This snippet of the Loan Estimate (page 2, left column) came to me last week from a home owner who was refinancing. He wanted to know if all the closing costs were legitimate, because he had a suspicion that there were bogus junk fees included. Take a look and see if you can spot the needless fees.
CLOSING COST DETAILS
A. Origination Charges
Administration Fee $995
PIW Fee (FNMA only) $75
B. Services You Cannot Shop For
Credit Report Fee $35
Flood Certification Fee $10
Tax Service Fee $68
C. Services You Can Shop For
Title – Doc Prep $150
Title – Endorsements $125
Title – Fee/Sub-Escrow $90
Title -Insurance/Lenders $625
Title – Messenger/Courier $50
Title – Misc. Fees $25
Title – Recording Service $13
Title – Settlement/Closing $595
Title- Signing Fee $175
Title – Wire Fee $50
Under Section A, there is a lender fee that is competitive and appropriate. The PIW fee stands for Property Inspection Waiver. Because this home owner has so much equity in his home, an appraisal was not called for. The small fee is to pay for the online market evaluation. You could argue that the fee is unnecessary — and I wouldn’t disagree — but I am not going to complain about it, because it is saving the home owner a $350 appraisal report.
Under Section B, the three third party fees are for required services. No problem there.
Under Section C, we see a boatload of garbage. And it all comes from the title/escrow company the loan officer chose. (With a refinance, there is no sales contract that dictates the title/escrow company. In this case, it is the home owner’s choice; but if you don’t designate a certain company, the loan officer chooses.)
To prove that the so-called services were junk fees, I obtained a quote from a good national title and escrow company that I have worked with in several states over the past couple decades. The quote I obtained is for the same address, same loan amount.
There were only three fees: title insurance/lenders, settlement/closing, and recording.
Total savings: $893
Here are the offending fees, in red:
C. Services You Can Shop For
Title – Doc Prep $150
Title – Endorsements $125
Title – Fee/Sub-Escrow $90
Title -Insurance/Lenders $625
Title – Messenger/Courier $50
Title – Misc. Fees $25
Title – Recording Service $13
Title – Settlement/Closing $595
Title- Signing Fee $175 (optional, if you require a mobile notary to come to you)
Title – Wire Fee $50
Additionally, the title insurance and settlement/closing fees were less with the good company.
CONFRONTING THE LOAN OFFICER
Next, the home owner called the loan officer and politely said he wanted to switch to First American Title and Escrow.
The loan officer asked why and then said, “But those are not all of First American’s fees.”
So the home owner called First American and obtained a written quote. They were all the fees.
Confronted with the truth in writing, the loan officer offered to lower the cost of settlement/closing and waive the signing fee. But wait! How can he do that? He represents the mortgage company, not the neutral, third party escrow company. Right?
Wrong! The so-called neutral third-party escrow company was an affiliate company, also owned by the mortgage company. On top of that, the title company with the long list of garbage, was also owned by the mortgage company. Bedfellows!
My personal complaint in all of this scenario is the loan officer (a) chose an over-priced escrow and title company for his client, (b) tried to convince the client that the competitor’s fees were not all there, (c) and then finally came clean and waived some fees.
I ask you this: Would you consider this loan officer to be an honest advocate for the home owner?
Folks, just because it is 2016 and there are over 1,000 pages of new lending laws, it does not mean all the rip-offs are bygones.
The reason this home owner knew enough to contact me is because he had read Mortgage Rip-Offs and Money Savers. And while some of the content in the book is now outdated, it is still relevant and saving good folks hard-earned money today.
As always, thank you for stopping by my blog. If you think this information is important, please use social media to pass on the news.
If you need a loan in CA or WA, I am licensed (NMLS 1294134) and will serve you as a true home owner’s advocate.
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’s an interesting question, but more important is how do you avoid paying those over-priced closing costs, no matter what state you are in?
