Industry responds to call for guaranteed good faith estimates

Feb. 12, 2006

Industry responds to call for guaranteed good faith estimates

By KENNETH R. HARNEY

WASHINGTON POST WRITERS GROUP

WASHINGTON -- It's a distressingly familiar scenario for home buyers and refinancers, and was one of the major mortgage-related consumer complaints to federal agencies in 2005: "Good faith estimates" of settlement costs that turn out to be hundreds, even thousands, of dollars off the mark.

Previously undisclosed charges for "processing," "administration," and other vague services mysteriously appear out of nowhere on the HUD-1 settlement form. What was estimated up front as $2,200 in total fees turns out instead to be $3,400 at the actual close of the transaction.

That, in turn, forces consumers into a Hobson's choice: Do I pay the extra charges even though they were never included in the good faith estimatesá Or do I blow up the whole deal, potentially losing the house I want to buy or the mortgage I need, over a lowball estimateá

Federal housing officials are working on possible remedies to these problems, but here's some unexpected good news: So are lenders themselves. Growing numbers of them have gotten the message from their customers who demand certainty about fees at the bottom line, and they are debuting new ways to turn their estimates into rock-solid, binding promises.

SunTrust Mortgage Inc. introduced "good faith guarantees." When retail loan applicants receive their good faith estimate disclosures, SunTrust now adds language that commits the company to deliver those prices at settlement.

Another large mortgage industry player, LendingTree, has begun offering lenders on its network what it calls settlement service "bundles." The prepackaged bundles include everything needed to close the mortgage from title search and insurance to credit reports and appraisals. They often carry lower total costs to lenders than they'd pay assembling the same services on their own.

Participating lenders are thereby better positioned to offer more accurate estimates of total closing charges, and even pass on the lower, wholesale market costs to borrowers. LendingTree typically promises mortgage applicants competitive quotes from up to four lenders. Roughly 50 of its lenders are now buying settlement service bundles.

Sterling Edmunds, CEO of SunTrust Mortgage, said "we listened to our customers and they told us that the important thing to them is certainty" about settlement cost estimates. "So now we're going to guarantee them."

As an alternative to guaranteed estimates, SunTrust also offers fixed-fee packages of services up front, allowing applicants to compare SunTrust's total costs with those of competitors such as ABN-AMRO Mortgage, Ditech.com, and E-Loan, who promote their own version of guaranteed settlement cost programs.

Behind SunTrust's innovations on fees is the same concept that undergirds LendingTree's: acquisitions of services from vendors who specialize in pulling together title, appraisal, credit, flood zone certification and other settlement services at discounted, wholesale market costs. The vendors typically have negotiated contracts with hundreds of individual providers of services across the country who are willing to accept lower fees in exchange for higher volumes of orders. Instead of buying your appraisal here, your title insurance there, and each of your services from a different source, you buy a complete package from a specialized settlement vendor generally with a lower total cost.

David Anderson, general manager of LendingTree Settlement Services, said his company started offering bundled services as both a quality control measure and as a way to lower costs for lenders and their borrowers. Research by LendingTree found that while customers often were satisfied with the rates on their loans, too often they were unhappy about the closing process.

"We kept hearing about situations where unexpected fees would pop up and (borrowers) would say, oh my goodness, here's another $3,000 I didn't know about" on the settlement sheet.

LendingTree now essentially buys the services itself, at wholesale costs, and has better control over the quality, timeliness, and pricing of those services through its lender network participants.

With lenders stepping forward to deal with closing cost shocks and consumer abuses, maybe good faith estimates will come with a lot more good faith, and a lot fewer rude surprises at settlement

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