Lenders answer complaints with transparent mortgage

Nation's Housing

March 03, 2002|By KENNETH HARNEY

IF YOUR HOME mortgage lender guaranteed you freedom from last-minute settlement fee surprises, would that matter to you?

If your lender promised to let you review and question your closing costs weeks before settlement, would that be a plus?

Some of the most powerful players in the U.S. home mortgage market - including giant investor Fannie Mae - are banking that you'll answer yes. They are gearing up to introduce a more convenient way of doing home loans with you.

Call it the transparent mortgage. Call it see-through financing. Or think of it this way: Lenders have heard your complaints. They've heard Housing Secretary Mel Martinez lambaste the industry for making obtaining and closing a home mortgage needlessly mysterious and unpredictably expensive.

And they have read the bad publicity about lenders low-balling quotes to loan applicants to get them in the door, then hitting them with big fees at settlement. Or title companies and lenders inventing hundreds of dollars of junk fees and larding them on to borrowers' settlement sheets hours before the scheduled closing.

The industry's partial answer to these criticisms is to open up the loan process. Let homebuyers see their settlement documents and their complete loan files weeks ahead of the scheduled closing. And cut out the last-minute, surprise junk fees.

To make this happen, companies such as CitiMortgage Inc., Fannie Mae, E-Loan and others are participating in a concept inelegantly dubbed the "eMortgage Axis." It is the product of the high-tech California company BridgeSpan Inc.

Lenders who sign up agree to put their loan files onto an electronic "platform" created and run by BridgeSpan. The online platform is available to all key parties to a mortgage loan transaction, most important the consumer.

Say you apply for a home loan. By federal law you're supposed to receive a "good faith estimate" of your closing costs within three business days. But those estimates by the lender frequently have little connection with the final charges the consumer sees on the HUD-1 settlement sheet weeks later.

Borrowers applying for transparent mortgages are guaranteed that there will be no last-minute surprises on fees. That's because they can pull up their entire loan file - including final settlement documents - weeks in advance via password-coded access to a secure Web site. They can see their file any time. Borrowers lacking an Internet connection can see the same documents by facsimile or get hard copies by mail or courier.

National lenders such as CitiMortgage have quietly begun experimenting with the BridgeSpan plan, customizing it to suit their needs. CitiMortgage lets customers not only review loan documents online, but also request changes in rates, fees and other terms.

Ram Lakshmanan, CitiMortgage senior vice president, says borrowers can opt for loan modifications after seeing their settlement fees.

Say you find your closing costs are going to total $7,000 and you decide you'd prefer to hold on to that cash. The CitiMortgage version of the transparent home loan allows you to e-mail the lender and request that the closing fees be paid for with a slightly higher interest rate on the note - an extra quarter of a percentage point, for example - or that they be rolled into the principal amount.

CitiMortgage's program also notifies borrowers by e-mail every time a document is added to their files or changed in any way. For those customers who prefer the latest in technology, the program accepts "e-signatures" and "e-recordations," and provides settlement packages on compact discs.

The first borrowers to use the company's transparency program insisted on having each entire home financing file on a single diskette, which each carried home on settlement day rather than lugging a pile of paper, Lakshmanan said.

Fannie Mae says it is enthusiastic about transparent loans because they are tied in with a long list of technical advances most consumers won't notice, such as faster deliveries of closed mortgages to investors.

Michael Williams, Fannie Mae's head of "e-business," calls the transparency idea "the next major innovation to hit the mortgage industry." Fannie Mae expects to begin purchasing large volumes of such loans, once national lenders begin their versions of the program.

Aside from transparency and predictability on closing fees, will the new approach lower costs for borrowers? Maybe modestly, say lenders.

CitiMortgage's Lakshmanan foresees offering borrowers choosing transparent mortgages discounts on total loan fees of $500 to $1,000. But the basics - title searches and insurance, escrow fees, loan origination fees - won't change much.

Kenneth R. Harney is a syndicated columnist. Send letters in care of the Washington Post Writers Group, 1150 15th St. N.W., Washington, D.C. 20071. Or e-mail him at kenharney@aol.com.

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