Released: February 23, 2008

New reasons to question mortgage costs

Source: Kenneth R. Harney, Washington Post (Free Registration)

A seemingly arcane policy change by mortgage investor Freddie Mac sheds new light on issues of much broader concern for consumers: Do you really understand where the money flows—all the nooks and crannies—when you take out a mortgage and pay thousands of dollars in fees at settlement?

Is anyone required to explain to you what’s really going on with your home loan, how it works and whether it could morph into something very different? And could any of this soon be improved?

Freddie Mac’s policy change, announced Feb. 14, affected a dark corner of the mortgage business: splits of mortgage insurance premiums between lenders and insurers. What? My lender is getting a cut of the premium, you ask, just as builders and real estate brokers are pocketing chunks of my title insurance premiums behind my back?

You bet. It is called “captive reinsurance,” and it has put 4 billion to 5 billion of consumers’ mortgage insurance dollars onto lenders’ books in recent years, according to some industry estimates.

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