Tell your loan rep to take out the garbage

In a display of law over fair dealing, the Fourth Circuit Federal Court has told mortgage lenders that they can continue to bilk their borrowers for garbage fees. The court could find no legal authority to stamp out this practice. What are these so-called garbage or junk fees? For the most part, they refer to settlement charges that sometimes grossly overstate, magnify, or duplicate the actual amount of expenses incurred by the lender. Here are several examples:

  • 350 for an electronic appraisal that costs $3.
  • 65 for an electronic credit check that costs $9.
  • 75 for document delivery that cost $16.
  • 500 for administrative expenses that already are covered by a 1 percent mortgage origination fee.

Many consumer critics condemned the court ruling that okayed these and similar charges. But rather than impose its own idea of fair play, the court applied the law as it is literally written. If you want your lender to play fair, it is you who must tell the loan rep to take out the garbage. Closely examine every fee and expense listed on the good faith and settlement statements. Ask questions such as: "What amount did the lender actually pay for this service? Is the service actually necessary? Why am I being asked to pay these excessive charges?" Question every item. Negotiate their removal or reduction.

Garbage Fees Vary Widely among Lenders

To show how garbage fees vary, one study surveyed 28 mortgage lenders and found these results:

9 @ $1,000 to $3,000 4 @ $3,000 to $5,000 1 @ $7,500

Although you can't judge a lender solely by the amount of its junk fees, you can appeal for their reduction—especially if you show a strong borrower profile. As Jack Guttentag (known as the Mortgage Professor), one of the nation's leading mortgage experts, advises, "This is a 'sloppy' market in which borrowers must stay on guard." (See Table 8.1.) Some

Table 8.1 Loan Fees and Costs Vary Widely

Highest ($) Lowest ($)

Average ($)

Lender/Broker Fees

Administration fee

725

45

413.46

Application fee

410

100

266.40

Commitment fee

450

100

268.00

Document preparation

350

50

162.22

Funding fee

300

40

125.57

Mortgage broker fee

895

100

344.17

Processing

850

99

302.71

Tax service

110

10

72.09

Underwriting

595

25

279.93

Wire transfer

335

10

55.27

Third-Party Fees

Appraisal

375

175.00

269.31

Attorney or settlement fees

820

50.00

373.71

Credit report

65

8.50

36.53

Flood certification

65

8.75

22.21

Pest inspection

400

30.00

86.07

Postage/courier

90

20.00

44.73

Survey

525

25.00

226.59

Title insurance

1,157

161.00

460.23

Based on a $125,000 mortgage from a survey of lenders. This list omits many fees that some lenders charge. None of these fees necessarily represent a "fair" amount for your area. The figures illustrate variance, not appropriateness.

lenders quote relatively low interest rates, then through fees and costs, they make this money back and more.

0 0

Post a comment