It’s turning out that first-time buyers, who obtain FHA loans, have a friend in the much-criticized Cook County Anti-Predatory Lending database. This database is an attempt to protect buyers from predatory lenders. A mortgage cannot be recorded in Cook County unless the buyer gets counseling on obtaining a mortgage or if an exception applies (thereby making the mortgage exempt from the database and making counseling not required).
So far, I have not had one Buyer go to counseling and the exceptions have always applied.
The borrower’s friend is this provision: If a mortgage has “points and fees that exceed five percent” (of the loan amount) then the mortgage must be reported in the database and the buyer must obtain counseling. Trust me, no one wants the buyer to go to counseling (including the buyer), so great efforts are now taken to keep the point and fees under five percent.
With FHA loans, there is an upfront MIP insurance premium charged on all loans that is almost 2% of the loan amount. Title companies have been including this in the “closing costs and points” so it is very easy to get to five percent in closing costs.
I have been at several closings during which the mortgage broker had to reduce the fees at closing so that the fees for FHA loans stayed under 5% of the loan amount. So in the end, the predatory database is protecting FHA buyers from excess closing costs.