Stiff competition and shrinking profit margins in the mortgage business have prompted a handful of lenders to boost loan fees hundreds of dollars above going rates, say agents whose clients have been hit by unexpected, higher costs at settlement.
Complaints have involved relatively few lenders, but such situations have cropped up more frequently, some in the industry say.
To give sellers fair warning, the Greater Baltimore Board of Realtors has urged brokers and managers to negotiate such fees as part of the sales contract, and if sellers desire, set limits on fees.
Usually, buyers pay fees for document preparation, underwriting, commitment and tax services. And usually, there are no surprises. Buyers get estimates through required disclosure forms when they apply for loans.
Problems have arisen, though, when the burden of fees falls on sellers, for instance when a buyer has financing through the Federal Housing Administration and the Department of Veteran Affairs. FHA and VA rules prohibit buyers from paying lenders' fees.
"Most reputable companies in our industry and in this market charge $300 to $400, but many little brokers popped up during the re-fi[nance] boom, and other companies trying to help their bottom line have raised fees to $800 to $900," said Brian Sachs, chairman of the Mortgage Finance Committee of the Realtors board.
"This was happening rarely, but now it's becoming more prevalent," he said. "There is less profit margin for lenders in loans. Business has slowed down."
Typically, real estate agents provide sellers a settlement sheet with estimates of the fees sellers must pay on FHA and VA loans. According to estimates real estate agents get through the Baltimore region's multiple listing service, costs of document preparation, tax service fee, lender's inspection fee and lender's underwriting fee total $439.
"When the seller comes to settlement, [charges of $800 and $900] cause many, many problems at the settlement table," Mr. Sachs said.
Agents have reported instances in which lenders at settlement charge hundreds more than the estimate. A seller must pay the higher fees or risk losing the sale and opening himself to a lawsuit.
On an $81,900 FHA sale, a seller was charged $826 for underwriting fees, broker expenses, flood certification, tax service and Federal Express charges, the board reported in a memo to members.
The Regional Forms Committee of the Realtors board -- composed of lenders, title attorneys, real estate brokers, manager and agents -- suggests that brokers and managers have sellers negotiate the fees, as they would discount points, as part of the sales contract. If a seller wants to limit the charges that he must pay, the committee suggests that agents include a line in the contract setting a limit.
Adding a clause to a sales contract would, in effect, "put a burden on the agents to find out who the lender will be and what the charges will be," Mr. Sachs said.
The committee took up the issue after a member, Norma Jean Marsho, brought it to their attention. One of her agents representing a seller in an FHA sale had reviewed the lender charges to the seller and found some that seemed out of line. Ms. Marsho and the agent, with the title company attorney and help from a local lender, were able to get the lender to reverse all contested charges.
"This had never come up as a problem before, and we do over 1,500 transaction sides a year," Ms. Marsho said.
"I wondered if any other brokers had found similar problems, and if this was going to become an issue to deal with in the current competitive lending climate. My reasoning was that if it was going to become a problem, then we should address it with specific language in the new form contract."
She said that she has heard of no other instances and believes her situation was an isolated one.
REWRITING THE CONTRACT
The Greater Baltimore Board of Realtors is suggesting to sellers that they add the following wording to sales contracts to protect them from last-minute lender fees in FHA and VA transactions:
"The obligation of seller to pay settlement costs pursuant
to Section 33 shall in no event exceed $________."
Section 33 of the Realtors standard contract requires sellers in FHA and VA transactions to pick up lender fees that the buyer is prohibited from paying.