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Unbeatable Interest Rates Are Often Accompanied By Hidden Fees
| | Tuesday, December 23, 2003 @ 08:45 AM EST
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Contributed by: Reuben Sailor
Reuben Sailor Properties
Read more archived articles about Credit and Finance
Here is an article on lender fees. This was e-mailed to me by the founder of a REI club here in L.A..
Unbeatable Interest Rates Are Often Accompanied By Hidden Fees
by David Reed Realty Times
As any loan officer will tell you, almost every borrower is shopping around for the best interest rate. And why not? Borrowers are supposed to do that, right? But some of these loan officers
have been around the block a few times and know how to structure a rate quote that looks a lot better than it actually is.
I received a phone call recently from a client who told me that while my rate quote was competitive, there was another lender who was a lot lower. It didn't surprise me that I was higher; no lender can be the absolute best every day. What surprised me was how much lower the rate was. My interest rate quote was a full 3/8 percent higher than my competitor. I scratched my head at that one and called some buddies in the business and asked what their going rates were. Theirs were similar to mine, yet nowhere near the ultra-low quote my client had received.
I asked my customer to see if they could get me a copy of the good faith estimate from the other lender -- in this case a mortgage broker -- to fax to my pricing department for a price concession. If we were that far out of the market we needed to know about it. So the borrower faxed the estimate to me and I immediately noticed a couple of tricks the other loan officer was using.
The most obvious came from the closing fees. Yes, I was higher in rate, but the lender fees were over $1,350 higher than mine -- on a $90,000 loan. The rate was indeed lower but there were additional charges like $350 for a "contract administration fee," whatever that is, $300 for underwriting and $300 for processing. In addition there was a broker fee in the amount of $675. Seems like a lot of fees, doesn't it?
But the fee quote didn't stop there. Underneath the lender/broker charges there were other normal listings for title exam, attorney, title insurance, settlement fees, recording and so on. Normal items, nothing odd about that. Every home sale has similar fees. The odd part was that the fees were much lower than market. Much lower. The attorney fee was quoted as $60. Sixty bucks. I don't know of any attorney who will even return a phone call for sixty bucks. The title insurance was low-balled along with every other fee item.
Not only that, but there were fees simply not listed on the good faith estimate that should have been there. There was no amount allotted for a property survey when a survey was in fact required for this deal. Even the amount for an appraisal was left blank.
There are two dynamics here and they both involve the fees. By low-balling non-lender fees it makes the total closing costs appear lower than they'll actually be. And by low-balling an interest rate and piling on additional lender or broker fees it makes the rate look better than it actually is.
I called my client and told her two things: First, please call the title agency and get firm quotes for all the related attorney, title, and other associated fees. She did so and found out what I told her she would find out: Those fees were being low-balled to make the overall cost of the loan look better. When she showed up at closing those fees would have been much higher only to have the broker respond, "I gave you an estimate only, and we have no control over third party charges." Finally, I told my client that I would be more than happy to reduce my rate by 3/8 percent if I too could charge an additional $1,350 in fees. It took a couple of seconds before the answer was "no, I'll take your rate without all the other junk fees."
When getting closing cost estimates, remember a couple of things: Non-lender charges will be what they will be. Just because your lender quotes you a number for something, make certain you feel comfortable with the quote. If you get several rate quotes and one lender seems much lower on non-lender fees then you know what they're up to. And if one lender's rates seem significantly lower than others, check the lender fees. You might indeed get a lower rate, but the additional charges may not make sense to do so.
Published: December 12, 2003
Note: The rest of this article can be read here http://money.cnn.com/2003/11/12/pf/yourhome/3Qmetroprices/index.htm
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