When I began writing my consumer protection book before the 2007 liquidity crisis, the mortgage industry was like the wild west. There were many “bandits” in the mortgage business. Junk fees and bait-and-switch scams were rampant.
When I began in the business, I worked for a small mortgage company as a receptionist while I got my license. I overheard the owner tell her processor that she wasn’t making enough money. On the final loan documents for one of her clients, she added over $1,500 in junk fees that were not disclosed upfront. This kind of behavior makes me sick! I left the company.
The U.S. Government implemented strict rules in 2010. Thankfully, those laws chased most of the dishonest loan officers out of the mortgage business. It is rare for lenders to charge junk fees now. And if they do charge junk fees, that fact must be disclosed upfront. However, escrow companies are not heavily regulated. I often find escrow company’s charging excessive fees, and always point them out to my clients so they can negotiate lower fees in the beginning of the purchase transaction. My escrow company never over charges, so this is only an issue when my clients are buying a home.
I work primarily in California, which is an escrow state. If you are in an attorney state, this article may not apply to your situation.
Common Lender Fees
Most lenders charge a processing fee and an underwriting fee, or one fee that covers both services. The total is usually under $2,000.
Appraisal, Appraisal Review, Credit and Verification of Employment fees are third-party expenses. The lender does not control those costs and does not receive any of the fee. These fees are legitimate.
Loan Discount costs are charged by a bank if you want to buy-down your rate. Please read the article on paying points for more information on this topic.
The Loan Origination Fee is disclosed when the loan officer is brokering the loan, not when you go to a bank or Mortgage Banker. This is the fee that either you or the lender pays the broker to handle your loan application.
Common Escrow Fees
Base Fee
Escrow companies charge a base fee. The prevailing base fee varies by area. Large metropolitan areas usually charge more than small towns. If you want to anticipate your escrow fees, ask your realtor. He or she can get the prevailing rates from their preferred escrow company or may know it from experience. In Los Angeles we can expect $200 + $2 for every $1,000 of purchase price as a base for purchases. Refinance escrow fees are substantially lower.
Loan tie-in fee
Escrow companies charge this fee on top of the base for a purchase loan because it is more work for them to work with a lender than it is if you pay all cash. If the fee is more than $250, I recommend you question the reason for the high fee.
Archive Fee
This fee was on my initial list of junk fees when I wrote the book. Since then, it has become a common escrow fee. It should be between $30 and $50.
E-doc auth and Doc prep Fees
The “E-doc auth” fee is total crap. When I have questioned escrow companies about it, they usually respond that it is a fee to receive an email and print it. Really? $100 or more for that?
The doc prep fee usually covers printing and prepping loan documents. Sometimes, they charge a fee to prepare deeds, but most escrow companies prepare the deeds as part of their base fee. If the doc prep fee is significant, I recommend asking them (in writing) what that fee covers. For my clients purchasing a home, I determine if the fee is for printing loan docs. If it is, then I print them for free and my clients sign in my office or with a mobile notary.
Other Common Fees
The Messenger fee, Wire fee and Overnight delivery fees are usually minor. Escrow and title companies must disclose them upfront. But in the end, you should only be charged for the actual expenses if these services were necessary.
I hope these tips help you ensure you are charged fair fees. As always, if you have any questions please call me at 877-728-2008 or email CustomerCare@HollyGustlin.com