Your Mortgage : U.S. Probes Higher Fees for Women, Minorities
Top legal experts who advise banks and mortgage lenders have just sounded an alarm that home buyers 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 fees charged to women and minority mortgage applicants compared with the fees charged to males and whites. Rather than concentrating on the traditional fair lending question--do lenders more frequently reject women or minority applicants?--the hot button is becoming fee levels.
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% of the loan amount. Veta said at a meeting of the Consumer Bankers Assn., 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, said at the same meeting that federal regulatory agencies increasingly are studying loan pricing patterns for possible discrimination. In two recent settlements with banks the Justice Department alleged that loan officers routinely charged minorities higher fees than they charged other borrowers.
According to Veta, a prime current 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 part in the loan officer’s pocket. When the obtainable rate on a mortgage for an applicant is 8% with two points, for example, the loan officer or broker might quote a single woman 8% and three points. The extra point goes to the loan officer.
Other unseen overages come in the size of 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 a yield spread premium. Veta said that such charges are not illegal in and of themselves; 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.
The legal trouble arises, according to Veta, when certain borrowers, like women or minorities, are regularly charged more. Such patterns of pricing may amount to disparate treatment or disparate impact under federal fair housing and civil rights statutes.
Authoritative sources said recently that Justice Department investigators are actively exploring the issues of discriminatory pricing and overages and have studied at least one class-action suit filed against a large mortgage lender in recent months for possible discriminatory fee patterns. A Justice Department spokesman declined comment.
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 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, rather than your sex or race. Even if a loan officer has discriminatory intent, you don’t have to be a victim.
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 real 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.” All these are actual fees charged to--and protested by--a group of Alabama borrowers involved in class-action suits against large mortgage lenders.
Whether the borrowers had agreed to the charges--or should have known about them before 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 best 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.
Distributed by the Washington Post Writers Group .
