The industry's partial answer to these criticisms? Open up the loan process. Let home buyers see their settlement documents and their complete loan files weeks ahead of the scheduled closing. And cut out all the last-minute, surprise junk fees.
To make all this happen, companies such as CitiMortgage, Fannie Mae, E-Loan and others are participating in a concept inelegantly dubbed the "eMortgage Axis." It is the product of a high-tech California company known as BridgeSpan.
Lenders who sign up agree to put their entire loan files onto an electronic "platform" created and run by BridgeSpan. The online platform can be accessed by all the key parties to a mortgage-loan transaction — most important, by the consumer.
Say you apply for a home loan. By federal law you're supposed to receive a "good-faith estimate" of your closing costs within three business days. But those estimates by the lender frequently have little connection with the final charges the consumer sees on the "HUD-1" settlement sheet weeks later.
Borrowers applying for a transparent mortgage are guaranteed that last-minute surprises on fees won't happen. That's because they can pull up their entire loan file — including final settlement documents — weeks in advance via password-coded access to a secure Web site. They can see their file anytime. Borrowers lacking an Internet connection can see the same documents by facsimile or get hard copies by mail or courier.
National lenders such as CitiMortgage have quietly begun experimenting with the BridgeSpan plan, customizing it to suit their own needs.
For instance, CitiMortgage lets customers not only review loan documents online, but request changes in rates, fees and other terms. Ram Lakshmanan, CitiMortgage senior vice president, says borrowers can opt for loan modifications after seeing their settlement fees.
For instance, say that you find that your closing costs are going to total $7,000 and you decide that you'd prefer to hold onto that cash. The CitiMortgage version of the transparent home loan allows you to e-mail the lender and request that the closing fees be paid for with a slightly higher interest rate on the note — an extra one-quarter of a percentage point, for example, or get rolled into the principal amount.
CitiMortgage's program also notifies borrowers by e-mail every time a document is added to their file or changed in any way. And for those customers who prefer the latest in technology, the program accepts "e-signatures" and "e-recordations" and even provides settlement packages on CD-ROM.
The first borrowers to use the company's transparency program insisted on having their entire home-financing file on a single diskette — which they carried home with them on settlement day, rather than lugging a pile of paper, according to Lakshmanan.
Fannie Mae says it is enthusiastic about the transparent-loan concept because it's also tied in with a long list of technical advances most consumers won't notice, such as faster deliveries of closed mortgages to investors.
Michael Williams, Fannie Mae's head of "e-business," calls the transparency idea "the next major innovation to hit the mortgage industry." Fannie Mae expects to begin purchasing substantial volumes of such loans, once national lenders roll out their own versions of the program in the months ahead.
But aside from transparency and predictability on closing fees, will the new approach actually lower costs for borrowers? Maybe modestly, say lenders. CitiMortgage's Lakshmanan foresees offering borrowers choosing transparent mortgages discounts on total loan fees of $500 to $1,000. But the basics — title searches and insurance, escrow fees, loan origination fees — won't change much.
You'll just know with a whole lot more certainty what the fees are upfront, and be able to shop — and choose lenders — accordingly.
