The following is an excerpt from the August edition of Mortgage Technology magazine. To read the full story and much more,
It’s been nearly 20 months since the Department of Housing and Urban Development implemented new policies for the Real Estate Settlement Procedures Act, rules that included new versions of the Good Faith Estimate and HUD-1 disclosure documents.
While the technology and automation exists to help mortgage lenders avoid GFE/HUD-1-related RESPA violations, industry participants say that even now, many lenders are still relying on manual processes—or no process at all—and suffer the consequences of paying cure violations to make up the difference of underestimated underwriting and closing costs.
The effort to resist change is symptomatic of a deeper attitude that exists among lenders, said mortgage technology consultant Brenda Clem. Historically, many mortgage lenders have felt they needed to underestimate settlement costs in order to remain competitive among lenders. The attitude was everyone was doing it, and if a lender didn’t, they’d lose business.
“It was prevalent because everyone was comparing closing costs. You could have a borrower leave you and walk across the street because your competitor’s costs are $250 and yours are $450,” Clem said. “And then the poor guy got to the closing table and the costs aren’t $250 at all, he winds up paying $780. Is he going to walk then?”
According to Jeff Schurman, the former executive director of the Title and Appraisal Vendor Management Association, “What they were really worried about was the bait and switch, where lenders come in with really low numbers to dissuade a borrower from shopping and then at closing, all these charges are added on.”
But between changing old sentiments toward settlement cost estimates and implementing new processes that put a premium on accuracy, it’s been a difficult shift.
“This is a bigger challenge than anybody actually realized,” said Jan Clark, a vice president at Ernst Information Services, an Albany, N.Y.-based aggregator of land recording fees, taxes and settlement costs. “Some of the larger lenders we saw jumped on the bandwagon quickly and have amazing solutions in place. Others are just now getting started.”
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