Despite rock-bottom mortgage rates in 2012, the cost of getting a loan is on the upswing, thanks to reduced competition among banks and tougher lending requirements. Some analysts say part of the reason behind the increase in fees is the increased cost to lenders of processing loans with more paperwork required nowadays.
Mortgage closing costs averaged $4,143 in 2011, the most recent data available, up 12.4% from a year earlier in 2010, according to Bankrate.com. Borrowers seeking to refinance often don’t have to pay that full amount, but the prices for some of the most common components of a refinance have jumped as well.
Origination fees, for instance, climbed by 12% to an average of $1,045 in 2011, according to Bankrate.com. Attorney costs and other settlement fees rose 9.6% to an average of $544.
Clogged pipelines at lending banks are one reason bills are larger. “It’s largely a capacity issue,” says Bob Walters, chief economist of Quicken Loans Inc. “When you are at capacity, you raise prices.”
Lenders have also boosted fees to cover the increased cost of doing business, notes Keith Gumbinger, a vice president at HSH Associates.
Banks, for instance, now double- and even triple-check key parts of the application, such as borrower income and property valuations.
Other postcrisis reforms have also led to higher costs. Appraisal fees, for instance, have jumped 7.8% to an average of $406. One key reason: Lenders are directing more work to third-party appraisal management companies that oversee the appraisal process. Use of these firms has grown in response to reforms that were designed to avoid improper pressures on appraisers that often led to inflated valuations.
Closing costs can vary greatly from lender to lender. In Bankrate.com’s survey of lenders last year, origination fees ranged from a low of $123 to more than $2,000.
“This is why you have to shop around,” says Greg McBride, a senior financial analyst with Bankrate.com.
“Mortgages today often come with so many different types of fees and points that it can be hard to compare offers,” Richard Cordray, the director of the Consumer Financial Protection Bureau, told The New York Times. “We want to bring greater transparency to the market so consumers can clearly see their options and choose the loan that is right for them.”
SOURCE: Bankrate; The Wall Street Journal; The New York Times; REALTOR Magazine