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Don't fall for illegal mortgage fees
The feds are catching
more mortgage companies gouging consumers with hidden fees and
mark-ups. Be vigilant: You may be able to ferret out unearned fees
and avoid them.
By
Holden Lewis, Bankrate.com
You can save money by knowing the difference
between a legal and an illegal mortgage fee.
Here's a simple little quiz to show how even
well-meaning mortgage lenders and brokers can fall afoul of the law.
See if you can guess which of the following practices are legal and
which aren't:
- A broker charges a $200 application fee. You pay the fee,
apply for the mortgage and get the paperwork rolling, but keep
looking. You find a better deal elsewhere and ask for your money
back. The broker refuses your request and keeps the money,
explaining that the fee was nonrefundable.
- A lender pays a total of $24 to pull credit reports on you
from each of the big three credit bureaus. The lender charges you
a $45 credit report fee.
- You buy your house from a builder who happens to own a title
agency. You want to use another title agency, one of your
choosing, and the builder charges a $300 fee for the
privilege.
Answer: The first case, in which the
broker charges an application fee, is legal. The other two cases
constitute violations of the Real Estate Settlement Procedures Act,
or RESPA. They're the sorts of practices that you should watch out
for.
"Settlement service
providers have a right to be reasonably compensated for their
services," says Mel Martinez, secretary of the Department of Housing
and Urban Development (HUD). "They don't have a right to collect
illegal kickbacks and unearned fees."
As a consumer, you would have a hard time
detecting illegal kickbacks because they usually take the form of
hidden business relationships. Unearned fees are easier to spot. If
you're vigilant and ask questions, you might be able to ferret out
unearned fees and avoid them.
Remember: Under RESPA, it's illegal to charge for
a service that is not provided, or to mark up a fee charged by a
third party, such as a pest inspector or credit bureau. If a company
charges illegal fees, you can negotiate a better deal or report the
company to HUD. Or both.
No
mark-ups
This autumn, HUD
settled with a number of companies that had been accused of
violating RESPA. Among them were Central Pacific Mortgage, which
overcharged some customers for credit reports, and Arvida, a Florida
builder and real-estate services conglomerate that charged $300 to
home buyers who chose their own title agencies.
Arvida also was accused of overcharging some
buyers for closing costs by charging them a percentage of the price
of a house. Some of the money paid for closing costs. The rest was
retained by Arvida without being specifically accounted for, HUD
says, and that's a no-no.
The
companies agreed to pay fines but did not admit to wrongdoing.
Although they didn't admit to doing anything wrong, they agreed to
stop doing what HUD objected to.
Even well-meaning businesses get in trouble.
According to HUD, Central Pacific Mortgage overcharged some
customers for credit reports and undercharged others. It wasn't
company policy to overcharge, but managers in some offices did so,
apparently because they didn't know any better and the parent
company wasn't aware of the practice.
Businesses and even courts sometimes have trouble
understanding what's legal and what isn't under RESPA. In July, a
federal appeals court ruled that it was OK for a title company in
Chicago to mark up county recorder fees as long as it didn't split
the fees with anyone. The appeals court said that it would change
its ruling if HUD issued a formal opinion to the contrary, which is
what HUD did.
What HUD said
was this: Don't mark up third-party charges such as:
- appraisals
- settlement fees
- credit reports
- flood certifications
- pest inspections
- postage and courier costs
- surveys
- title insurance
- title work, such as title searches, plat drawings and name
searches
Better shop
around
You always should
comparison-shop for a mortgage, and one of the reasons is to detect
improper charges. If two lenders say they'll charge $25 for credit
reports and $45 for a flood certification, and another lender wants
to charge $50 for the credit reports and $75 for the flood
certification, ask why.
Similarly, if a company wants to charge you for
not performing a service, try to get the fee eliminated. HUD sent a
clear message when it told Arvida to stop charging $300 for choosing
an unaffiliated title agency.
Builders, lenders, mortgage brokers and title
agencies are entitled to a profit for the valuable work they do.
Under federal law, they can't engage in kickbacks or mark up
third-party fees, but they have a lot of leeway in what they charge
for the services they perform.
Lenders and brokers charge myriad fees, including
administration fees, application fees, commitment fees, document
preparation fees, processing fees, underwriting fees and
wire-transfer fees. This is where they're supposed to make their
profit -- not by charging you double what they pay to see your
credit report.
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