It is my pleasure to tell you that I see Good Faith Estimates from all over the U.S., and from all types of lenders: banks, brokers, credit unions, and other direct mortgage lenders. None of my clients (and I expect that none of my book readers either) are paying the new higher fees stated in this report.
None! They’re too smart for that. They keep more of their cash in their own bank accounts and shell out less for inflated origination costs padded by junk fees.
Five Most Expensive States for Mortgage Fees
1) Texas: $2,280 average origination fee
2) Alaska: $2,195 origination fee
3) New York: $2,109 origination fee
4) Hawaii: $2,009 origination fee
5) Wisconsin: $2,035 origination fee
There is no reason to pay so much! This is approximately double what my clients are paying for origination in those states.
The most expensive states I see for origination are California and New York where my folks are paying about $1,200 on average. Who’s paying $2,280 in Texas? Some vulnerable folks who are being taken advantage of, that’s who. I know a good Texas lender that charges a flat fee of $900 and not a penny more.
Five Least Expensive States for Mortgage Fees
47) District of Columbia: $1,791
48) Ohio: $1,707
49) Missouri: $1,749
50) Tennessee: $1,746
51) Nevada: $1,570
Too high, all of them! I like to see the origination fee for these least expensive states at $800 or less.
How Do You Pay Less?
It’s not hard to pay less and keep more of your money in your own pocket. Simply use the loan shopping method in my books. It’s in Mortgage Rip-Offs and Money Savers and in Homebuyers Beware. Make three phone calls and ask one question. That’s it. The only change for 2014 is that instead of asking for a Good Faith Estimate, ask for a Cost Estimate, because lenders won’t give out a GFE unless they pull your credit report first, and you don’t want that.
Why Have Origination Fees Gone Up?
The report states that lender origination fees (including the admin. fee, application fee, processing fee, underwriting fee, doc prep fee, and miscellaneous junk fees) has increased by a 9% in the past year. Why?
There are two reasons.
1) New federal mortgage regulations are costing lenders more time, and time is money.
2) Borrowers have been lulled into a false sense of security, thinking that the government involvement in the mortgage industry has protected them from being ripped off (which is not true). Therefore, they neglect comparison shopping.
It’s not hard to save yourself $500 to $1,00 or even more. If you don’t want to or can’t take the time to read one of my books, then you can take advantage of my personal coaching service. If I don’t like your loan, I will find you a better one that I do like. Information is here. Watching the video testimonial is optional. Scroll down to read the details.
Only You Can Bring Down Lender Fees
When borrowers say no to the banks and mortgage companies with the high fees and choose to do their business with the good, reasonably priced lenders, they control the market. The over-priced lenders will be forced to lower their fees or starve. It’s that easy, and you have the power to do it.
If you know someone who is considering buying a home or refinancing, please do them a favor by passing along this information. Thank you.
To see my source for the annual Bankrate report, go here.
The Home Equity Protection Act, just like it sounds, is supposed to prevent lenders from gobbling up your precious home equity with high fees. It is a law that limits how much banks and other mortgage lenders can charge you. This is especially relevant when the loan is small, such as the popular Home Equity Loan that many home owners use for remodeling or making home improvements.
Now the Consumer Financial Protection Bureau is raising the limit banks can charge you. Makes you wonder who this government agency is really protecting, doesn’t it?
The fee limit for a home equity loan in 1994 was $400. Last year in 2013, the limit was $625. All loan applications received on or after January 10, 2014 will have an increased fee limit of $1,000.
Of course, it is up to the individual bank and lender to decide whether or not to charge the limit. When shopping for a home equity loan, be sure to ask what the fee is. If they say $1,000, you know they are charging the maximum allowed by law. I advise shopping three lenders before deciding.
For a home equity or other small loan, I would look at a mid-size or small local bank, a credit union, and the bank I currently do business with. Don’t make the mistake of blindly taking the first loan offered.
