What Are Excessive Mortgage Loan Fees?

Whether you are looking to finance a new house or refinance the one you’re already in, you can protect yourself from being overcharged by following this list of "dos and don’ts" from the National Mortgage Complaint Center, a for-profit company which inspects mortgage loan documents for excessive loan fees and duplicative mortgage lender fees prior to closing.

Do:

Check out any mortgage lender with whom you are considering doing business. Check with your local better business bureau, consumer affairs agency and the state agency which supervises the mortgage business. Find out if any complaints have been lodged against them, the nature of the complaints and how they were resolved.

Ask each mortgage lender to give you a quote that includes not only the home mortgage interest rate but also all the mortgage loan fees associated with the new home mortgage. And make the request before allowing them to run your credit report. You should be honest about how good or bad your credit history is, but you should not have to pay for a credit report or anything else in advance of obtaining a mortgage loan quote and actually making a formal application for a home mortgage.

Remind the mortgage lender that he is required by law to provide a Truth in Lending statement and a Good Faith Estimate of your mortgage closing costs within three days of applying for the loan. Don’t just remind the mortgage lender, though, but also inform him that you expect him to comply with these federal regulations. No excuses.

Confirm in writing whether you will be paying the mortgage broker twice, once in the form of an mortgage origination loan fee and again in the form of a "mortgage yield spread premium." YSPs are back-end mortgage loan fees which are paid by the funding mortgage lender to the mortgage broker for landing customers willing to pay a higher home mortgage interest rate.

There are reasons why a borrower might be willing to pay more. You might want to roll the home loan closing costs into the new mortgage loan amount, for example, or you might want to borrow more than the house is actually worth. But you also have a right to know if the mortgage broker is double-dipping. According to Thomas Martin, president of the National Mortgage Complaint Center, "yield spread premiums are the number one source of overcharges in the mortgage industry."

Also confirm whether or not the home mortgage loan you are seeking comes with a mortgage prepayment penalty for paying off the mortgage early, typically within the first three years.

If the mortgage lender is unwilling to make either of these two disclosures in writing, Martin strongly suggests that you "find another mortgage lender."

Have NMCC or some other reliable but also independent third party review the loan documents for possible overcharges or unjustified mortgage loan fees. The complaint center charges $45 for a narrative report detailing the mortgage loan fees it finds excessive.

Don’t:

Do not be swayed by slick mortgage TV and radio ads. Some mortgage ads may be from legitimate mortgage lenders, but many are from mortgage companies which act as nothing more than middlemen who charge mortgage lenders for sending them "leads." Do your own homework.

According to Martin, "These middlemen frequently get huge mortgage loan fees for sending the borrower to the most expensive mortgage lenders, with the net result being, you end up paying more money."

Do not be fooled by mortgage offers that sound too good to be true. If it sounds too good to be true, it usually isn’t true at all.

Do not sign any mortgage documents in which the blanks are not completely filled in or crossed out. And don’t be talked into lying on your mortgage loan application by someone who says "everybody does it." It is illegal to falsify mortgage loan documents.

Don’t go with the builder’s in-house mortgage lender just because it is convenient to do so. Compare what the builder is offering to the mortgage rates and mortgage loan fees other mortgage lenders charge. His may or may not be the best deal, and sometimes the builder will sweeten the pot to gain control over the entire transaction.

But remember, builders who also act as mortgage lenders are earning the same mortgage loan fees -- or maybe higher mortgage loan fees -- that other mortgage lenders charge. Martin, who has reviewed thousands of transactions on behalf of borrowers, says some of the highest charges he’s seen come from builders acting as mortgage brokers.

Do not allow yourself to be forced into closing the home loan if you don’t understand all the mortgage terms or if the mortgage terms don’t match what you were told in the beginning. Give yourself some leeway – at least several days – between closing on the mortgage and moving into the new house so that if something isn’t satisfactory, you won’t be stuck with a loaded moving van and a car full of screaming kids waiting to get into your new home.

Realize that both the mortgage lender and the home seller have just as much incentive to close as you do. So if something isn’t right, stick to your guns. Make one of them flinch first.

For more helpful mortgage tips on mortgage refinancing, home loans, reverse mortgages or a home equity line of credit, contact FreeLoanComparison.com today!

Last update: November 14, 2008