Honest Mortgage Answers

Junk Fees - Part 2

I addressed the topic of junk fees on a previous post but feel the need to follow up with this question..."When is a "junk fee" NOT a "junk fee"? There seems to be a misconception about junk fees that is running rampant right now. Not every fee from the lender or broker is a "junk fee". A broker fee is not a junk fee. When a broker fee is combined with a processing fee and an administrative fee, then it is a junk fee. The practice of nickel and diming people is considered collecting junk fees. A lender's underwriting fee is NOT a junk fee as long as it is within reason. Anyone who tells you that a reasonable underwriting fee is $100 should not be giving mortgage advice.

In 10 years of being in this business, I have never seen a $100 underwriting fee. On a conventional loan, a reasonable lender underwriting fee will equal about $500 give or take a few dollars. On a non-conforming loan, a reasonable underwriting fee is about $675. Some lenders call this fee an administration fee. It is all the same to me. Some people may not like what I am saying but think of it this way. A qualified underwriter is highly skilled, certified, and in some cases, licensed. The lender needs to pay this person a salary for their services. The underwriting fee helps cover the cost of operating an underwriting dept. Technology, paper, ink, fax lines, phone lines, electricity, etc. are all costs associated with loaning money to people. This is aside from the lender legal fees for frivolous law suits, document drafting, and compliance issues. All this cost is accrued prior to the loan being issued.

Some lenders out there may dance around this subject and offer lower costs that this. Believe me, they are getting their money one way or another. A higher rate is probably the result of lower fees. A prepayment penalty may also be in effect. I am not saying there is not an exception to the rule but it is unlikely. I am not out to defend lenders or other brokers but there has to be a line drawn where one needs to stop being petty. There are real world costs associated with running a business and those costs must be paid. Profit comes later and is a welcome by product of good service.

My mission is to hinder the incompetence of other mortgage professionals by educating and empowering the borrower. The hard part is trying to relay what is realistic and reasonable when it comes to the expectations of the borrower. A real estate broker can charge 7% or more of the sales price for their service. Mortgage professionals make the transaction possible by providing financing to the buyer. Believe it or not, there is a lot of work involved in providing this service. Expect an underwriting fee. The rest is just junk.

Posted by Jason Lash at 8:30 PM