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.
Junk fees and garbage fees are the unnecessary fees that some banks and mortgage lenders charge to pad their profits. These fees are either nonsense, redundant, or padded costs. You want to avoid wasting your hard-earned cash and say NO to those fees. As promised, here is updated information on lender fees for 2015.
Current Law About Mortgage Fees
The Dodd-Frank Act (passed after the release of Mortgage Rip-Offs and Money Savers) says two things you should know:
1) Lenders cannot increase their fees from the time of the Good Faith Estimate to the closing HUD Settlement Statement.
2) All of the lender fees in the upfront Cost Estimate or Fees Worksheet must be added together and posted on one line in the Good Faith Estimate: “Our origination charge” (page 2, #1).
What This Means to You
1) You no longer have to worry about a lender adding a big junk fee at closing, as used to happen. This also means you don’t need to ask the loan officer for a written guarantee on the lender fees, because that is now built into the law.
2) Your main concern when it comes to lender fees is the total cost of those fees. Are they fair? Are they reasonable? Are they too high? To help you answer those questions, you can dig deeper into what those fees are.
Common Lender Fees
Lenders might call their fee an administration fee, commitment fee, processing fee, underwriting fee, or simply, origination fee. As long as it is a fair and competitive amount for your region of the country, it doesn’t matter which of those fee names they use. (East and West Coast states are higher priced than the South and Midwest.)
Another common fee–one that I do not like–is the application fee. Some lenders used to charge an upfront app. fee of $150 to $400 for taking the loan application. Thankfully, it is now illegal to collect that money before your loan has been pre-approved. However, I still do not like the idea of lenders taking an application fee before closing, because if the loan does not go through for some reason, the application fee is the one they do not have to refund to you. One of the biggest national banks charges an application fee for this very reason. Sneaky, right?
In my professional opinion, a lender should not charge the following fees: (To my way of thinking, these services should already be covered by the administrative, processing, or underwriting fees.)
* Ancillary Fee
* Document Preparation Fee
* Doc Fulfillment Fee
* Document Review Fee
* Email or e-doc Fee
* Funding Fee
* Misc. Fee
* Photo Review Fee
* Satisfaction Fee
* Storage Fee
* Warehouse Fee
Next blog post, I will discuss junk fees that title companies, escrow companies, and even attorneys who provide settlement/closing services are charging nowadays. I invite you to subscribe to this blog so you don’t miss out on any important information.
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“What are your lender fees?” I asked. A simple enough question, one every loan officer should know the answer to. Then to clarify, I added, “I am interested in the fees that go to your company only, not third party costs such as appraisal, credit report, flood certification, and such.”
“Is this for a purchase loan or a refinance?” the loan officer replied. Clearly, he was skirting my question, because lender fees do not change based on the loan type.
Nevertheless, I thought I’d humor him. “The fees for a purchase loan,” I replied.
“And what loan amount are you interested in?”
I could see where he was going. He was trying to segue into taking a loan application. I wanted to be honest, so I said, “I am not looking for a loan at this time; I just want to know what your company’s lender fees are.”
“I don’t do surveys,” he said.
“So you won’t tell me what your lender fees are?” I asked.
“If you know anything about mortgages, you would know that there is a lot more to it than rates and fees.”
“I think it’s odd that you won’t tell me your lender fees, but that’s okay. I will call someone in your other office and find out,” I said. Then I bid him a good day and hung up.
My husband had been listening in. He said, “They must have very high fees if he won’t tell you what they are.”
I called another lender and asked the same question. This time the loan officer did a verbal dance. Three minutes later, he still hadn’t told me what his lender fees were.
I called another lender and the lady hung up on me. I called right back in case it was an accidental drop, but she let my call go to voice mail.
Twenty minutes of phone dialing later, I came upon a loan officer who said simply, “Our lender fees are $995.”
How refreshing! An upfront, honest loan officer. That is one I would do business with.
Even now with the huge stack of new lending laws that are supposed to protect the borrower and make everything transparent, it’s not so easy finding a loan officer you can trust, who will answer your questions in a forthright manner.
