidelines that govern the mortgage business. The intentions of the mortgage guidelines are to make lending more transparent so that customers can make more informed decisions when purchasing or refinance their home. However, the outcome may be a different thing.
Three key elements of RESPA may actually increase closing costs and force lenders to charge their borrowers more to stay afloat. First, since a lender must stick to all of the fee’s up front, it forces lenders and brokers to lock more loans then they may have wanted to. With more locked loans comes more fall out and more lock extensions. Both are costs that the lender and broker must bear, which ultimately get passed on to the borrower in some format; higher fee’s. Second, the additional waiting periods and changed circumstances situations causes additional staff hours and steps in the loan process. The longer a loan takes to process the more it costs the lender and the less loans they can do. Both increase operational costs and again higher costs to the borrower. Finally, when vendors such as appraisal companies, title companies, notaries, closing agents, or lenders add on additional fee’s, it is the lender or broker that has to pay for it. When an untacipated appraisal review is required, and the lender or broker has to pay it puts additional pressures on them to either disclose the loan high or eat costs thereby lowering already depressed profit margins to no margins.
Remember, business must be a win-win for everybody. While forcing everyone to disclose even more is a good thing, the unanticipated costs of more red tape for the good brokers and lenders may make their costs increase which in turn gets passed on to the borrowers.
