Some of the country’s largest sources of home mortgage money are gearing up to offer an innovative service designed to please cost-conscious home buyers and mortgage borrowers: Guaranteed freedom from last minute settlement fee surprises on their home loans.

Fannie Mae, CitiMortgage, E-Loan and others are in the process of rolling out programs that allow consumers direct access to their actual loan files and settlement documents weeks ahead of scheduled closing dates.

To do so, they are working with a high-tech California company called BridgeSpan, Inc. Lenders who sign up for the plan agree to place their entire loan files onto an electronic platform developed and maintained by BridgeSpan. The online platform can then be accessed by all the essential parties to the transaction--including the mortgage borrower.

For example, say you apply for a home loan. Under federal law you are supposed to receive a “good faith estimate” of your closing costs within three business days of application. But often those estimates differ significantly from the final charges you see on your actual “HUD-1” settlement sheet weeks later.

Borrowers applying for a loan using the BridgeSpan platform, however, won’t have any last-minute changes on the HUD-1. That’s because throughout the loan process, they will be able to pull up their entire file--including their settlement sheet--via password-coded access to a secure Web site. They will be able to see what services have been completed, when, by whom, and at what final cost. In effect, what is often shrouded in mystery for many borrowers--the status and costs associated with their loan-- will become transparent. Which is precisely the idea. Borrowers who lack an Internet connection will be able to see the same documents by facsimile or receive hard copies by mail or courier.

Lenders such as CitiMortgage are already experimenting with the BridgeSpan plan, customizing it to suit their own needs. For example, CitiMortgage lets customers not only review and submit questions about loan documents online, but also to request changes in rates, fees and other terms. Ram Lakshmanan, CitiMortgage senior vice president, says borrowers can request loan modifications after seeing their settlement fees. In one option, a borrower who sees in advance that he will owe $6,000 at closing, can email CitiMortgage and request that those fees be rolled into the interest rate on the loan--raising it perhaps by an extra 1/4 of a percentage point.

The CitiMortgage program also notifies borrowers by email every time a document is added to their file or changed in any way. And for those customers who want the latest in mortgage market technology, the program accepts “e-signatures” and “e-recordations.” It even supplies final settlement packages on compact discs.

Fannie Mae’s role in the concept is two-fold: It purchases the closed loans originated using the BridgeSpan platform. And it makes use of other features of the e-platform not visible to consumers, such as faster deliveries of closed mortgages to investors. Michael Williams, Fannie’s head of “e-business,” calls the open online platform concept “the next major innovation to hit the mortgage industry.”

Will it lead to actual net decreases in any of the traditional costs associated with mortgage orignations? It will if CitiMortgage’s Lakshmanan has anything to do with it. He foresees offering borrowers opting for open-access online originations discounts on their loan fees of $500 to $1,000.

Published: April 29, 2002

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Kenneth R. Harney writes an award-winning, nationally-syndicated column on housing and real estate from Washington, D.C. He is also managing director of the National Real Estate Development Center, a professional education company. He is a past member of the Federal Reserve Board's Consumer Advisory Council, a committee that by federal statute reviews all Fed actions on home mortgage, consmer credit and banking industry regulation. He served as a member of the U.S. Department of Housing and Urban Development's Working Group on Computerized Loan Origination (CLO) systems, and is a member of the Editorial Board of the Fannie Mae Foundation's journal, Housing Policy Debate. He is the author of two books on mortgage finance and real estate.