What Are Junk Fees?
WHAT ARE JUNK FEES?By Peggy DeVilbissSo … if standard closing costs, origination fees, and program fees are not junk fees, then what are junk fees?”Junk fees” is a term that applies to any fee that shows on a good faith estimate (GFE) or final settlement statement that is not a justifiable fee charged by the lender, broker, Realtor or title company. Common “junk fees” are overcharges for reports and services, and they may run into the hundreds of dollars of extra fees for the borrower. Sometimes they are higher, as described in the following example.An extreme example of “junk fees” showed up recently on a GFE from an Internet loan company. A friend of mine had responded to an Internet solicitation to do a refinance. He was being quoted a zero-point loan at an incredibly low interest rate. Since it sounded too good to be true, he called me for advice. I suggested he request a GFE from the lending company making the offer so we could review the information. When it arrived, we checked it out, and, yep, it was too good to be true.Internet loans have a reputation of including excess fees, but the charges that were on the GFE were still shocking. In addition to the standard closing costs, there were about $12,500 in additional fees. Not $1,300, but 13 thousand dollars!Here’s the breakdown. …The GFE showed all the standard closing costs, zero points for an origination fee, and an interest rate much lower than the standard rate available at that time. On the surface, the lender had accurately represented his offer. So, where’s the problem?There were substantial fees that the lender didn’t mention in the upfront offer which showed up on the GFE:1) Discount Fees – 2.75 points2) Mortgage Broker Fee – 3.50 points Total: 6.25 pointsOn the loan amount of $215,000, this 6.25 points totalled $13,437 in fees that were not disclosed up front. An origination fee and a fee to discount the interest rate were probably paid out of these fees, but the quote was totally misleading and hid actual charges. The game being played is to quote low, get the borrower to call, and hope that the borrower doesn’t pay attention or question the charges prior to closing. In this case, the borrower was smart enough to check it out before proceeding with the loan.I’ve heard the term “Enron Mortgage” jokingly applied to Internet mortgage lenders. The overcharges in the above example support the pitfalls of doing loans on the Internet. Unsuspecting borrowers are overpaying by enormous amounts. There are probably some acceptable Internet programs, but “borrower beware” applies to Internet transactions.In general, if the Internet quote is honest, then any local mortgage company can offer the same program at the same or better rates. On every occasion that I have had the opportunity to review an Internet offer, I was able to do the loan at a lower interest rate at less cost.Don’t overpay for a loan. Check out any offer with your local mortgage broker.
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