Lenders

Top Ten Ways Mortgage Lenders Overcharge Homeowners

A survey by the Justice & Integrity Project's National Mortgage Complaint Center reveals the top ten mortgage fee abuses. The problem: in increasing numbers, mortgage lenders and mortgage brokers have overcharged the average U.S. homeowner. The Justice & Integrity Project's National Mortgage Complaint Center discovered the top ten mortgage fee abuses:

1. Yield Spread Premiums: Yield Spread Premiums were designed to increase the borrower's interest rate so that the lender/mortgage broker can compensate themselves for origination fees and other normal mortgage fees with little or no out of pocket cost to the borrower. The net result is the borrower ends up paying for his/her mortgage origination fees twice (without ever knowing it).
While mortgage brokers are required to disclose the yield spread premium to the borrower, for some reason banks and or mortgage bankers have no such requirement (even though they get yield spreads too). Lender liability for poor disclosure of the yield spread premium allows few homeowners to understand what they are or how they impact their monthly interest rate.

2. The Good Faith Estimate: Over 70% of all borrowers do not receive their Good Faith Estimate and or Truth in Lending Statement within three business days after making application to the mortgage lender/broker. Without a Good Faith Estimate or Truth In Lending Statement, the borrower has no real way of knowing what his/her interest rate will be and no way of knowing what the mortgage fees will be.

3. Prepayment Penalties: Prepayment penalties for homeowners are a huge problem as they are rarely disclosed to the homeowner in an understandable way. Prepayment penalties are supposed to be disclosed on the Truth in Lending Statement. Unfortunately most homeowners never receive a Truth in Lending Statement until closing, and at that point it may be too late. Prepayment penalties are not disclosed to the borrower in a clear form that is understandable to the borrower.

4. Document Preparation Fee: When it comes to a mortgage transaction, it is an overcharge or a fee associated with doing something that should be covered by the loan origination fee.

5. Administration Fee: Again, like document preparation, an administration fee should be covered by the origination fee.

6. Credit Report Fee: Credit reports for most lenders cost between $6.00 and $18.00. Yet many credit reports are being charged as high as $65.00. It is illegal for a mortgage lender to up-charge third party costs such as appraisals or credit reports.

7. Courier Fee: Courier fees range from $40 to $100 on most mortgage transactions. Courier fees are the overnight express costs of shipping the closing documents from the actual lender to the escrow company. However, according to the U.S. Postal Service rates, a standard closing package overnight express cost to anywhere in the United States should be no more than $29.

8. Application Fees: "Application Fees" are on roughly half of the mortgage transactions inspected each year. Application fees could be called a "junk mortgage" fee. An application fee should be more than covered by the mortgage origination fee.

9. Mortgage Referral Services: Mortgage referral services sell leads to mortgage companies. The problem is that some of the leads will be sent to the most expensive mortgage lenders in the nation. The net result is that the homeowner gets a much higher interest rate than deserved, higher monthly mortgage payments and higher mortgage fees.

10. Title Insurance Fees: Next to the mortgage industry's "Yield Spread Premium" scheme, the biggest overcharge in the mortgage process is "Title Insurance." Title insurance costs run as high as $6000 (or more) for a home purchase, for what really amounts to about five minutes of time for a title clerk to check a property title for tax lien, mechanics lien or pending lawsuits. However, basic title insurance costs are about $300 to $400 regardless of a home's value, as the process is no different for any homeowner. It is basically the same as doing an appraisal, or processing a loan application for a typical homeowner. Much of this news is grim for the mortgage industry and title insurance industry.

Banks, Mortgage Bankers and Brokers may now have enormous liability because of these overcharges.

posted by MORTGAGE AUDIT SERVICE September 28, 2008 8:00 PM

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