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Question: We recently purchased a house in Virginia, and believe that we paid a lot of unnecessary – and possibly duplicative – fees when we went to settlement. The settlement attorney admitted that many of the items were called “junk” or “garbage” fees in the industry, but since they were standard and customary, we had to pay them. Enclosed is our settlement statement; which fees can we avoid when we next go to closing?
Answer: Every year, someone from the mortgage industry – or from the Department of Housing and Urban Development -- issues a call for the elimination of a lot of the unnecessary fees which consumers have to pay at settlement. Unfortunately, very little ever comes from those calls, and nothing seems to have changed in many years. In fact, it seems that every year, more fees are added to the list.
Here are some of the fees which, in my opinion, are either unnecessary or inflated. The numbers next to each fee corresponds to the line item number on the HUD-1 Settlement Statement:
Appraisal fee (803): clearly, a lender wants to know that the property on which a loan will be made is worth more than the loan. However, if for example, last year you obtained a loan and are refinancing this year, there is absolutely no reason to have to pay for another full appraisal.
Underwriting fee (808): will someone tell me what an underwriter really does? Theoretically, when a mortgage company brokers (sells) a loan to the company that will actually make the mortgage loan, the lender wants to make sure that everything is in order. The lender double checks the various verifications (employment, income) and makes a determination whether or not to make the loan. This process is done by an underwriter. Several years ago, I made the comment that this is a mythical concept, and nothing has changed my mind to date. There is, in my opinion, absolutely no reason for the consumer-borrower to have to pay anywhere from $200 to $400 for an underwriting fee.
Tax service fee: (809). Lenders – claiming that they are trying to protect their borrowers from losing their property at tax sales – usually demand that the borrowers escrow money for real estate taxes and insurance. The borrower on a monthly basis pays one twelfth of the yearly real estate tax and insurance premium to the lender, who then – at the appropriate time -- pays the tax and the insurance bill. To my knowledge, few if any lenders pay any interest on these escrowed funds; lenders make a lot of money on the funds they hold. However, to add insult to injury, at closing, the borrower is required to pay a one-time “tax service fee”, in an amount which ranges from $65-75. Presumably, this fee is to reimburse the lender for the cost of handling and paying the escrow amounts to the taxing authority and to the insurance companies.
Processing fee: (810) Not only does the mortgage broker generally receive a fee from the actual lender but the borrower is also charged a fee for “processing” the loan.
Flood certification fee: in order to comply with federal regulations and secondary mortgage requirements, lenders are required to obtain a certification from a surveyor that the property is (or is not) in a flood hazard area. Clearly, this is important information for a lender to have. But there is no reason to charge a borrower amounts ranging from $15-$30 in order to obtain such certification.
Real estate brokers administrative fee: in my opinion, this is perhaps the most outrageous fee charged at settlement. In recent years, some real estate brokerage firms – not being satisfied with the real estate commission they earn when settlement takes place – have begun to charge a fee ( usually $195) to both buyer and seller. The real estate companies call it an “administrative” fee. I call it simply a waste of money. Many real estate agents and brokers who work for the firms which charge this fee are so embarrassed about this practice that they pay the fee themselves, rather than impose it on their customers.
The list can, of course, go on and on. Lenders are continuously thinking of ways to impose new and creative charges against their borrowers.
What should consumers do? When you make application for a mortgage loan, the lender is required to immediately send you a document called “good faith estimate”. This estimate should contain a list of the potential charges you will have to pay if you go forward with the loan from that lender.
Review the charges carefully, and ask the lender why you have to pay each and every single item? Some lenders will be more than cooperative, and – in order to get your business and your trust – will either waive some of the fees or at least reduce them.
A satisfied customer means future business for the lender, and that, of course, is the name of the game.
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