Mortgage Loan Origination Fees vs No Junk Fees

by Triesta B. from St. Paul, Minnesota USA

Ask Kate about mortgage loan origination fees vs no junk fees: Triesta received a courtesy loan summary for her HARP 2 refinance before getting the Good Faith Estimate. But she's surprised to find an application fee of $200 and a processing fee of $425, in addition to a 1% loan origination fee! She's right to question the junk fees! Triesta also asks if taking the bank's offer of an above-market interest rate to pay for closing costs is smart.


Triesta asks Kate about HARP 2 Refinance Fees vs Hidden Junk Fees

Hi Kate, I've recently begun the HARP 2 refinance process on two investment properties with Sun Trust, the servicer of my current loans on these two houses.

HARP Mortgage Loan Origination Fees vs No Junk Fees
You stated on your web site that the origination charge must now include the application fee, processing fee and some others I won't list because they aren't being charged.

I have received a loan summary that shows an application fee of $200 and a processing fee of $425, in addition to the origination fee which is 1% of the loan amount.

I will receive the Good Faith Estimate within the next couple of days and need to know how those fees will be disclosed (or hidden) since you are telling your readers that these must be included in the origination fee. I also need to know how to get those junk fees out of the upcoming transaction.

The rate is locked for 90 days (with no lock fee), the "standard amount of time" Sun Trust is using to make sure the loan will close in time.

Also, if I know I won't carry the loan to term, does it make sense to take the closing cost credit on the front end they are offering instead of getting a lower rate?

How do I know that I am getting the entire credit and not just having the bank split the difference with me and them keeping part of my credit for themselves? Some of this might be clearer once I have the GFE in front of me but right now they have sent me the loan summary as a courtesy in advance of the official document package.

Thanks, Kate!

Kate Answers: HARP 2 Mortgage Loan Origination Fees vs No Junk Fees

Ask Kate at Get-Your-Best-Mortgage-Rate.com
Dear Triesta,

What HUD says is very clear about including junk fees, such as processing and underwriting charges, on the new Good Faith Estimate (GFE) form. We'll take a look at that in just a moment.

But first let me answer your question about getting rid of junk fees. Refuse to pay junk fees that are being charged in addition to your origination charge! If you are not satisfied with the mortgage company's reaction to your request, you have the right to switch lenders under the HARP 2 refinance guidelines!

Remember, you are not only the consumer. You are hiring the mortgage company to originate a 30 year contract (mortgage) for you. But before you jump out of the frying pan into the fire, read Qualifying Questions to Ask a Mortgage Lender to avoid surprises and unnecessary cost with the next lender also.

No Junk Fees per Reformed Good Faith Estimate

Now to quote the 'New RESPA Rule FAQs' found on HUD.GOV website regarding the inclusion of junk fees on the reformed Good Faith Estimate Form of 2010...
Q: Where should fees such as loan originator's Processing Fee, Underwriting Fee, and Wire Transfer Fee be disclosed on the GFE?
A: All origination charges for lenders and mortgage brokers, including fees for administrative and processing services, are included in the charge in Block 1 of the GFE, -Our origination charge- and should not be itemized separately.
This clearly states HUD's position: Include junk fees in the total cost of the loan origination fee or don't charge them!

Shop to Compare Interest Rates and Mortgage Fees

Now let's walk through the actual form a lender uses to disclose the cost of getting a mortgage at New Good Faith Estimate Form of 2010. When you scroll down to Good Faith Estimate Form - Page 2, Adjusted Origination Charges (A), you'll see where the entire credit is given to the borrower. (Near the end of the page, there's a link to the actual HUD form.)

By the way, your GFE cannot have both a credit aka yield spread premium (due to paying a higher above-market mortgage rate) and a charge aka discount points (due to getting a lower below-market mortgage rate).

But I must caution you that banks are not required to disclose in the same manner. Because of this, the homeowner must shop to compare mortgage rates and closing costs to get a feel for their market.

Lower Rate with Higher Cost vs Higher Rate with Lower Costs

As for your next question: Is it worthwhile to lock a higher rate to get a credit which will pay for closing costs? Or would it be better to pay upfront interest in the form of discount points to get a lower interest rate?

First of all, be careful about paying too much in points because the lender can benefit if you refinance before reaching the break-even point! In other words, if you pay off your loan before you've saved more on monthly payments than were paid in points, the bank wins!

But if you suspect you'll keep this mortgage for many years, you may end up paying too much by locking in a higher-than-market rate in order to finance your closing costs.

In the end, your decision will depend on the length of time you'll keep the mortgage, the amount you can afford in a monthly payment, how much equity you have, and of course, what the bank will approve.

One solution? Ask your lender about locking in a rate that's at par, that is, one without substantial discount points and one without substantial credits. Go here to Compare Trends in Interest Rates and Discount Points and then follow the links for help establishing a break-even point.

Ask Kate Question and Answer Mortgage Rate Lock Help

Lastly, I'm not sure if you were asking a question about Suntrust's lock-in policy. But you can get my insight on locking mortgage rates at...
  1. The Ask Kate Rate Lock Series

  2. Question and Answer Rate Lock Help I

  3. Question and Answer Rate Lock Help II
Or once you get the Good Faith Estimate and Rate Lock Agreement in the mail, ask me a related question by following the comment link near the bottom of this page.

Good luck and best wishes,

Ask Kate


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