In addition to the fee charged for a home equity loan, you also need to find out the following:
* Is there a prepayment penalty? If so, what are the terms?
* How does the adjustable rate work? What is the maximum the rate can go up to at the first adjustment? At each adjustment thereafter? The lifetime max?
* Is there an annual fee?
For more valuable information about home mortgage loans, please see Mortgage Rip-Offs and Money Savers.
I recommend the paperback copy over the Kindle, because the Good Faith Estimate forms are too difficult to read in the ebook format.
“If you’re considering getting a mortgage, read this to see what’s going on behind the scenes.” Posted November 8, 2013 by Lovelylight, user name
(FHFA was established by the White House after the mortgage meltdown. Their mission is to ensure a safe mortgage market by setting rules for government sponsored enterprises. Think Fannie Mae and Freddie Mac.)
There are two mortgage fees they said would increase in 2014:
1) The Guarantee Fee. This is a fee charged by Fannie Mae and Freddie Mac for bundling, servicing, and selling mortgage-backed securities to investors. More detail is here. This fee increase was going to be passed on to mortgage borrowers, home buyers.
2) Credit related fee increase. A fee for having a credit score below the top tier. In other words, a charge to offset the risk of lending to you if you don’t have “A” credit. Currently, top tier credit in the mortgage world is 740, but they have proposed raising that to 800.
After the announcement, the Mortgage Bankers Association sprung into action in protest. They are actively working with policy makers to prevent a pricing increase for home buyers that could hurt our fragile housing market.
Just because we have seen some recovery, it doesn’t mean the market is robust and can withstand a punch in the gut like a major fee increase. So the issue is being reviewed now. We’ll have to wait to see how it all plays out.
What is the Loan Limit in Your County?
In the meantime, some counties with higher median home prices than average have suffered a loan limit reduction. I blogged about this possibly happening earlier this year, as you might recall. In the highest-cost areas where the loan limit was $729,750, the limit has been reduced to $625,500. Here is the link to the look-up table for FHA loan limits by county.
You are invited to sign up to this blog to receive important information about mortgages and home buying in 2014. I blog once a week, usually on Tuesday, so you aren’t flooded with too much in your in-box.
As I wrote December 3rd, interest rates are trending upward, and that trend continues. Today, we’re seeing 4.625% to 4.75% for the conventional 30-year fixed rate. But in addition, fees are also increasing.
In the near future, I will dedicate a post to explaining the mortgage loan fee increase and what you need to do in order to pay the least possible in fees. For now, be forewarned that if you want to bring less cash to closing and get the lowest rate for the lowest monthly payment, the time to sign the contract and lock in your interest rate is now.
Remember, you cannot lock in your rate/fee without a purchase contract, because locks are tied to a specific property address.
You can have your real estate agent write the contract for you now, lock in your rate now, but write the closing date for the end of January when you have more time to pack and move. Waiting to choose could cost you financially.
Please feel free to pass on this information/blog link to folks who might be affected. You’ll be doing them a favor by helping them save significant money on their upcoming mortgage.
Loan sharks are still in business, lurking inside of what are supposed to be reputable banks and mortgage lenders. These are the liars who bait you with an Initial Fees Worksheet or Cost Estimate that looks like a good loan. When doing your comparison shopping, they appear to be the cheapest and best. The icing on the cake is their personal charm; loan sharks are famous for being good communicators.
A home owner refinancing in Southern California asked me to review the three cost estimates she received. The one from a direct lender in San Diego appeared to be the best, so she proceeded with her refinance. But two days later when she received her official Good Faith Estimate, she saw that every one of the fees had been raised.
The lender underwriting and processing fee? Higher by about $400!
The appraiser fee? Higher!
The credit report fee? Higher!
The flood certification fee? Higher!
The tax service fee? Higher!
