Ask the Mortgage Professor: Mortgage Center

Q: At our closing last year, I was shocked to find that the title insurance cost was $800 higher than the estimate shown on a revised Good Faith Estimate (GFE) we had received several days before the closing. At the closing, held at the title company, I asked the title company representative what had changed in the two days that would cause such an increase. He said that nothing had changed, that the title company had faxed the correct figure to my lender several weeks before the date of the GFE, and he gave me a copy of the fax. The lender had simply disregarded the fax. I understand that the GFE shows estimates, but isn�t the lender obligated to provide the best estimates possible? Is there a regulatory agency to which I can complain�?

A: If the lender had an accurate figure from the service provider and didn't use it, clearly the estimate was not made in good faith.

Why do some lenders do this? They know that many borrowers look at settlement cost estimates in shopping lenders, so they want to make their figures as low as possible. Furthermore, they can almost always get away with it is very difficult to prove that an estimate was given in bad faith.

You have them dead to rights, however, because you can prove that the lender had the correct information in time to give it to you. Given that your decision to go ahead with this lender was influenced by the erroneous estimate, you should prevail if you take the lender to small claims court.

You should also register a complaint to the HUD Office of Consumer and Regulatory Affairs, US Department of Housing and Urban Development, 451 7th Street, SW, Washington, D.C. 20410. In addition, you should file a complaint with the government agency that regulates the lender. Here are web sites you can use to contact these agencies: For national banks, http://www.occ.treas.gov/customer.htm.

For Federally chartered savings and loan associations, http://www.ots.treas.gov/contact.html

For state-chartered banks and savings and loans, http://www.lendingprofessional.com/licensing.html

For mortgage banking firms, http://www.aarmr.org/lists/members-IE.html

In most cases, borrowers given an erroneous estimate have no recourse because there is no evidence of bad faith. This is one of the abuses HUD hoped to eliminate in its proposed package of reforms of the Real Estate Settlement and Procedures Act (RESPA), which is the Federal law that governs the GFE. Because of the intense political pressure against it, however, HUD recently withdrew the proposal and there is no prospect that it will be enacted in the near future.

So borrowers have to take care of themselves, which is not easy. To my knowledge, there is only one lender that guarantees its settlement costs in advance: ABN AMRO, accessible on www.mortgage.com. I�ll have some other suggestions for avoiding larceny at the closing tables in another column.

Jack Guttentag is Professor of Finance Emeritus at the Wharton School of the University of Pennsylvania. Visit the Mortgage Professor's web site for more answers to commonly asked questions.

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