The time-sensitive disclosure regime around closing costs is aimed at ensuring borrowers shop for and get the best deal on fees for services necessary to close their loan, but in 2024 some spoke out about the limits of its effectiveness.
"Everybody's doing their best to provide the consumer with a great loan with the least amount of expense, but when you can't control every single fee, sometimes it's hard to do," said
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Brokers are probably the most active industry advocates for mortgage shopping in general, inclusive of the purchase closing costs that CoreLogic's latest figures show add up to over $7,000 on average, so the fact that they show some frustration with the process is telling.
Rohit Chopra, director of the Consumer Financial Protection Bureau, also has questioned the documentation process' effectiveness, noting
The comments highlight why it's important to look at the process involved in shopping for closing costs, the limits to lowering them and whether do so is always advisable
The loan estimates that the CFPB requires do accommodate shopping by product and lender, but the process involved in the closing costs for third-party services has a complexity beyond mortgage rates, Saunders said.
"You can issue a borrower multiple loan estimates off of the loan type and rates that are offered by different wholesale lenders. So we do have the ability a single broker does have the ability to give multiple financing opportunities and availability to a consumer," she said. "But we can't control the cost of a credit report, a lender's administrative fee, a flood certification, a tax service, appraisal, title insurance or recording fee."
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There have been some attempts to increase consumers' and lenders' options to lower some fees through alternatives in the appraisal and title insurance space, but the trade off in elevated risk may not be worth it, said Saunders, who owns a title company.
"You have to look at the broader picture of what the title insurance coverage provides," she said.
Individual lenders and secondary market investors have been making varying calls on how acceptable different forms of appraisal and
However, borrowers can look for varying offers that can bring down or limit closing costs from lenders, sellers and others and see whether they are truly competitive or not. Consumers also can avoid additional financing costs if they are able to pay closing costs in cash.
"The low to moderate income borrowers do have those opportunities for downpayment assistance where they can get subordinate financing and have monies applied towards their closing costs or down payment requirements," Saunders said. Sellers also may provide closing cost credits to buyers, she noted.
