HUD: African-Americans Pay $415 More in Origination Fees

The Department of Housing and Urban Development (HUD) announced a new study which found African-American families paid an average of $415 more in total loan origination fees than non-minorities, while many consumers across the board end up overpaying their total closing costs by thousands of dollars compared to “identical” borrowers.


In a report titled “A Study of Closing Costs for FHA Mortgages,” noted economist and former HUD chief economist Dr. Susan Woodward found significant and unsupported variations in loan charges, title fees and other closing costs charged to homebuyers.

The study also documented hundreds of dollars more in total loan origination fees paid by minority borrowers when compared to non-minority homebuyers, as well as variations in fees based on education level, geography and ethnicity.

"The core problem is that too many Americans sign a mountain of documents they don't understand and pay thousands of dollars for services that they've probably never heard of. This report proves that the more informed you are, the less you pay,” said Brian Montgomery, HUD Assistant Secretary for Housing and Federal Housing Commissioner.

“Our common goal should be to increase competition and transparency, and to help take the mystery out of buying a home."

According to the study, loan charges and title fees vary considerably from state to state even for similar loans, but even in the same state, disparities in title costs among identical borrowers can reach more than $1,000.

Compared to European-American borrowers, African-Americans pay an average of $415 more in total loan origination fees, while Hispanic borrowers pay an average of $365 more, according to the study.

The report also declared that, on average, borrowers see no reduction in out-of-pocket fees when they agree to higher interest rates.

HUD said that consumers ideally should get a dollar-for-dollar credit for paying a yield spread premium (YSP) resulting from the higher interest rate loan, but the study found that many borrowers see no reduction at all and even pay more in total loan fees.

"This report demonstrates once and for all that the process consumers endure when they buy their homes is entirely too confusing," said HUD Deputy Secretary Roy A. Bernardi.

"Clearly, we need to open the window and allow consumers to understand the fine print and shop more effectively for the largest purchase of their lives."

HUD has proposed changes to disclosure rules for the loan terms and closing costs consumers pay when they buy or refinance their home, calling for all mortgage lenders and brokers to provide consumers with a standard Good Faith Estimate.

The agency suggests that the proposed changes to the Real Estate Settlement Procedure Act (RESPA) will “promote comparison shopping and market competition by clearly articulating to borrowers their total estimated settlement charges.”

A separate economic analysis by HUD found the average borrower will save approximately $700 when offered clearer, more certain cost estimates.

The study examined data from a national sample of 7,560 FHA-insured, 30-year fixed-rate home purchase loans originated in May and June of 2001, a “period of relative interest rate stability,” according to HUD.


Posted on Tuesday, June 03, 2008 by staff