As I explain in Mortgage Rip-Offs and Money Savers, the best way to compare loan offers is to ask for a written estimate. We used to ask for a Good Faith Estimate, but now, thanks to the Dodd-Frank Act, we have to ask for a Cost Estimate or Fees Estimate. That worksheet is what used to be called the Good Faith Estimate, and it is more specific and clearer than the new GFE designed by the feds.
Don’t worry about getting a GFE when you’re shopping for a loan, because Dodd-Frank states that their (convoluted) GFE is to be given after the loan officer has received six pieces of information:
1) Property address
2) Property value
3) Loan amount
4) Borrower’s name
5) Social security number (for pulling credit)
6) Borrower’s income documentation
How can you determine whether or not you like the lender’s pricing if you cannot see what their pricing is? Especially since the majority of them won’t give you a verbal quote over the phone? You do not know the property address when you are starting your house search.
The answer is, skip the GFE and ask for a Cost Estimate. Some lenders call it an Initial Fees Worksheet, a Loan Worksheet, or whatever. We don’t care what title they put at the top of the page. All we care about are the numbers on the estimate.
Here is an actual example from a lender in Texas, in the same order as listed on their Itemized Fee Worksheet:
Document Preparation Fee $200
Administration Fee $1,340
Origination Points .5% $1,599.60
Adjusted Origination Charges (Total) $3,139.60
The junk fee is quite obvious. It is the $200 doc prep fee. The lender is charging $1,340 to process and underwrite the loan, so why do they need to add another $200? And, why are they listing it separately? Is it because they don’t want to scare away borrowers with a $1,530 fee?
The .5% origination point is for the interest rate that is slightly below par rate. The borrower can choose to eliminate the half point by taking an interest rate that is an eighth (.125%) higher if desired. So that is not a junk fee.
My next blog post will be more about junk fees. There are still plenty of nonsense fees out there — and they are being charged by both lenders and closing agents. I cordially invite you to subscribe to this blog if you’d like more information on this topic. As always, thanks for stopping by.
That is the question home buyers were asked in a survey by Carlisle & Gallagher Consulting. People in the 18 to 35 age group said yes, they would pay more for better service.
The two areas of most frustration were (1) slow loan processing, and (2) lack of communication for what was going on with the loan.
As a mortgage industry insider, here is what I’d like home buyers to know.
First, you do not have to pay more for better service. In fact, paying more will not buy you faster processing and more communication. To get better service, you need to choose a better lender.
Second, you will not find out who will give you the best service by asking the question, “Will you give me good service?” Or, “What is your service like?” All salespeople — including loan officers — are going to tell you what you want to hear. Promises of “great service” mean nothing.
Instead, ask specific questions and then listen to your gut instinct. For example, ask, “What is a realistic closing time?” If the answer is more than 30 days, you know this is a lender with slower service than others. If the answer is, “We do 60-day rate locks,” you know this is a lender with slow service who is trying to tell you slow service does not matter.
Another question you can ask: “What is your system for keeping me updated during the loan process?” The loan officer should give you a clear, specific answer and not dance around the subject. Pay attention to your gut instict.
Another good question: “Will you personally be handling my loan all the way through the process to closing, or do you hand it off to another team member?” If the loan officer tells you the loan is handed off, you know that no one individual is going to care about your overall service, because each team member is responsible for only a small segment. No one individual is responsible for making sure you’re happy. When a loan officer handles the loan from start to finish, that person has a greater incentive to provide timely communication and good service.
Personally, I would never work with an “assembly line” type of lender. Nor would I recommend one.
I am a fan of mid-size and small lenders — both banks and mortgage brokers. I find that on average they close loans faster. But to be fair, it’s not the lending institution but the individual loan officer that makes the most difference. There are also top-service loan officers at large banks, and loan officers who are lazy about service at smaller companies.
A great loan officer — the type I like to call Mortgage Stars in my books — will not charge more for providing the excellent service and communication you should receive.
As always, thank you for stopping by to read my blog. I welcome your opinion, and you’ll find the Comment link at the top of this post.