I advised her not to sign the paperwork until all the fees were corrected. The loan officer quickly apologized and blamed his loan processor. But guess what? The next day when he came out to her home to get the loan disclosure package signed, the fees on the new documents were still higher than initially disclosed. He mumbled some excuses and explanations and told her to sign.
She refused to be a victim of bait-and-switch and sent him packing. She then chose to go with a different, more honest lender.
This was the right choice. A one-time mistake can be fixed, but try to raise fees a second time, and it’s time to move on to a better loan officer. In this case, I don’t blame the lender, but the individual loan officer. He quoted fees that were lower than the company allowed, presumably thinking once he baited in the customer, she would stay no matter what.
A home buyer in Seattle last week had better luck. He also used my review and consultation service, because he didn’t want to spend the time and hassle of shopping around.
“I figured I would get one estimate and if it looked okay to me, get your expert opinion,” he said.
The initial estimate looked just fine. The interest rate was at the best available rate for the day and there were no unnecessary junk fees. The lender’s fee was competitive. I told him to proceed with confidence, and if he had any questions when he received his loan disclosures, to let me know.
The next day he emailed me his official Good Faith Estimate, and right away, I spotted a problem. The appraisal fee had been raised from $450 to $500. I pointed this out to him and suggested he ask the loan officer to correct it. Happily, the loan officer fixed the “error” right away, and all was good going forward. Using my service saved him $50 (he hadn’t noticed the increase) and gave him peace of mind.
If you’d like an expert opinion on your own loan offer, Initial Fees Worksheet, or Good Faith Estimate, please see here. One of my clients called me “The Mother Theresa of Mortgages.” Needless to say, I was flattered. It’s good people who are trying to get good loans that motivate me to do what I do.
A seller credit or seller contribution is money the seller gives you to pay for closing costs. Some or all of your closing costs, including your property taxes and personal hazard/fire insurance may be paid for by the seller. If the seller pays all your closing costs, you will pay only your down payment.
The seller cannot pay for any of your down payment, per law.
If there is extra money from the seller after all your closing costs are covered, the extra money stays in the seller’s pocket. Homebuyers cannot receive cash from the seller, not even one dollar.
If there is extra money from the seller credit after all your closing costs are covered, ask your loan officer about using that money to buy down your interest rate. If there is enough cash available, you could use it to pay for a point or even a half point (a point is a percentage point, and it is interest paid up front) to get a lower interest rate.
If the seller is paying for your lender fees, then the lender sees no reason to waive or lower any junk fees they may have, because you aren’t paying for them anyway.
How to Get a Seller Credit
In order to get a seller credit, you must have it included in your Purchase and Sale Agreement. Therefore, you ask your real estate agent to negotiate it for you. It is part of the price negotiation of the home. The lender does not handle the negotiation of a seller credit.
The seller credit should be stated as a dollar amount, such as “the seller will contribute $5,000 toward the buyer’s closing costs, including prepaids.” Or, the credit can say something like, “The seller will pay all of the buyer’s closing costs, including prepaids, up to $XX maximum.” The credit should not be stated as a percentage. If stated that way, the lender will require an addendum to the purchase contract that states it in an exact dollar amount, which causes more time and hassle later.
(Prepaids = your property taxes, homeowners/hazard/fire insurance, and days of prepaid interest.)
Interesting Strategy You Can Use
When the property inspection report comes in, there will be flaws and needed repairs exposed. This presents a second opportunity for a homebuyer to ask for a seller credit. If the seller doesn’t want to do the repair work, the seller can offer to credit you cash toward your closing costs instead. This preserves your own cash so you can use it to make the repairs after closing. If you are the handyman type who likes to do your own repairs, you might come out financially ahead this way.
The Take-Away: Discuss seller credit with both your real estate agent and your loan officer. Your agent will help you get it and your loan officer will help you use it to your best advantage. Remember, with a purchase loan, you cannot take cash out of the transaction (that is only allowed in a refinance when the borrower already owns the property).