mortgages Why no Costco-like discounts for us? Because it’s illegal
A restaurant offers you a meal deal discount for a burger, fries and soda. Perfectly legal.
A travel agent offers you a bundled discount for your cruise, airline seats, hotel room and limousine transportation services. Also perfectly legal.
A real estate agent, mortgage lender and home title insurer offer a bundled discount to a homebuyer. Patently illegal. In fact, they run the risk of going to prison under Section 8 of the 1974 Real Estate Settlement Procedures Act, or RESPA.
Lack of housing affordability is a crisis of epidemic proportions for lower-income homebuyers in underserved communities along with everyone else wanting to get on the road to homeownership. Down payment and closing costs are the biggest barriers to homeownership. It’s an untenable king’s ransom for too many.
Yet an antiquated rule of law stands in the way of significant affordability improvements.
The big idea behind the
RESPA law is nothing of value can be provided to a real estate settlement provider in exchange for business. Examples of real estate settlement providers include real estate agents, mortgage loan originators, title companies, escrow companies, home inspectors, appraisers, homeowners’ insurance, mortgage insurance companies and notaries.
Hidden in plain sight to substantially reduce the financial barrier to homeownership are these bundled settlement services discounts.
Think
Here’s an example: Take a
Lender underwriting, loan documents and loan processing type fees are
The
Making this happen might be easier — and harder — than you think.
“There is a legitimate business justification in lowering the cost to consumers,” said
That can of worms, Fendelman said, would include unearned fees for settlement providers, steering buyers, charging others much more to make up for the discounts and fair lending issues.
The harder part would most certainly be industry opposition in one form or another. Title insurance companies, settlement agents, Realtors, and mortgage lenders and mortgage insurance companies, to mention just a few, would be screaming bloody murder to protect their high-profit turfs.
And, you’d have legitimate questions about the speed and quality of service, plus pricing compared with shopping a la carte. Consumers have certainly been able to figure out these issues in other industries thanks to online reviews and media scrutiny.
Some small-business owners I spoke with about bundled services also expressed concerns that they’d be crushed by the big dogs.
The real estate settlement industry is used to paying for leads — but in different forms.
Real estate brokers referring homebuyers and home sellers received an exemption from the anti-kickback law. Agents routinely provide 25% referral fees (assuming a
Plenty of lenders pay for mortgage leads through legal lead generators such as Lending Tree and Zillow, for example.
And then, of course, there are the illegal kickbacks. Settlement services’ kickbacks are common, routine and expected in one form or another across the
The result is consumers get a raw deal by unknowingly paying more due to the lack of prevention and enforcement of illegal referral fees. Honest, hardworking settlement services providers following the rule of law suffer huge business losses.
President
The
Bottom line: Assuming a borrower gets the average 30-year fixed rate on a conforming
What I see: Locally, well-qualified borrowers can get the following fixed-rate mortgages with one point: a 30-year FHA at 5.125%, a 15-year conventional at 4.75%, a 30-year conventional at 5.625%, a 15-year conventional high-balance at 5.25% (
Note: The 30-year FHA conforming loan is limited to loans of
Eye-catcher loan program of the week: a 30-year
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