Scam at the Finale
Purchasing a home can be exhilarating, empowering, scary--and maddening. What is a home buyer to do when it comes time to sign loan papers and the fees for wrapping up the transaction are far higher than the original estimate? Most grit their teeth and shell out the extra dollars, especially in today’s hot property market when homes are being snapped up in no time. Cornered consumers resent their predicament, but they have little recourse short of going after the lender in court.
A few home buyers are doing just that, taking the class-action route. No wonder there is wide interest among bankers, mortgage lenders and brokers, settlement companies and consumer groups in rooting out abusive practices that allow some to give the many a bad name. All these groups are seeking to make the closing costs of a mortgage transaction more transparent and predictable. Consumers clearly need that protection.
There’s consensus for greater clarity in the law and for measures that punish abusive lenders. Existing laws, as Times personal finance columnist Kathy M. Kristof reported this week, are vague and provide no penalties for lenders who jack up fees for home purchase and equity refinance loans.
One couple expecting $4,000 in closing costs were charged more than double that, Kristof reported. That’s outrageous.
Congressional hearings on mortgage reform began more than a year ago. Last July, the Federal Reserve Board of Governors and the Department of Housing and Urban Development issued a report to Congress with recommendations that have yet to be introduced in legislation. Another round of hearings is scheduled for this fall.
Current law requires lenders to provide a “good-faith estimate” of closing costs within three days after receiving a loan application. But lenders are not penalized if they fail to make such disclosures or if they charge fees higher than those quoted. Consumer groups, the Fed and HUD all recommend that these so-called settlement costs be disclosed upfront and lenders be held to the stipulated amount throughout the loan process. Another recommendation is to strengthen “truth in lending” laws to require lenders to include closing costs in figuring the annual percentage rate of mortgages. They are not required to do so now.
For most people, purchasing a home is their biggest and most costly investment. Consumers need straightforward information and predictability. Congress must put a clamp on closing cost scams.
