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By Holden Lewis Bankrate.com, July 12, 2007 2007 closing costs study STATISTIC: For all states and the District of Columbia, total origination and closing costs averaged $2,736. Why fees vary Mortgage-related fees vary from place to place because of differing taxes, customs and regulations. Bankrate's rankings don't include taxes and government fees that are passed on directly to the consumer as line items on the HUD-1 summary of closing costs. But New York has the uncommon practice of levying mortgage recording taxes directly on lenders instead of on borrowers. Naturally, these charges are passed on to consumers in the fees charged by lenders. On top of that, there's the separate mortgage recording tax, which varies based on location and even the number of housing units in the building. In New York City, it's 1.8 percent for buildings with three housing units or fewer, and 2.55 percent for other buildings. On parts of Long Island it's 0.8 percent; in Rockland and Westchester it's 1.05 percent; in other parts of the state it's 0.75 percent, and Yonkers adds 0.8 percent to that, making it 1.55 percent. In New York, the lender pays a mortgage tax of one-quarter of a percent of the loan amount, says Michael Moskowitz, president of Equity Now, a lender based in New York City. "We don't have that in New Jersey and we don't have that in Connecticut," Moskowitz says. "Obviously, if we want to make the same amount of money, we have to charge a little more in New York." "Nobody cares about the little guy -- just make it more complicated. Of course, the more complicated it is for us, the more expensive it is to do business," Moskowitz adds. Who's involved in a closing In New York, as in most northeastern states, lawyers customarily conduct closings. "Generally, the buyer has an attorney, the seller has an attorney, the bank has an attorney. Right there you have three attorneys in the mix and it's going to be a little bit more expensive," says Neil Garfinkel, partner in charge of real estate practices for the New York-based law firm of Abrams Garfinkel Margolis Bergson. In some states, especially in the west, title agents and escrow officers customarily conduct closings. They tend to earn less per hour than lawyers, and that holds down costs. Sky-high title insurance Title insurance is another budget buster, and New York and Texas have some of the country's most expensive title insurance. In each state, the insurance department sets (or "promulgates") the rates, with heavy input from the title agencies and insurance companies. Because the state establishes the rates, title companies don't compete for consumers by offering lower prices. How do title insurers compete in states where regulators set prices? According to a report issued in April by the Government Accountability Office, "title agents do not market to consumers, who pay for title insurance, but to those in the position to refer consumers to particular title agents, thus creating potential conflicts of interest." The report says the industry is rife with kickbacks and undisclosed referral fees among title agents, real-estate agents and lenders. Size matters Shenanigans aside, the states with the biggest populations tend to have the highest mortgage-related fees. The five most expensive states are among the seven most populous: New York is third in population, Texas is second, Florida is fourth, and Pennsylvania and Ohio are sixth and seventh. The exceptions stand out. Illinois, No. 5 in population, ranks 49th in average closing costs, mainly because of the low price of title insurance. Population champ California ranks 17th because lender fees are a little below average (while title and other third-party charges are a bit higher than average). Efforts to lower fees Over the past 20 years, the federal Housing Department has tried several times to reduce mortgage fees by amending the regulations that govern the marketing of home loans. The most recent effort was shot down in flames three years ago. The title industry and small lenders vigorously opposed reducing closing costs because it would have cut into their profits. |
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