Consumer costs increase with RESPA reform

As is often the case with newly implemented “consumer protection” regulations, the consumer ends up paying more. Today’s mortgage borrowers can expect to pay more as a result of this past year’s RESPA reform, according to a recent study by Bankrate Inc.

Estimated fees charged directly by lenders increased by 22.8 percent, while fees charged by other service providers (i.e., title companies) increased 47.2 percent, according to the study that was conducted in 49 states.

Now it is true that the Bankrate study only examined estimates provided by lenders and not what the consumer actually paid at the closing table. In other words, it may be the case that lenders are now over-estimating closing costs in order to avoid the penalties associated with the new Good Faith Estimate (GFE) tolerance limitations.

Assuming this is the case, what is the benefit to the consumer? I suppose one could argue that the consumer is spared the “Day of Closing Surprise” element but, on the other hand, the consumer may be discouraged from refinancing or buying due to estimated costs that are purposefully inflated.

Putting aside the Bankrate study, I can personally attest that title charges have in fact increased in Maryland, Virginia and the District of Columbia. The additional burdens placed on title companies by the new RESPA reforms include such things as quicker turn-around times for title work and prompt delivery of preliminary HUD-1 Settlement Statements to lenders.

These time-sensitive functions and requirements have increased the amount of work-flow product and resulted in a cost increase. Looking across the spectrum of Washington, D.C. area title companies and comparing today’s closing fees with those closing fees charged prior to RESPA reform, you will find an approximate 20 percent increase in title charges.

Is the increase in closing costs to the consumer worth the added protection provided by the RESPA reform?