Lenders want more transparency and clarity to ease the burden on borrowers
Rising closing costs have long been a pain point for both borrowers and lenders, but mortgage executives believe that simplifying and standardizing how these costs are presented could make a big difference.
A recent Fannie Mae survey revealed that over 200 senior mortgage executives see immense value in simplifying and standardizing the descriptions of closing costs to boost transparency and reduce costs for borrowers.
While most lenders are comfortable estimating closing costs, only about half find it easy to explain them to borrowers. Closing costs, which can include fees for mortgage origination, credit reports, appraisals, title insurance, and more, have steadily increased in recent years. This has made it especially difficult for first-time and lower-income homebuyers to navigate the homebuying process.
“We believe meaningful opportunities exist for the mortgage industry to increase transparency around closing costs and potentially help save consumers money,” Fannie Mae chief economist Mark Palim and John Thibaudeau, vice president of single-family real estate management, wrote in a blog.
Opportunities for clarity and cost reduction
The survey revealed that 81% of lenders believe simplifying and standardizing closing cost descriptions would be a positive step for the mortgage industry. Many cited increased transparency as the biggest benefit, as clearer itemization would help borrowers better understand what they are paying for.
Additionally, standardization could reduce compliance costs for lenders and give consumers more confidence to comparison shop.
Lenders also highlighted specific areas where they believe greater transparency is most needed. These include lender fees, settlement or closing fees, title insurance premiums, and verification fees for income, employment, and assets (VOI/E/A).
Many lenders pointed out that third-party costs, such as credit reports and employment verification, have increased significantly, despite technological advancements designed to streamline these processes.
Beyond transparency, lenders also identified several areas where they believe closing costs could be reduced. Borrower credit report fees, VOI/E/A fees, title insurance premiums, and real estate agent commissions were at the top of the list.
Some respondents noted that while individual closing costs might seem small, they can add up quickly and make homeownership more expensive, especially for first-time and lower-income buyers.
Despite the clear value of simplifying closing costs, lenders acknowledged that implementation would not be easy. The most significant challenge is aligning key stakeholders—lenders, regulators, and third-party providers—on how to standardize costs. Additionally, integrating new standards into existing technology platforms, like loan origination systems and industry data portals, would require updates and investment.
Fannie’s efforts
Fannie Mae has been working to address some of these issues, developing tools to help borrowers better understand their mortgage costs and fees. The organization has also promoted innovations like property valuation modernization.
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“In recent years, the mortgage industry has made some strides in this space, including introducing tools to help borrowers better understand (and calculate for themselves) the various mortgage costs and fees, deploying property valuation modernization efforts to streamline the home-valuation process and reduce appraisal costs for borrowers, and allowing lenders to use an Attorney Opinion Letter (AOL) as an alternative to a lender's title insurance policy,” the blog read.
“Still, we believe much more can be done, and we're committed to working with our industry partners to help improve transparency and reduce closing costs for borrowers.”
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