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.
It was bad enough seeing the impossibly low interest rates posted by Amerisave, but when they showed up on reputable websites like Bankrate and Mortgage Professor, it was downright disturbing. Why would they let a liar post on their websites? Didn’t they value their reputations? I sent an email asking and received a very unsatisfactory reply. It seemed like the god of greed was ruling over decency.
I heard from several good folks who had read Mortgage Rip-Offs and Money Savers that they were promised a low interest rate and then locked in at a higher rate. And the fees! The huge, ridiculous fees! It was like old fashioned highway robbery.
But justice finally caught up with the scheme that took advantage of borrowers in all 50 states. The Consumer Finance Protection Bureau, the watchdog organization set up by the White House, busted Amerisave, its affiliate Noro Appraisal Management Company, and the owner, Patrick Markert.
* $14.8 million must be paid back to consumers who were sucked in and taken advantage of.
* $6 million in fines and penalties for the companies and Mr. Markert.
* An order to stop advertising rates that are not actually available.
* An order to follow the disclosure law by revealing the relationship between the lender and the appraisal company.
* An order to stop collecting money from borrowers before providing a Good Faith Estimate (which is illegal).
The Lesson for Everyone
Listen to your gut instinct and common sense. When someone claims to have an interest rate that is so much lower than every other lender in America, you know something is amiss. Choose the honest, ethical loan officer over the smooth-talker who refuses to answer your questions directly. Never give your credit card to pay for a lender fee or appraisal before you have received a Good Faith Estimate.
To read more about this news story, see the CFPB post here.
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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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.
True Story, June 2014. Mr. Borrower asks his lender for a Good Faith Estimate or a cost estimate for a purchase loan. He wants to borrow $320,000, has excellent credit, and 20% to put as a down payment.
The loan officer chats him up, asking a lot of questions about his situation, building rapport, and making Mr. Borrower feel comfortable. No problem so far. But read on.
Then the loan officer tells Mr. Borrower he will need six pieces of information in order to provide a Good Faith Estimate: the property address, the estimated value of the property, the desired loan amount, his name, his income, and his social security number (to run a credit report).
That’s a lot to provide just to see the price tag on the loan. The loan officer could have given Mr. Borrower a general cost estimate (which would contain all the desired numbers and information) without collecting the six pieces of data. But he didn’t, because by collecting W2s, tax returns, pay stubs, and running a credit report, it deepened the obligation of Mr. Borrower to the loan officer. Not my favorite practice, but still legal. The bad part is coming next.
The loan officer then said, “We need to get started right away, so let’s order the appraisal report. I will need your credit card to pay for that.”
Mr. Borrower was immediately charged $450 for an appraisal. ILLEGAL!
According to Federal law, it is illegal for a lender to collect money for any reason, including an appraisal fee or an application fee, without first providing a Good Faith Estimate. The only exception is the lender may collect a small fee (like less than $50) for a credit report.
Three week later, the Good Faith Estimate and other loan disclosures finally arrive in Mr. Borrower’s email inbox. And right there in black and white, it says the appraisal fee would be $385. But wait, he was already charged $450 weeks ago! Not only that, but the Origination fee was higher than the verbal quote the loan officer gave initially as well.
Four violations of the law committed by the lender:
1) Collecting money before providing the GFE.
2) Collecting more money for the appraisal than what was disclosed on the GFE.
3) Charging a higher origination fee than promised without any reason to justify the increase.
4) Failing to provide the GFE within 3 business days of collecting the six pieces of information.
Yes, there are still shady, illegal scams going on today.
After our consultation, Mr. Borrower is now filing a complaint against the lender with the Consumer Financial Protection Bureau. Hopefully, there will be a good ending to this sad and disturbing story. For everyone else, you can avoid being ripped off by knowing ahead of time what your rights are.
Do not give out your credit card info until after you have reviewed and accepted the Good Faith Estimate.
And if you want to see the price of a loan without having your credit report pulled, do not give out your social security number; instead, ask for a general cost estimate (which is more detailed than the new official GFE anyway).
If you have any questions, please let me know and I’ll be happy to answer.
Easy. Call and ask for a cost estimate or fees worksheet. This is the new upfront GFE. They are happy to give you this without pulling your credit report, based on the verbal information you provide.
