Helping borrowers find a good deal

Firms review loan papers for excessive charges

July 31, 2005|By MARKETWATCH

The labyrinthine home-loan process leads many homebuyers and refinancers, when faced with hundreds of dollars in closing costs, to swallow their shock and pay up.

But even as regulators hold public meetings in attempts to untangle the knotty and complex mortgage loan process, two small companies now are offering services to help borrowers get the best deal.

Rather than have you shell out hundreds of dollars in, say, document preparation, underwriting and loan-application fees, these two companies will review your loan documents to help you figure out where the fat is.

"Most people feel they don't know what to do," said Robert Pessemier, an accredited financial counselor and president of Money Metrics, which also offers financial planning workshops through workplace benefit programs.

"We help them go back [to the lender] and say, `That's not a good enough deal. I want this deal,'" Pessemier said.

That's also what M. Thomas Martin, of the National Mortgage Complaint Center in Seattle, is doing.

"We try to give the borrower a tool," Martin said. "By doing a narrative report, we try to cite areas where we think the borrower is being overcharged."

As well as his loan-review service, Martin conducts investigations for plaintiff's attorneys on predatory-lending lawsuits.

Homeowners spend $55 billion annually in costs to close mortgage loans, and the Department of Housing and Urban Development is once again hoping to make more transparent where those dollars go.

Estimates vary as to what percentage of closing costs are unwarranted, though some say borrowers overpay $1,000 on average.

A recent client of Pessemier's was charged $500 for a good-faith estimate, a document lenders are required to provide. "As far as I know, it's illegal" to charge for that document, he said.

For $150, Pessemier's "Mortgage SOS" service includes a review of the borrower's loan documents, credit history and financial situation.

Within 24 hours, Pessemier sends back to the borrower a loan analysis detailing which fees are excessive and whether the interest rate is appropriate for that borrower.

Customers who don't think the analysis saved them money don't have to pay the fee, he said, noting Money Metrics' satisfaction guarantee.

Though Pessemier is licensed to sell mortgages, he said he doesn't pitch product to those who come to him for help with loan documents.

"When we do these for people, our mortgage is off the table. We are not doing the mortgage for them," he said. "What we're really trying to do is help them go back to their original loan officer or lender and have some power."

The National Mortgage Complaint Center service costs $35. Like Pessemier, Martin talks to clients by phone, reviews their loan documents and then sends them an analysis of how they could save money by negotiating lower fees or interest rates.

Martin intends to set up a credit-card prepayment system. For now, he counts on consumers mailing in their payment after receiving the service, as does Pessemier.

When asked about the disparity in price between his service and Martin's, Pessemier said his service was more comprehensive, as it also judges the loan's suitability given the consumer's overall financial picture and provides a review of the tax benefits of loans with varying interest rates.

The problem of outlandish closing costs has some lenders hopping mad. "These fees are not needed," said James Nutter Jr., president and chief executive of James B. Nutter Mortgage in Kansas City, Mo.

Borrowers paid more than $17 billion in junk fees in 2003, Nutter estimated, based on HUD's estimate that U.S. borrowers overpaid by $750 per loan on average, Nutter said. That HUD average has since jumped to $1,000, he said.

Whether they use a loan-review service or not, consumers should ask about closing-cost fees and compare among lenders.

"Mortgage lenders should be treated just like car dealers," said Ron Chicaferro, president of Thornburg Mortgage Home Loans in Santa Fe, N.M. "People don't seem to have a problem negotiating with car dealers. They should do the same thing with mortgage lenders."

As for these loan-review providers, "it's a nice service," Chicaferro said, but he recommended that borrowers first check to see whether their financial planner provides the same service.

Others said these services could help some borrowers, but they're not necessary to save money. "We have always recommended that borrowers shopping for their mortgages ask before signing anything whether the lender will provide them a written good-faith estimate of closing costs," said Keith Gumbinger, vice president of HSH Associates, a mortgage-rate research and publishing company. Doing so before the application means borrowers see the estimate before forking over money for a credit report and appraisal.

"You have to give them some particulars, the kind of loan, the kind of property, but you should be able to get some response from some lenders," he said.

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