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Junk Fees  
Definition of a Junk Fee:
A fee with an official sounding name that has no actual service behind it.
 
Junk fees are nothing more than a way for the loan officer or escrow company to make more money without being up front with you about it. I am a big proponent of being honest and straightforward about fees. No one in this industry is doing it for charity. We make our living here. Earning a good living is a good thing. You should expect quality people who serve you to charge you for their service. The problem arrises when these people are not straightforward with you regarding fees.
 
Here are lists of fees you should expect to pay, and some common names of junk fees. I have seen some pretty creative junk fee names, especially escrow fees in purchases. So the fact that a fee name is not on my "Junk" list doesn't mean it isn't junk. If it isn't on my "Legitimate Fees" list, ask the loan officer or escrow officer to explain and justify the fee.
 
Legitimate Lender Fees:
  • Origination fee (a.k.a. Points) - You may or may not pay this, depending on your negotiation with the loan officer.
  • Broker fee - This is another way loan officers charge points. It is legitimate, but points are tax deductible and fees are not. So if you are going to pay a Broker Fee, ask that it be listed as "Origination Fee" instead.
  • Loan Discount Fee - If you are buying your rate down below par pricing, that amount will be listed as a loan discount fee. For an understanding of par pricing and points, please refer to the page "Points Explained."
  • Processing fee - The broker or bank has to pay someone to put your file in order, submit it to the underwriter, meet all the conditions, order docs, and other tasks involved in processing a loan application. Expect to pay $300 to $700 for this service.
  • Underwriting - The lender has to pay someone to verify that your loan application meets their guidelines. Expect to pay $400 to $700.
  • Docs - The lender pays someone to draw up the loan documents. This fee ranges from $45 to $250. In my experience, the total of underwriting and doc fees is always in the same ballpark. If they charge more in one category, they usually charge less in the other.
  • Tax Service and Flood Cert - These are minor, legitimate fees.
Common Names for Lender Junk Fees:
  • Admin (or Administration) fee - This is the most common name for a junk fee. However, Countrywide calls their underwriting fee an Admin fee. So if you see the term "Admin Fee" but there is no "Underwriting Fee", then the Admin fee is legitimate.
  • Application Fee - This is a semi-legitimate fee. It is okay if it is disclosed and charged up front. However, I never recommend paying a non-refundable application fee. If you decide to change lenders for any reason, you lose that money.
  • Review Fee - An Appraisal Review Fee is legitimate. Any other "Review Fee" is bogus.
  • Sign up Fee - Junk
  • E-mail Fee - Junk...who are they kidding?
  • Commitment Fee - Junk
Legitimate Escrow Fees:
  • Escrow Fee
  • Notary
  • Wire
  • Courier
  • Processing Demands
  • Doc fee
  • Loan tie in fee - Only should be charged if you have 2 loans closing at the same time
Common Names for Escrow Junk Fees:
 
I only see escrow junk fees in purchase transactions. The reason is simple. When you are refinancing, your loan officer chooses the escrow company. They aren't likely to cheat the client of a repeat customer. When you are buying a home, the listing agent chooses the escrow company. The escrow officer will probably never see you again. So they are more likely to overcharge you. If I could change one thing about the purchase process, it would be to allow the buyers or their realtor to choose the escrow. Many of these escrow junk fee abuses would stop if that were the case.
 
  • E-mail Fee - I first saw this one around 2006. I tend to be a "mother bear" with my clients; so I called the escrow officer and demanded they remove the fee. They justified it by saying that they have to charge to open an email and print it out. The fee was $200. Who are they kidding? Do they want us to believe that it really costs $200 in toner and paper to print out an email? I really hate this junk fee. I think you should never pay it. I learned from this experience, however, that it is best for the borrower to ask the realtors to help them get junk fees removed. Again, the loan officer has no relationship with purchase escrows, and therefore no power to influence them.
  • Edoc Auth Fee - Junk...I have seen this on estimated closing statements, but can't imagine what they are trying to pull here.
  • Archive Fee - Junk...archiving is required by law and should be included as one of the services covered by the main escrow fee.
  • E-Commerce Fee - Junk
  • Question any fee not listed above as legitimate - They are too creative for me to keep up with them.
 
 

Junk Fees
Protection from Bait & Switch
Points Explained
Risk Assessment Forms
 

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