A recent buyer asked us at signing (a day or two prior to closing):
“I’ve noticed that the fees charged by my loan officer are about $1,600 more than my Good Faith Estimate. I recall only being charged 1% loan origination. Is there any explanation for this?”
What are the re-disclosure laws (both state and/or Federal)? Obviously, this buyer was a bit under pressure and did not want to create waves to delay the purchase.
Hi Tim,
First question: Where does the LO work? What I mean by this is, what kind of company?
Bank
Broker
Credit Union
Consumer Finance Co.
Everyone has to follow federal law, but it does help to know the type of entity.
Tim,
I ask my clients for a copy of the good faith estimate so I can compare it to the HUD 1 before they get to closing to sign their papers. The few times there has been a charge in error, I can have it corrected before the buyer gets their copy of the HUD 1.
Would it be inappropriate for you, from escrow, to call the lender if you have a copy of the GFE and note the error?
If the overage was for something other than the lender fees however, like an HOA admission charge that the lender could not have foreseen, then I wouldn’t expect the lender to “fix” that.
Ardell,
A borrower would have a copy of the GFE, but my guess is that it was not with them at the signing. Typically, when a borrower asks a sensitive question such as this it is best to refer the borrower back their loan officer to clarify why the difference in fees. There could very well be a legitimate reason.
The question of re-disclosure of fees and what triggers it remains open and Jillayne informed me she will address it.
“A borrower would have a copy of the GFE, but my guess is that it was not with them at the signing.”
Maybe you can include that in what you tell them to bring with them along with their cashier’s check and driver’s license. And/Or if you send them a HUD 1 in advance of signing, maybe you can say “compare these costs to your lender provided Good Faith Estimate and call your loan rep if you have any questions regarding differences”.
That would prompt people to double check their original estimates with their final costs before signing the final closing papers.
Sometimes it is possible to send over a HUD to the borrower ahead of signing, but in many many many cases it is not possible. Why? Loan docs are routinely sent to escrow very late in the game, thus making it very difficult to get a HUD over to the borrowers in a timely manner.
A good example was a few days ago. Loan docs promised for two weeks (not a typo). When did escrow receive them? Very late in the afternoon (after 4pm). Do you know what is going on at 4pm? Racing to get funding packages squared away to be overnighted, disbursements sent out (yes, commission checks), payoffs to lenders among other things such as handling other transactions.
The escrow function does not entail “looking” for discrepancies in loan fees on behalf of the borrower. We go through the HUD and tell them what the credits and debits are and move along to the rest of the lending package. It really is the job of the borrower to keep an eye out for anything that raises questions. If there is a question the borrower needs to go to the source (loan officer).
People should double check, but they don’t know what they don’t know.
Ardell, you are a good advocate for your clients by attending signings, but he majority of the time, LO’s and agents do not attend signings.
Hi All,
It’s dificult to answer this without more details. First let’s address this:
“I’ve noticed that the fees charged by my loan officer are about $1,600 more than my Good Faith Estimate. I recall only being charged 1% loan origination. Is there any explanation for this?
Not exactly on topic, but how about a seller closing doc question regarding Reconveyance Fees. I deal with many different escrow companies and try to always ask for an explanation of this fee (if only to hear the closer squirm). I nearly always get a different answer. So, do any of you folks want to take a crack at explaining the reconveyance fee and what circumstances, if any, when it or some portion of it is refundable to the seller?
Good response Jillayne. I would modify your instructions to the borrower a little though.
“1) Call the Loan Originator and ask for an explanation in writing. If this does not work immediately, meaning within the same business day, then call the LO’s BROKER…” Agree that this is the first step.
2.) If you don’t get a response immediately, send a written letter (and fax a copy) requesting an explanation for the fee increase to the LO and his broker. Cite the Mortgage Broker Practices Act and RESPA directly in the letter where applicable. No need to be threatening, but make it clear you know what you’re talking about and expect a response soon.
