Will Elimination of Homebuyer 1% Origination Fee Lead to Predatory Charges?
We’re all aware of the costs associated with getting a mortgage loan. One of the principal costs is the loan origination fee charged by mortgage lenders and brokers. This fee is compensation mortgage professionals earn for helping borrowers locate a mortgage and acting as your liaison to the underwriters during the loan process.
Recently HUD announced elimination of the 1% origination cap on FHA loans. The change was made so that the new GFE combines origination and other lender fees into one section. This will allow lenders to present the "origination charge", as a bundled fee of origination and lender fees, at an amount greater than 1%.
A loan origination fee is typically paid to the loan officer or mortgage broker in exchange for evaluating, preparing, and submitting a proposed mortgage loan and can certainly vary in cost. To give you a quick example, a 1% loan origination fee on a $200,000 loan would be $2,000.
One requirement of the new guidelines is that the single origination charge on the Good Faith Estimate and HUD-1 form must include all administrative and processing fees related to the origination of the loan. This must include all the compensation for both the mortgage lender and mortgage broker.
Consumers shouldn’t panic believing fees will go through the roof however be cautious because where there is smoke there is fire. This allows lenders to increase some of the fees
So how much can lenders charge?
With the deregulation lenders can really charge whatever percentage they deem necessary.
The FHA is relying on lenders to charge reasonable and customary fees but really, with very little oversight homebuyers will need to rely on their real estate agent even more to watch for predatory inflated fees.
Initially, the FHA will allow an honor system with little oversight and if complaints start to appear they will rethink these issues.
There are several fees charged by lenders and mortgage brokers that do not amount to much individually, but combined can total hundreds of dollars. These charges, mostly "trivial fees", are over and above the normal fees charged for appraisals, credit reports, and title and escrow services. The fees vary significantly between lenders and are often used as a way to increase revenues and supplement low origination fees.
Don't be fooled by lenders quoting below market rates and points. If it appears, too good to be true, it just may not be true at all.
