Lenders See Opportunity in Standardizing Closing Cost Structure
Written By: Joel Palmer, Op-Ed Writer
A Fannie Mae survey of mortgage executives shows wide support for standardizing and simplifying the language around closing costs and fees.
The survey of senior mortgage executives, conducted in July, found that 60 percent of respondents said closing costs are easy to estimate, and 50 percent said they are easy to explain.
The majority of lenders (81%) agreed that simplifying and standardizing closing cost line-item descriptions would be valuable for the mortgage industry. Respondents indicated that increasing transparency, particularly for borrowers, would be the most important benefit of such an effort, followed by decreasing compliance costs, and helping consumers comparison-shop.
“Based on these findings, we believe meaningful opportunities exist for the mortgage industry to increase transparency around closing costs and potentially help save consumers money. In recent years, the mortgage industry has made some strides in this space…Still, we believe much more can be done, and we're committed to working with our industry partners to help improve transparency and reduce closing costs for borrowers,” wrote the authors of the survey summary.
Lenders focused on the need to standardize and simplify:
Lender fees
Settlement/closing fees
Lender's title insurance premium or attorney opinion letter (AOL) fees
Borrower credit report and verification of income/employment/assets (VOI/E/A) fees
Comments on lenders fees included the problem of different nomenclature between lenders to describe the same fee. Others pointed to the lack of alignment between states when it comes to allowable fees that fall under discount and/or origination. “If we had national standards, that would make it easier for state licensed lenders,” one respondent said.
When it comes to settlement and closing fees, respondents reported confusion due to lumped costs and complex terms, and called for standardizing descriptions across properties and states.
Respondents noted there is an opportunity to help borrowers understand title insurance and why they need it by simplifying fee descriptions. “With several potential charges related to title insurance, simplifying the charges and/or benefits descriptions...will help,” one respondent said.
Many respondents believe breaking down borrower credit report and VOI/E/A fees would increase transparency and help borrowers understand what they’re being charged. “The fees we are seeing in this space are out of control. By far the most expensive increase...this is due to few aggregators in the space,” noted one respondent.
Survey respondents said the biggest obstacle to accomplishing standardization is getting key players to align. Technology updates were another cited challenge.
Some of the written comments from respondents also showed a belief that the necessary work to standardize and simplify fee language has already occurred.
One respondent noted that fees are unique to organizations “and to standardize the naming and fee structure would be an unwanted exercise.”
Another respondent said estimating fees is challenging because lenders don’t control the costs.
About the Author
As an NAMP® Opinion Editorial Contributor, Joel Palmer is a freelance writer who spent 10 years as a business and financial reporter and another 10 years in marketing for the insurance and financial services industries. He regularly writes about the mortgage industry, as well as residential and commercial real estate, investments, and retirement income planning. He has also ghostwritten books on starting a business, marketing, and retirement income planning.
