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WHAT IS CAUSING THE INCREASE?As reported by Graebel in “Tighter Lending Standards Are Coming Soon,” one of the main reasons for the rising fees is the implementation of additional federal regulations. The qualified mortgage rule, also known as QM, tops this list. QM was implemented in January 2014 by the Consumer Financial Protection Bureau, and requires lenders to verify that a borrower can afford to repay the mortgage before a loan is approved.5

While QM is beneficial from a compliance perspective, it adds much more time to the loan process, as underwriters must now review information in more detail than before to approve a loan. And according to lenders, the rule is actually very costly, and those costs are passed on to the consumers.6

CLOSING COSTS HIT HOMEBUYERS HARDRelocating homeowners buying a home may become increasingly more expensive to employers, as mortgage closing costs have continued to increase throughout this year. The average fees that consumers pay to close on a mortgage have escalated for the second year in a row.

Over the past year, closing costs, which include lender and fees such as appraisals, rose six-percent. And as of the first eight months in 2014, closing costs now average $2,539 on a $200,000 loan (see Figure 1).1 That’s 5.7- percent more than the closing costs recorded in 2013.2 Additionally, origination fees directly paid to the lender jumped 8.5-percent.3

1 Keshia Clukey. “New York has third highest mortgage closing costs in the U.S.” Bizjournals.com, August 6, 2014.

2 Polyana da Costa. “Closing costs survey: Mortgage fees rise.” Bankrate.com.3 Ibid.

4 Ibid.5 Ibid.6 Ibid.

FIGURE 1: NATIONAL AVERAGE CLOSING COSTS4

$1,877

$662

Third-party homebuyer fees (appraisals, inspectors, etc.)

Lender’s origination fee

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ECONOMY CAUSES BANKS TO BOOST REVENUEFees charged by lenders continue to vary by state. Texas, Alaska, and New York rank in the top three for the highest origination fees (See Figure 2). A variety of factors continue to impact these changing rates, including the improved economy that is fueling demand for consumer borrowing.

As described in “U.S. Banks Boosted Lending in Second Quarter, FDIC says,” U.S. banks are taking advantage of the uptick in consumer borrowing and have boosted lending in the second quarter at a pace unseen since the financial crisis. The Federal Deposit Insurance Corporation said banks’ loan and lease balances rose to $8.11 trillion, a 2.3-percent increase over the first quarter of 2014 – and the largest

quarter-over-quarter jump since the end of 2007. Mortgage lending was also up compared with the first quarter, reflecting a retreat by some banks amid new regulatory and legal risks.7

INCREASE HITS YOUNG BUYERS HARDWhile rising costs impact any prospective homebuyer, they’re hitting the market of first-time and young buyers much harder. According

FIGURE 2: 2014 AVERAGE CLOSING COSTS PER STATE8

STATE

ORIGINATION AND APPRAISAL

FEES, ETC. STATE

ORIGINATION AND APPRAISAL

FEES, ETC.

Texas $3,046 New Mexico $2,516

Alaska $2,897 Pennsylvania $2,511

New York $2,892 Oklahoma $2,498

Hawaii $2,808 Maine $2,497

Wisconsin $2,706 South Carolina $2,494

Nebraska $2,654 Montana $2,491

Vermont $1,976 Illinois $2,481

Florida $2,648 Virginia $2,479

New Hampshire $2,641 Iowa $2,448

New Jersey $2,625 Idaho $2,440

Alabama $2,613 Minnesota $2,436

North Carolina $2,602 Colorado $2,436

North Dakota $2,599 Washington $2,435

Kansas $2,582 Michigan $2,435

Louisiana $2,580 Georgia $2,433

Rhode Island $2,576 Kentucky $2,430

Massachusetts $2,564 Arizona $2,425

South Dakota $2,563 Arkansas $2,420

Mississippi $2,560 Maryland $2,404

Oregon $2,559 District of Columbia $2,402

Connecticut $2,555 Ohio $2,392

California $2,542 Missouri $2,387

Utah $2,537 Tennessee $2,366

Wyoming $2,518 Nevada $2,265

West Virginia $2,516

Delaware $2,516

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7 Ryan Tracy. “U.S. Banks Boosted Lending in Second Quarter, FDIC Says.” The Wall Street Journal, August 28, 2014.8 “Closing costs: States ranked.” Bankrate.com

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to the Census Bureau, the share of homeowners in the age bracket 25 to 29 dropped to 34.1-percent in 2013, from 40.6-percent in 2007.9 Factors including these tougher loan standards, high student loan debt, and a lack of affordable homes are affecting younger buyers.10

“One of the biggest issues keeping first-time buyers out of the market is the difficulty in obtaining a mortgage,” says Anthony Hsieh, founder, chairman and chief executive of LoanDepot.com. Many first-time buyers turn to FHA loans because of the low down-payment requirement of just 3.5-percent, but higher

mortgage insurance premiums and a low maximum loan amount in many areas make these loans less appealing to many borrowers. And on top of it, buyers need cash for the higher closing costs.

As stated in a recent Mortgage News article, homebuyers are still landing great rates on mortgages, but they’ll continue to pay considerably more when it comes to closing costs. It is anticipated that lenders will stand firm on their rates for this year, and the increases will likely continue into 2015.12

IMPACT OF STUDENT LOANS ON HOMEBUYERSIn 2014, homeownership among Americans under 35 hit the lowest level on record, just as debt among college graduates has hit a new high. College students who took out loans will graduate this year with an average of $33,000 in student debt, up an inflation-adjusted 32-percent from 2007.

Americans with student debt also have seen their credit scores plummet as delinquencies rise, with the average score in the low 600s. Average credit scores on approved home-purchase loans stand in the mid-700s.13 These types of situational factors play into young graduates’ decisions to either buy or rent.

HELPING EASE THE RELOCATION PROCESSThe Graebel client-dedicated teams’ extensive real estate experience properly set expectations and proactively recommend innovative and cost-effective strategies for selling and buying homes. Additionally, Graebel partners with globally recognized mortgage lenders to offer a value-added low capped lender fee program, which can represent significant savings for clients. Contact your Graebel representative to learn more.

9 Michele Lerner. “Housing recovery missing key group: young first-time buyers.” The Washington Post, September 12, 2014.

10 Ibid.11 Ibid.

12 Shashank Shekhar. “Mortgage Rates Drop But Closing Costs Climb; Buyers To Face Higher Costs in 2015.” Mortgage News, April 17, 2014.

13 Josh Mitchell. “Student Debt Takes a Toll on Some Home Buyers.” The Wall Street Journal, June 20, 2014.

The information contained in this document represents the current research of Graebel Companies, Inc. on the issues discussed as of the date of publication. Graebel cannot guarantee the accuracy of any information presented after the date of publication.

© 2014 Graebel Companies, Inc. All rights reserved. All trademarks are property of their respective owners.

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