New lending laws say that the Good Faith Estimate is a contractually binding document. (Since when is an estimate a contract, right?) This has forced banks and mortgage lender to rename the upfront estimate. And here’s something that might surprise you…
I prefer the upfront cost estimate or initial fees worksheet over the new, convoluted, inefficient, three-page GFE designed by the Fed committee. So go ahead and use the same shopping method, including the scripts for what to say, in Mortgage Rip-Offs and Money Savers and in Homebuyers Beware–just substitute cost estimate for Good Faith Estimate.
Don’t Shop By Email
Notice that I recommend calling on the phone, not shopping by email. Why? Because it is important to listen to the loan officer’s response. Listen to the tone, to how he/she answers your questions. Listen for straightforward answers and for dancing around the topic. This will go a long way in determining if you are working with an honest, easy-to-communicate professional or a dishonest scammer. You cannot get that by email, so don’t be lazy when it comes to something this important.
Confused By the Worksheets?
As with the old GFE forms, the new worksheets come in different formats from different banks and lenders. They call their lender fees by various names, and they place them in various places throughout the forms. This makes it difficult to choose the best loan if you’re not an expert working in the business. This is where I can be of help.
I am not doing loans myself now, so I have no vested interest in any particular mortgage lender. I am truly an unbiased expert source. If you would like me to review your worksheets and/or GFEs, you can email them to me. I will check the interest rate, fees, missing information, bogus charges, etc. Then we will have a 20 to 30 minute telephone conversation. I will give you my opinion and answer all your questions so that you can proceed with confidence.
For details, please see the page at the top called Review My Estimate. I’ve saved folks many thousands of dollars and sleepless nights. It’s what I love to do.
As always, thank you for reading my blog.
According to a study by Campbell Surveys and Inside Mortgage Finance, real estate agents controlled or influenced 45% of homebuyers’ choice of lender.* Is this a good or bad thing? Let’s look at both sides, and then you can draw your own conclusion.
In Favor of Using Your Realtor’s Preferred Lender
A Realtor’s #1 concern is that the transaction gets closed–and on time. There’s nothing worse than having the lender mess up the process so a lose/lose/lose situation is created. If a bank has inept, inefficient, or crazy processing and underwriting so that your loan doesn’t close on time, it can create havoc with your moving schedule and purchase contract. The seller might not agree to extend your contract if there is a higher back-up offer. You could lose out on the house of your dreams; or if the seller agrees to an extension, your moving schedule gets messed up. The real estate agent doesn’t get paid on time, or perhaps not at all if the deal is lost.
Who then could blame a Realtor for recommending a lender he or she knows is efficient and has a history of closing on time?
Against Using Your Realtor’s Preferred Lender
Do you care if you pay hundreds–or perhaps a couple thousand–dollars more for your loan? Do you care if you get the lowest interest rate and lowest monthly payment? Do you care if you pay a boatload of junk fees, thereby perpetuating the problem of lenders taking advantage of unsuspecting and uneducated borrowers?
Just because the subprime era is over, it doesn’t mean there aren’t plenty of rip-offs and over-charges going on, because there are!
Yesterday, I heard from a homebuyer who said he got his mortgage broker to delete $1,558 in stupid junk fees, because he was aware and knew better, thanks to reading Mortgage Rip-Offs and Money Savers. Now he has that much more cash in his wallet he can spend on something new for his house.
Ultimately, It Is On YOU
No one cares about your loan more than YOU. It is your right and your responsibility to know what is fair, what is an over-charge, and what is easily negotiated. It is up to you who you choose to give your business to, so you need to make an informed and responsible decision.
Maybe your real estate agent’s preferred lender is a great choice. On the other hand, maybe it is an expensive choice. Get a load of this…
In a large training session for multiple lenders, the so-called mortgage guru told the packed-out audience: “Try to get referrals, because you can charge them more. When a friend or agent refers a borrower to you, they don’t shop and they don’t look at price.”
Having worked in both retail and wholesale lending, having been behind closed doors in sales, underwriting, doc draw, rate lock, and all the rest, I can tell you there are both Mortgage Stars and Loan Sharks out there. It’s a situation of Homebuyers Beware. Choose with your eyes wide open.
As always, I welcome your opinion–whether or not you agree with me. And thank you for stopping by.
* Source: Housing Wire