3.) If you don’t get anywhere file a complaint with the state and/or regulatory agency that covers the lender. If it’s a broker go through HUD. If it’s a bank, you’ll want to figure out which agency regulates them (OCC, OTS, FDIC, etc.) CC the loan officer and broker every time you file a complaint.
4.) If you really don’t get anywhere then I’d explore the attorney option. I just can’t see spending any money on an attorney to write a letter that you could probably draft in 20 minutes. If the lender really is a deadbeat, he won’t be threatened by a letter on law firm stationary unless he knows that you’re actually consider suing.
I wouldn’t even waste my time on the NAMB complaint. They may have changed their website since, but I remember searching on their site for a path to file a complaint and I couldn’t find one. Clearly, they have other priorities.
Hi Laxtosnoco,
RE: number 2, an average, random consumer wouldn’t really know how to find the relevant state or federal laws. Of course we are telling them here in this blog post, but most consumers probably would opt for a phone call to get started.
RE: number 3, brokers are regulated and licensed via the state. Going through HUD is not accurate. The consumer would have to start with their state regulator. In WA state, the link is:
dfi.wa.gov and click on “mortgage brokers” or “loan originators.”
For banks, first, is it a state-chartered bank? Then the link is the same as I just quoted, dfi.wa.gov, but click on banks. If the entity is a federally chartered bank, I would start with the FDIC.
NAMB has made it very clear when they testify before the house or the senate that their members follow a strict set of guidelines, etc.
However, when trying to make a complaint, the NAMB website directs us back to our state regulator. Laxtosnoco is right. This trade group does NOT regulate its members for ethical OR legal conduct.
Guess what? I just went to the NAMB.org website trying to find the page where NAMB just sends consumers who want to file a complaint against a member back to the state regulators and that page is GONE. Now consumers have nothing available to them through NAMB.
After a re-read, you’re right that HUD is not the right enforcement agency in this case. That said, HUD does enforce some types of RESPA violations.
You might have a TILA violation here though, which is enforced by the Federal Reserve.
Here’s a handy link for the fed enforcement agencies: http://www.hud.gov/offices/hsg/sfh/res/resrefer.cfm
HUD doesn’t have the resources to investigate or respond to minor complaints. Their RESPA investigations have centered around large homebuilders and egregious violations of title insurance companies.
I’m not sure how responsive the Fed Reserve would be these days.
I agree with you that a consumer is better off making an assertive, written request to the broker or banker, challenging the increased fee.
I notice that with the difficulty in obtaining loans, the mortgage brokers are often submitting and resubmitting the application to obtain approval or get just the right loan product. The details are often not communicated clearly to the Buyer, who is then suprised at closing with unexpected fees. It is important to push the escrow agent for the draft settlement statement the day before closing to review and address any changes needed.
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I’ve got a follow-up question on this one:
If you’re the buyer in this situation what do you do when you get to the closing table? Sign the docs, walk away and refuse to sign, scream at your LO (alternatively, for you agents what do you advise your clients do)?
My LO screwed me over at signing, from the “forgot to wave the inspection and appraisal fee” to the actual loan rate percentage.
I actually had the escrow guy CALL him, on speaker…and the LO had the balls to tell me I misunderstood what he was saying originally.
I was basically forced to sign because I had no idea what the possible repercussions would be had I not.
If I was to do it again I would have made him redraft everything or walk away.
Buyers in this position face a very difficult dilemma: sign the documents to assure the deal closes and face the possibility of being stuck with unfavorable terms or walk and face the possibility of being in breach of contract with a seller who’s more than happy to take the earnest money and go looking for another buyer. And that’s only two of the many consequences that might come about.
I dont recall any clients in this situation who I wasnt able to assist. I believe its principally because I let escrow know early on that my client’s closing documents are to be sent to me in advance for review and advise my clients to ride their LO and processor like a rented mule when the closing date is approaching. The squeaky wheel gets the grease and I’ve found that virtually all LO’s will make the loan docs happen when they’re getting pestered frequently. An email from their clients attorney also tends to speed things up.
