A restaurant offers you a meal deal discount for a hamburger, fries, and a soft drink. Perfectly legal.
A travel agent offers you a discount package for your cruise, airline seats, hotel room, and limousine transportation services. Also perfectly legal.
A real estate agent, mortgage lender, and title insurer offer a discount package to a homebuyer. Clearly illegal. In fact, they risk going to jail under Section 8 of the Real Estate Settlement Procedures Act of 1974, or RESPA.
The lack of housing affordability is a crisis of epidemic proportions for low-income homebuyers in underserved communities along with everyone else wanting to hit the road to homeownership. Down payment and closing costs are the biggest barriers to homeownership. It is the rescue of a king untenable by too many.
However, an outdated rule of law stands in the way of meaningful improvements in affordability.
The big idea behind the
RESPA is that 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.
Hiding in plain sight to substantially lower the financial barrier to homeownership are these bundled settlement service discounts.
Think costco. How easy would it be to create a technology-driven consumer shopping platform to order all the required real estate liquidation services at, say, 30% off standard retail price? This exists everywhere in our consumer lives. But not real estate.
Here is an example: Take a $600,000 sale price of the house with a 5% down payment, leaving a loan amount of $570,000. The real estate agent earns approximately 2.5% of the $600,000either $15,000. The mortgage loan originator can earn 1.75% of the $570,000 loan amount or $9,975.
The lender’s underwriting, loan documents, and loan processing type fees are $1,500. the appraisal is $650. Escrow, title insurance, homeowners insurance, and notary fees are $4,806. that’s a combo $31,931. If everyone in the package agreed to a 30% cut to the benefit of the homebuyer, the total cost of the purchase (including the 5% down) is reduced to $52,352 of $61,93115.5% or $9,579 savings.
He $209 monthly mortgage insurance premium (required when paying less than 20% down) would be reduced by $62.70 land in $146.30.
Making this happen can be easier and harder than you think.
“There is a legitimate business case for lowering the cost to consumers,” he said. roger fendelmann, an experienced real estate compliance attorney. “It’s a complicated subject, a huge can of worms.”
That can of worms, Fendelman said, would include unearned fees for closeout providers, guiding buyers, charging others much more to make up for discounts, and fair lending issues.
The Consumer Financial Protection Bureau it can make this additional purchase option happen through a regulatory change to Regulation X, which protects consumers when they apply for and have home loans, according to Fendelman. If he CFPB was not willing to update RESPA, Congress might.
The hardest part would certainly be the opposition from the industry one way or another. Title insurance companies, settlement agents, real estate agents and mortgage lenders, and mortgage insurance companies, to name just a few, would be screaming bloody murder to protect their high-yield turf.
And you’d have legitimate questions about speed and quality of service, plus pricing compared to a la carte purchases. Consumers have certainly been able to solve these problems in other industries thanks to online reviews and media scrutiny.
Some small business owners I spoke to about bundled services also expressed concern that they would be crushed by the big dogs.
The real estate liquidation industry is used to paying for leads, but in different ways.
Realtors who referred home buyers and sellers received an exemption from the anti-bribery law. Agents routinely provide 25% referral fees (assuming a $600,000 sale price at 2.5% commission which is $3,750) to agents across the city and across the country in exchange for the referral and closing of the deal.
Many lenders pay for home loans through legal loan originators like Lending Tree and Zillow, for example.
And then, of course, there are the illegal bribes. Bribery of settlement services is common, routine, and expected in one form or another throughout the world. US There is little to no fear of arrest because there is little to no RESPA enforcement. When was the last time you read about real estate settlement providers being arrested for a RESPA violation?
The result is that consumers get a raw deal by unknowingly paying more due to a lack of prevention and enforcement of illegal referral fees. Honest and hard-working settlement service providers who follow the rule of law suffer huge business losses.
President Joe Biden, Consumer Financial Protection Bureau director Rohit Chopra and members of Congress: Are you really interested in helping first-time buyers?
freddy mac rate news: The 30-year fixed rate averaged 6.33%, 15 basis points less than the previous week. The 15-year fixed rate averaged 5.52%, 21 basis points less than the previous week.
He Mortgage Bankers Association reported a 1.2% increase in mortgage applications from the previous week.
Bottom line: Assuming a borrower gets the average 30-year fixed rate on a $726,200 loan, last year’s payment was $1,268 less than last week’s pay $4,509.
What I see: Locally, well-qualified borrowers can get the following fixed-rate mortgages with one point: 30-year FHA 5.125%, 15-year conventional 4.75%, 30-year conventional 5.625% , a Conventional high balance at 15 years at 5.25% ($726,201 a $1,089,300), a 30-year high-balance conventional at 5.82% and a 30-year fixed jumbo at 6.5%.
Note: The 30-year FHA-compliant loan is limited to loans of $644,000 in the Inland Empire and $726,200 in LA and Orange counties.
Flashy loan program of the week: a 30-year contract Virginia fixed rate at 4.875%, with a cost of 2 points.
jeff lazerson is a mortgage broker. You can reach him at 949-334-2424 or [email protected].
