Are these New Lender Fees Legitimate?

Question

Hello all, I am a long time lurker but first time poster in the middle of my first real estate investment deal.  I am purchasing a SFR in Florida with 20% down through conventional financing.  I found my lender through Bankrate.com based on the fact that they had the most competitive overall terms and lowest fees when I locked my rate back in the beginning of December.   Since the original estimate I received, there have been more and more fees showing up in my loan without a reduction in rate in the "Services you can shop for" section and I'm trying to figure out why that is the case and how normal that is.  Below is a summary of how I got to where I am:

Original Estimate (this is what I received when deciding between lenders)Loan Origination - $0Title - Endorsement Fee - $145Title - Lender's Title Insurance - $1,195Title - Settlement Fee - $575Total - $1,915

Original Full Loan Packet (This is the full loan packet that I signed once I decided to go with them)Loan Origination - $0Title - Endorsement Fee - $145Title - Lender's Title Insurance - $1,195Title - Settlement Fee - $575Survey Fee - $400Total - $2,315

I'll spare everyone the details, but in short for various reasons earlier this week the property sales contract with the seller was updated to increase the Sales Price by $6K and reduce the seller credit toward my costs by $6K (so it should net out the same for me).  When I received the updated loan packet from my lender, the fees now look like this:

Updated Loan Cost Estimates (These are the numbers in the disclosure sheet I received yesterday in response to the updated contract)Loan Origination - $0Survey Fee - $325Title - Environmental Protection - $150Title - Escrow Fee - $695Title - FL Form 9 - $173Title - Gov't Surcharge for Nat'l & KEL Title $3Title - Lender's Title Insurance - $1,195Title - Title Examination - $250Title - Title Search - $195Total - $2,986

I know it's possible for some fees to fluctuate during the closing process, but I am getting the impression that some of these fees are either junk fees which don't need to exist, or were known all along and not disclosed to make them seem like a more appealing option.  Now I am two weeks away from closing (1/15) and don't think I have time to switch lenders even if I want to without losing my rate lock which I really don't want to do.  I left a message for my loan officer to give me a call back and plan to address this on Monday, but I thought hearing outside perspectives would be helpful before I have the conversation.

Thanks so much in advance for any help the BP community can provide, and please let me know if any part of what I have described is unclear.

-Jerry

Russell Brazil · Answer

Some lenders present an estimate of lower fees to bring business in, then the fees rise in the process.  Some lenders estimate their fees high, and then come down, so the customer is happier in the end. This is the nature of the business.  It is also why I think the best way to find a lender, real estate agent, title companies etc...isnt from just doing an internet search, or even from comparing fees and rates...but rather by referral. Ive worked with dozens of lenders in mt area, and I know the pluses and minuses to using each.  Some of them will do exactly what you are describing, some the latter like I said. I also know what lenders are more likely to get to closing, and which ones are more likely to have a contract fall through. I know which ones add junk fees, and which ones are more honest.

Account Closed · Answer

The fees that changed were not lender fees, but title fees.  The lender is responsible for "disclosing" title fees, but not responsible for the number and the dollar amount of the title fees themselves.  You and your realtor have much more control over the number and the dollar amount of title fees than the lender does, but back to this point, in a minute.

It is accurate that some lenders historically underestimated fees so that the bottom line "cash to close" looks less from lender A to lender B, perhaps done knowingly to get you to close with them.  It is now also accurate that loan officers currently overestimate fees so that the borrower is pleasantly surprised at closing.

Back to title fees.  Is the end result that you want lower title fees...I guess I would want lower title fees, too.  However, you have to look at your real estate contract.  Who selected the title company?  If the seller or seller's realtor picked that title company, and contract indicates this, about all you can do is call title company to request a reduction in title fees.   If seller's side picked this title company, they are likely paying for your owner's title policy and saving you a chunk of money on title fees (about $500 per $100,000 of property purchased), so will not be much interested in reducing fees.

If you or your realtor picked the title company, then the ball is in your court.  You can change title companies or "FIRE" them in the words of the Donald anytime up to 2 weeks before closing with nary a ripple in the water (unless they have done some title work for which they may request reimbursement).  Point is, lender does not set title fees nor pick title company on 99.9% of purchases...buyer, seller, or realtors pick title company.

Here would be my issue.  WHY is ORIGINATION exactly ZERO?  Is there an underwriting fee listed?  Or a processing or admin fee listed?  How about appraisal costs?  If none of the above is listed, is your lender going to give you a credit for these fees?  If yes, the lender is giving you a credit, they will need to increase the interest rate quite a bit to cover these fees.  Finally, are there documentary stamps on the amount borrowed and a charge for recording the deed in your Florida county?

Services you can shop for means just that.  Don't just shop for a lender, shop for a title company, too, unless the executed real estate contract says otherwise.

Sorry for the long post....coffee, you know...

