Mortgage Junk Fee or Legitimate Cost?

Reading through some lenders’ cost estimates is like going dumpster diving. They are full of unnecessary garbage — and by that, I mean fees that are either redundant or make no sense at all.

The sad thing is that some of these over-priced lenders have high ratings on social media sites. Some even win so-called awards.

How can that be? you may ask.

How Bad Lenders Get Good Feedback and Win Awards

Charm is one way. A loan officer might be one sweet-talking sales person who is available to receive your texts and emails up past midnight. But do you really want to pay hundreds or even thousands of dollars extra for 24/7 service? I am not exaggerating.

I reviewed one lender’s cost estimate that was $3,000 more than the competing lender. This expensive lender had “great” reviews online. The reviewers had no basis from which to make a judgment. They were  not in the mortgage business. They had not done a proper job of educating themselves about home loans. They were duped.

Another way some lenders get an award is that they purchase them. For example, one shady lender down the road from me “won” a Better Business Bureau Award because they donated the most money toward a BBB fundraising effort.

What is a Junk Fee?

Junk fee is a term commonly used to describe an extra fee that has little purpose other than to pad the profits of the lender. A junk fee might be an uncommon fee or a redundant fee. Here are some examples:

• Application fee: It should not cost you anything to make an application for a loan. In fact, it is illegal to collect an application fee up front before providing you with a Loan Estimate and receiving your intent to proceed.
• Ancillary fee: A nonsense fee used to pad someone’s profit.
• Automated underwriting fee: Fannie Mae no longer charges lenders to use their AU software, but some lenders are still charging customers this fee.
• Email fee: Seriously? You should not pay for your lender to send an email. The same goes for the E-doc fee. Sending documents by email is part of the normal process and should not cost extra.
• Funding fee: I cannot think of one good reason why a lender should charge you extra to fund and close your loan.
• Photo review fee: What a laugh! You do not need to pay the underwriter extra to look at the photographs on the appraisal report.
• Satisfaction fee: One lender has the gall to charge a $125 satisfaction fee. I have to ask whose satisfaction does that buy? Certainly not yours.
• Verification of Employment fee: This is part of processing the loan. They should not charge extra to verify that you are employed.
• Warehouse fee: Nonsense.

Every fee should have a legitimate purpose.

It is normal for a lender to charge an origination fee. I don’t care if they call it Administration fee, Processing fee,or Underwriting fee — just as long as they don’t charge all three.

Most lenders nowadays use an e-sign system for the loan disclosures. For example, a company called Doc Magic provides disclosures, rate lock confirmation, and other legal documents to lenders. They charge the lender, so a document processing fee might be charged to cover this service.

Appraisers must be paid.

Title companies must be paid.

Escrow officers or attorneys who close loans must be paid.

Flood certification is required by federal law.

There is a lot of work by a lot of different professionals that go into a mortgage loan. Everyone is be paid for work performed. You will pay for this one way or the other. Don’t be duped by a “no cost” or “no fee” mortgage loan. If you aren’t paying the fees in a manner that is transparent, then you are paying for them month after month over the life of the loan through taking a higher interest rate.

Mortgage fees are a big topic. I have an entire chapter devoted to legitimate and junk fees in my books. And, another chapter on paying fees through the interest rate (and when it makes sense to do so).

It is my intention to educate and inform, because frankly, I am fed up with the garbage and nonsense! I annoy a lot of people in the industry by taking a public stand against over-pricing and non-transparency — and that is okay by me.

If you want an advocate who looks out for the best interests of the everyday good person who wants a good deal and is not interested in making rich banks get richer, then I am your gal.

I am state licensed to do loans in California and Washington. If you happen to be elsewhere, one of my books might save you tens of thousands of dollars and a whole lot of stress.

Thank you for reading and God bless.