THE NATION'S top housing official has pledged to make 2002 a year of pro-consumer federal reforms to tackle one of home real estate's most vexing problems: widespread abuse and consumer confusion about the fees charged at mortgage closings.
Housing and Urban Development Secretary Mel Martinez is expected to unveil new national loan-fee disclosure forms shortly that would change the rules for most all home-loan transactions in the country.
But in advance of those reforms, some mortgage banking and brokerage firms are initiating new, voluntary consumer disclosures.
A handful of firms are even promising applicants that if closing fees exceed initial "good faith" estimates by some threshold amount - say, 10 percent - the company will issue a new disclosure in advance of settlement that would permit the borrower to get out of the deal.
What's particularly important about these new, voluntary disclosures is that cost-conscious mortgage applicants across the country can demand similar information from brokers and lenders who are not offering extra disclosures - yet.
In other words, you don't have to wait for the new federal rules. Once you know the key questions, you can aggressively demand answers up front - at or right after application - before you commit to a specific deal. Use the lending industry's own best disclosure questions to your own benefit now rather than later.
One of the most helpful new disclosure formats is from Fidelity Home Mortgage Corp., a mortgage banker in Timonium. The company requires all brokers to use the disclosure form with every applicant. Key elements you can put to practical use:
Full disclosure of all fees to be paid by the lender to the broker, and the reasons for the payments.
If, for example, a lender is going to pay a broker an extra $2,200 as a "yield spread premium" for your loan, you need to know why. Is it because you're paying a higher interest rate than the lender's regular or "par" quote? Are you paying an extra one-quarter of a percent because the broker is chipping in for some of the regular settlement costs? What are they? Are they priced reasonably? Whatever the rationale, you need to get an explanation - form or no form.
Full disclosure of all the services to be performed by the broker.
These typically involve obtaining basic qualifying information from the applicant, checking credit, providing advice regarding the range of alternative loan products available, submission of the borrower's application documents and coordination of title and other settlement services. For this a broker normally receives an "origination" fee.
To qualify for extra fees beyond that, according to the new Fidelity disclosure, brokers have to spell out precisely what additional services they intend to perform. They must also document and retain details of these services in each customer's loan file for possible later audit.
Full disclosure of the rate-and-fee alternatives available to each borrower.
For instance, if a borrower requires a below-market interest rate, additional up-front payments will be necessary to "buy down" the rate. If the borrower wants a limited-cost or no-closing-cost loan, the interest rate will have to be higher by some amount. If the customer simply wants a plain-vanilla, market-rate mortgage - the standard rate and standard fees - that should also be described.
The point is: To understand your options, you need them spelled out in some formal way, with all expected fees in plain sight before you commit to a binding application. Only then can you make an informed choice.
Full disclosure of the contractual relationship existing between you and the broker, and between the broker and the lender actually financing your loan.
Mortgage brokers originate an estimated 60 percent to 70 percent of all new home mortgages. They are not lenders - they have no independent stashes of cash. But many of their customers erroneously think of them as lenders. (Brokers' corporate names sometimes feed that misunderstanding; after all, a "mortgage company" sure sounds like a company that lends money for mortgages.)
Here's what Fidelity's model disclosure for its brokers says about that in bold, capital letters: "We [the broker] are acting as an independent service provider and not as your agent, with no duty or loyalty or fiduciary duty to you or any lender.
"We do not represent all lenders in the marketplace, and the lender with which your mortgage loan is placed may not offer the absolute lowest price, absolute best terms or the highest amount of loan dollars available."
Fair enough - as long as you know it in advance. So don't be shy about questioning fees, services or contractual duties up front - with or without a disclosure form.
Kenneth R. Harney is a syndicated columnist. Send letters in care of the Washington Post Writers Group, 1150 15th St. N.W., Washington, D.C. 20071. Or e-mail him at email@example.com.