WASHINGTON -- Top legal experts who advise banks and mortgage lenders have just sounded an alarm that homebuyers and refinancers ought to hear, too.
The warning in brief: Federal investigators are expanding their fair lending focus to a potentially explosive new arena -- the amount of fees charged female and minority mortgage applicants compared with the fees charged men and whites.
Washington banking attorney D. Jean Veta argues that "women seem to be prime candidates" for being quoted and charged higher points and other fees on mortgage applications. A point represents 1 percent of the loan amount.
Veta told a meeting of the Consumer Bankers Association, a trade group representing 650 of the largest lenders in the country, that loan officers who "pursue [fees] more aggressively with women than with men" expose their firms to potentially severe civil rights and fair housing penalties.
In a subsequent interview, Veta said, "There is a perception in society, erroneous though it may be, that women are not as good at negotiating as men. There is a biased assumption on some loan officers' part that they'll be able to charge women more" -- an extra point here, an extra $500 there -- and get away with it.
Another Washington attorney who represents banks, Andrew L. Sandler, told the same meeting that federal regulatory agencies increasingly are studying loan pricing patterns for possible discrimination. In two recent settlements with banks, for example, the Justice department alleged that loan officers routinely charged minorities higher fees than other borrowers.
According to Veta, a prime target for regulators is a widespread practice known as mortgage "overages." An overage is price padding on the rate or fees that ends up in whole or in part in the loan officer's pocket. When the obtainable rate on a mortgage for an applicant is 8 percent with two points, for example, the loan officer or broker might quote a single woman 8 percent and three points. The extra point goes to the loan officer.
Other unseen overages come in the fees charged borrowers at settlement. Rather than describing a $1,250 charge as "1.25 points," a loan officer might characterize it as a "servicing release" or "yield spread premium." Veta emphasized that such charges are not illegal. They are part of the negotiations between people doing business in a free market. If a provider of a service or product -- in this case a mortgage loan -- can obtain a more profitable deal on the transaction, he or she is generally free to do so.
Authoritative sources said last week that Justice Department investigators are exploring the issues of discriminatory pricing and overages.
So what does all this boil down to for you as a prospective mortgage borrower? Here are several thoughts: First, be aware that overages and variable fee levels are facts of life in the ZTC mortgage field. To some degree, their existence or size in connection with your specific mortgage application may well be the product of your own shopping skills, and your willingness to negotiate.
Bear in mind, too, that the name of the game in loan fees is not necessarily what you're quoted on rates or points. Sometimes the action turns up on your settlement sheet with items like "servicing release premium -- $2,347.50," or "underwriting fee -- $515," "credit life insurance premium -- $3,032.49," or simply "premium paid to broker by lender -- $528.75."
Whether the borrowers had agreed to the charges -- or should have known about them prior to settlement -- isn't the issue. The fact is that they thought they were paying lower fees than they ultimately paid. The charges simply didn't carry the label "points."
How to guard against settlement surprises? Look hard at the "good faith estimate" your lender is required by federal law to supply you three days after application. Question -- and negotiate -- any fees you don't understand or consider out of line. Hold onto those estimates and compare them with what's on your final settlement sheet. And don't be meek if you see anything you didn't expect.
Kenneth R. Harney is a syndicated columnist. Send letters care of the Washington Post Writers Group, 1150 15th St. N.W., Washington, D.C. 20071.