New York State Closing Costs
Do Not Blame Your Mortgage Lender, Mortgage Broker or Services Provider

I was fascinated last week when I saw articles surfacing about how high mortgage closing costs are in the state of New York. The question I have is…what took so long for the media to actually address this issue?

New York State regulators and elected officials were front and center in the aftermath of the mortgage crisis in 2008; very quick to cite “predatory lending” as a main reason why so many state residents would now be impacted by their inability (or willingness) to make future payments on their home mortgage loans. These folks failed to mention that New York State had passed not one, but two of the most aggressive “high cost mortgage” regulations to that point limiting the amount of fees, interest rates and in some cases loan programs mortgage lenders and brokers could charge/ offer New York residents for services rendered. While banks and lenders adjusted business models to work for lower margins, state costs and fees continued to grow as volumes grew. Unfortunately for its residents, in what is already the toughest housing market for retaining equity, New York State continues to charge high costs associated with mortgage loan closings while in some cases prohibiting them.

Let it be known that I in no way, shape or form am I using this forum as a criticism for borrowers who had legitimate life events that prohibited them from making their housing payments (that has been a reason for loan delinquency since the first loan was ever made). Nor do I support unethical mortgage originators who coached and/ or provided the means necessary for unqualified borrowers to secure mortgage loans that never should have been originated.

I do believe the State of New York profited mightily from their residents during the mortgage boom through 2006 and have not been held properly accountable for their actions (or lack thereof). When state coffers were receiving windfalls on an annual basis and regulations were passed restricting rates/ fees allowable, the State of New York failed to step up and take accountability to its residents. To this day, as economic experts are citing low mortgage rates as a way to help stimulate the economy, the State of New York continues to charge its residents (or require lenders to because of the cost of doing business there) the highest costs in the country, collects hundreds of millions of dollars in the process and repays its residents by providing what is arguably the most dysfunctional state government in the country.

Did you know that New York State charges a range of 1% to over 3% of the loan amount in state mortgage tax? Depending on which county a property is located, borrowers are responsible for paying a minimum of:
- .75%: Chemung, Chenango, Cortland, Greene, Hamilton, Jefferson, Madison, Montgomery, Ontario, Otsego, St. Lawrence, Tioga, Tompkins
- 1%: Allegany, Broome, Cayuga, Cattaraugus, Clinton, Delaware, Erie, Franklin, Fulton, Herkimer, Lewis, Livingston, Monroe, Niagara, Oneida, Onondaga, Orleans, Oswego, Saratoga, Schoharie, Schuyler, Seneca, Sullivan, Washington, Yates
- 1.05%: Dutchess, Nassau, Orange, Putnam, Suffolk
- 1.25%: Albany, Chautauqua, Columbia, Essex, Genesee, Rensselaer, Schenectady, Steuben, Warren, Wayne, Wyoming
- 1.3%: Rockland and Westchester
- 1.8%: Yonkers
- 2.05%: New York, Bronx, Kings, Queens, Richmond for any mortgage securing less than $500,000; 2.175% for 1, 2 or 3 family houses and individual residential condo units securing $500,000 or more, and 2.80% for all other mortgages securing $500,000 or more
- The Mortgage Lender pays .25% of the loan amount regardless of county.

Think for a minute what every mortgagor (and lender) in the state of New York pays per transaction. A single family mortgage request at the FNMA loan limit of $417,000 in one of the five boroughs in New York City will cost the homeowner $8,548.50 in mortgage tax, the lender $1,042.50 for a total of $9,591**. Multiply that by every loan originated in the state over a day, week, month and year?

In addition to mortgage tax, New York State requires additional title search items not necessary in most other states, along with state specific closing procedures that end up costing borrowers more in fees than any other state I have ever done business in.

With lenders required to pay .25% of the mortgage amount in mortgage tax per transaction, those charges are ultimately passed along to the consumer in the form of higher rates or fees. A borrower in New Jersey for example, can end up paying a lower rate and/ or closing costs schedule than a New York borrower while having the exact same credit, income, property value and loan amount.

The volatility in the mortgage market has greatly increased the costs associated with originating loans. Here are some examples for all states:
- RESPA and HUD have passed new requirements for Good Faith Estimate disclosures and the Final Settlement Statement. While these changes are in the consumers best interests and something I ultimately support, the risk and cost of non-compliance is overwhelming to the mortgage lender. Even errors made in good faith that were unintentional could cost a lender thousands of dollars. Result: additional cost and quality control measures to ensure accuracy and compliance.
- Warehousing/ Closing Fees: Many banks suffered losses during the mortgage market upheaval in 2007 and were tentative at best to enter in to the Warehousing business. Those who chose to remain have put additional protective measures and restrictions in place, often times requiring lenders to lend to preferred credit score borrowers while performing additional due diligence prior to loans closing and funding. Result: additional staffing, delays to loans closing and increased transactional fees.
- Appraisal fees: New York State began what eventually became an industry accepted practice of eliminating mortgage originators (loan officers, brokers or anyone who directly generates income from a loan closing) from ordering or having contact with real estate appraisers (except to provide additional information if necessary). While I agree that pressure, duress and undue influence have no place in the mortgage industry, borrower costs went up and service levels went down. Result: Third party management companies controlling the appraisal ordering process, increasing fees that a borrower pays, paying the appraiser a little more than half of what they used to collect while sending appraisers to areas into expanded areas of coverage.
- Licensing: Many states have required additional net worth and insurance requirements to retain mortgage lending/ broker licenses. In addition, all loan originators are required to attend minimum education requirements and obtain national and state licenses. Result: Increased hiring, maintenance and administrative costs.
- “Zero Defect” mentality of Fannie Mae, Freddie Mac and FHA investors. Any error, omission or subjective decision made on a loan file that was ultimately sold into a Fannie or Freddie pool, or insured by FHA, could be sent back to the originating lender for repurchase. Putting reckless decisioning, misrepresentations and purposeful omissions aside (originators do need to take accountability for those 100% of the time), lenders are required to build up significant amounts of cash reserves should they be forced to repurchase loans. Result: increased rates and fees paid by consumers so that lenders can build up a cash reserve account.

I am not trying to create a simplistic solution for the above. There are too many factors to be considered. I would relish the opportunity to be part of a group to undertake such a project and recommend solutions. My passion and commitment to the industry, lending community and the borrowers I work with allow me the opportunity to use my knowledge, experience and relationships for everybody’s advantage. Loans get originated and the borrower pays less in rates and fees working with me than they likely would pay elsewhere. I am honored to have the opportunity to do so for so many years.

**In fairness, mortgage borrowers do have the opportunity to circumvent mortgage tax by having their new and existing mortgage lenders agree to execute a Consolidated and Extension Modification Agreement (CEMA). This document enables the existing mortgage company to “assign” their mortgage to the new mortgage company, who in turn “modifies and extends” the original mortgage terms. Mortgage Tax is than calculated on the “new money” amount (ex. 417,000 loan request, $410,000 existing balance, mortgage tax is charged on $7,000 $417,000-$410,000)). CEMA’s can be very time consuming and costly as well, and often times can cost just as much as the mortgage tax since the existing lender will charge fees to approve the process, along with attorney fees for the gathering and managing of the proper documentation. Not only can these fees run several thousand dollars, depending on the accessibility of original mortgage documents by the original lender (what if the existing mortgage was originated by a company no longer in business and servicing rights were transferred?).