Fortunately, Ive always managed to get the documents early enough to address mistakes far enough in advance so that no client has been forced to breach their contract and none, to my knowledge, have ever accepted loan terms they werent expecting.
Marc is right. A buyer has to be really cautious about just walking away. Best to sign — get legal advice, then perhaps fax, call or deliver to escrow a notice not to close, if that is legally prudent action.
And, another point to make, is that if buyers are using a lender that their agent has recommended, hopefully this type of situation would never have occurred — again, keeping in mind that what I am saying is that the buyer is dealing with a quality agent who recommends quality lenders …! Lot’s of second guessing on these posts, so stating the obvious here.
Certainly, buyers can and do find their own lenders, and that’s where as agents we really do need to stay on top of what this ‘unknown’ lender may be doing.
It’s difficult dealing with an unknown quantity, and working with an unknown lender, no matter if they are a name-brand lender or otherwise, always makes me nervous. What I really appreciate is when I am dealing with someone that I don’t know, is for them to take a few extra minutes in the beginning of a transaction to let me know that they indeed will be on top of everything – that they take the time to email, call or whatever to make sure I hear from them and that they are not invisible. Just hearing their voice, or seeing their written words are reassurance too! How many times have I heard “I’m going to use Billy Joe because we were in a frat house together” or “I’m going to use my dad’s financial advisor, Milton, who is 89 years old” … or worse, “I’ve got my loan thru the internet!!” …. aaaaahhhhhhhh!!!! 🙂
You’d be surprised at how many lenders for the buyer don’t bother to contact the listing agent with contact info, or to say just a friendly ‘hello,’ I’m going to make this transaction as smooth as possible for everyone involved’ would be very welcome.
Tim, clarify for me on this point. My point about a buyer who is faced with a surprise at their signing appointment.
If the buyer signs all the docs, but later that day or first thing the next morning, finds out that he shouldn’t have agreed to whatever he signed — can deliver a notice to escrow to stop the closing procedure, and that escrow must stop at that notice — is this correct?
In a sense, if a mistake does happen, there is time (unless the sale is closing that same day), to sign the paperwork, and still find out the correct answers, and notify escrow to terminate if such action seems legally justified … and not be in a risky situation such as breach of contract with a seller.
Right/wrong/what?
Leanne,
Complicated, is the realistic answer. If escrow receives written notice to stop or delay closing until clarification of a matter is completed, then escrow will comply.
Our job is to abide by the written instructions we receive from our clients (buyer(s) or seller(s) ). If clients give conflicting instructions, then we notify all parties of the conflict and ask for written instructions on how to proceed.
I’m looking at this with the proposed RESPA rules in mind, This is a great example of how the CLOSING SCRIPT and the new style GFE and HUD would assist a consumer.
Under the new procedures, the closer at the signing is aided by a mandatory script to be read aloud to the consumer which CONTAINS the GFE data and the HUD data. The script guides the consumer in a comparison which has been prepared by the settlement agent with information provided by the lender. Any difference in the GFE origination charge and the HUD origination charge won’t be tolerated and would have been caught by the settlement agent before going to the table.
All good points.
My best advice would be to call the LO, and not hesitate for a moment to call the managing broker (or bank manager).
WA state is very clear about the requirement to redisclose (with a new GFE) any increase in fee to the borrower at least 3 days before signing.
I do not think DFI would have much tolerance for violations like this, and most brokers and LO’s would gladly reduce the fee, post closing, to avoid the cost and trouble of answering to DFI, if they wanted to continue lending in WA state.
Believe it or not, failing to redisclosure is one of the most common violations in this state.
Jillanyne-
Could you make a poster the size of a car regarding re-disclosure issues at your next meeting. It would probably help the LO’s avoid lost business and mend the industry image it sorely tries to salvage.