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michigan mortgage refinance
KENNETH HARNEY: Loan fee markup limits remain in limbo
August 21, 2005 BY KENNETH HARNEY WASHINGTON -- A new federal court ruling focuses attention on a question that could touch millions of American consumers: When you get a home
mortgage, should your lender be free to mark up your fees without limit? When your lender spent just $3 checking your credit electronically, should you have to pay a $65 credit check line item on your settlement sheet? When your
mortgage company pays $25 for an electronic valuation of the house you're purchasing, should it be permitted to turn around and whack you for $500 for your appraisal charge at the closing? In a nutshell, does federal law allow a lender, or any other service provider, to lard on all sorts of extra charges to your settlement costs without performing additional services that would justify the markup? The agency charged with overseeing the federal law in this area -- the Department of Housing and Urban Development -- says all markups are illegal absent extra services. But lenders, title agencies and other industry groups have fought HUD's ban, arguing that it goes beyond the intent of the Real Estate Settlement Procedures Act. Earlier this month, a federal appellate court in Philadelphia sided with HUD, and in doing so it became the third straight court to do so. Normally that would put the issue to rest, but not this hot potato. That's because three other federal appellate courts, covering 15 states, ruled the opposite and sanctioned markups without limit within their jurisdictions. The net effect of this split in the appellate courts is to strip home buyers and
refinancers in those 15 states of any federal legal protections against gouging on settlement sheets. Consumers in nine other states are specifically protected against markups, while the rest of the country -- including
michigan -- is in legal limbo, with HUD banning markups but lenders and title agencies under no specific court mandate to obey. Here are state-by-state standings at the moment: • Unlimited markups allowed: Residents of Maryland, Virginia, North and South Carolina, West Virginia, Illinois, Iowa, Wisconsin, Indiana, Minnesota, Missouri, Arkansas, Nebraska and North and South Dakota have no federal protection against markups. No matter how little your
mortgage company paid for documents, tax services, appraisals, messenger services, etc., it is free to charge whatever it thinks it can squeeze out of you. • No markups allowed: Residents of Florida, Georgia, Alabama, New York, Connecticut, Vermont, Pennsylvania, New Jersey and Delaware live in the current no-markup zone. They can sue lenders and other service providers for markups and expect to prevail in the courts, based on appellate court decisions covering their jurisdictions. • Limbo zone states: If you don't live in or plan to buy property in any of the states named above, you are in a legal limbo-land when it comes to markups. HUD says its rules prevail and a lender or title agency can't mark up fees unless additional services are rendered to justify the extra costs. But the highest federal courts have not decided any relevant cases, and therefore neither you nor your loan and settlement service providers know whether markups are legal or not. The latest case, handed down Aug. 4 by the U.S. Court of Appeals for the 3rd Circuit (Santiago v. GMAC
mortgage Group Inc.), involved a class action suit against GMAC, one of the country's highest-volume home lenders. A GMAC
mortgage customer alleged the company marked up various fees in connection with the closing of his loan, and thereby violated HUD's ban. Citing earlier federal appellate court rulings that HUD lacked statutory authority to ban markups, GMAC asked the district court to throw out the class action and it did. The home buyers then took the case to the appellate level, where HUD's position on markups was affirmed. Neither GMAC nor HUD had immediate comments about the decision. Because the appeals court sent the case back to the district court for a possible trial, GMAC could choose to fight it out there. Or it could appeal directly to the Supreme Court, thereby opening the door to a final, national answer. With a 3-3 division among federal appellate courts -- effectively forcing citizens to be treated differently under the law based on where they live -- the high court would be highly likely to accept a case to resolve the issue once and for all. But unless GMAC takes its case to the Supreme Court, the issue will continue to sizzle -- and cost unsuspecting consumers hundreds of dollars in needless extra expenses at the very moment their finances may be stretched to the max already. KENNETH HARNEY, based in Washington, writes on national housing issues. His e-mail address is kharney@winstarmail.com .
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