Charlie Fitzgerald · Answer

Thr change in sales price is considered a Change in Circumstance and therefore the fees can change.  I would dispute every  fee that was not originally disclosed at the old sales price except for  the survey fee, which is valid.  I would also get a quote from another lender from bankrate.  The low cost leaders are notorious for these fees games and often end up Nitvhhd best choice.

Account Closed · Answer

@Jerry Limber  Shoulda answered your question "Are these new lender fees legitimate? with another question: "Are these title fees (as forwarded to me, by my lender) legitimate?" So, yes, every single one of those title fees goes to the title company recommended to you by your realtor, and your lender will not get a single penny.  Your lender/loan officer, if doing their job properly, calls up the title company and asks for the fees, then inputs those fees into the loan estimate, or good faith estimate.

Sometimes title companies are slow to respond, the loan officer wants to get your loan moving, so will estimate a number just to complete the application, and invariably estimates high.  Or leaves a fee out.  Then the title company responds several days later, loan officer notices that the title company has an additional fee, so the loan officer generates a new estimate, as he or she should.   Maybe why you got 2 estimates.

Are the title fees too high?  Probably yes.  And keep in mind these fee might not be accurate, but the loan officer simply aiming high so as to CYA.

Room for lower title fees and title charges?  Yes.  The environmental of $150 is likely an endorsement to the title policy called the Florida Form 8.1  It should be $25 or $35. $150 has to be a mistake, call up title or realtor, and ask about that one.

Escrow fee of $695?  @Wayne Brooks said this is the same thing as settlement fee, this is correct.  I have seen them as low as $495 through $695.  Think I saw one pretty close to $1000, if I recall correctly, we all took the title person to task til the figure came back to reality.  Wayne also mentions that title exam and title search should not be a double fee, again I agree, and one of those fees is probably being charged to seller, and one to you.

Judy

Chris Mason · Answer

Russel Brazil is correct.

Behind the scenes:

When people "shop" lenders, a challenge they have is that CFPB wants us to quote title/escrow fees too because they consider these "loan costs" (even though you will still have title/escrow fees even if you purchase all cash... but that's another argument).

Here is why that is a challenge borrowers face:

On a purchase, lenders typically have zero control over who title/escrow is or what their fees are. For a lender being sneaky, this is a **very good thing.**

So the folks Russel is describing will quote the cheapest title/escrow fees that actually exist in the entire state, even if it's a call center title company in India that no one in their right mind would actually use (and this **is** a call center / internet lender and not a local, so this behavior is consistent on paper).

This is not illegal, because those fees are technically available in the state from some hypothetical settlement services provider that you could hypothetically use (if you were hypothetically an idiot).

And you see a nice sexy bottom line number that you find appealing, and pick your lender based in part on "lowest fees," as you did.

Then, a week or two into escrow, the lender "discovers" the actual title/escrow fees (they naturally don't even bother asking for them until it's too late for you to switch lenders, and the appraisal is done, etc, because they don't **want** to discover the actual fees juuust yet).

Because they quoted you "real" title/escrow fees upfront, and because a full thorough audit will reveal that the lender did not "discover" the actual fees until a day or two prior to you receiving the "updated" disclosure, no law has been broken and this is a lawful practice.

I personally go the other way, and quote the most expensive title/escrow fees in my market for purchase transactions. Might go down from there, but it wont go up, and at the end of the day people like me more when I 'brace them' for a bigger cash to close number than it turns out is actually required.

Jerry Limber · Answer

Thanks so much for the replies everyone, these are all excellent insights.

@Wayne Brooks- You are correct, it was a typo.  The Sale price of the property was reduced by $6,000, and so was the Seller Credit (so it does net out the same for me).

Account Closed - There is an appraisal fee of $425, but no underwriting fee or documentary stamp fees.  You hit the nail on the head, the financing option I selected includes a higher rate in exchange for minimizing up front cash at closing.  It also includes a lender credit of about $3,000.  To answer  your other question, I selected the title company my realtor recommended.  So if I am understanding your response, it sounds like all the fees listed as "Title - XXXX" are going to the title company, not the lender.  If that's the case it sounds like I need to call my title company and potentially shop around for a new one.  I noticed you are based in Florida, do you happen to know of a good one?

-Jerry

Wayne Brooks · Answer

Account Closed Good catch on there being no Mtg doc stamps.  The Mtg is about $217k, so the recording fee is about $750.  Never seen a seller pay that.

Charlie Fitzgerald · Answer

Since October 3, 2015, the fees "estimated" have to be nearly 100% accurate for any fees disclosed that can be shopped.  The "lowball / highball game" with fees is over.  Any fees disclosed in error that can be shopped  by the consumer cannot be corrected after disclosure and the difference must be paid by the lender.  TRID has demonstrably changed the fees disclosure games of the past.  Big Box lenders (and  some little box ones too) now play the change of circumstance game to have another whack at the fees apple.

Jeff B. · Answer

Seller increases by $6k ??  Scare the **** out of them by threatening to recant the offer OR tell them they can pay ALL FEES.

Are you so desperate to close on this one? Another is just around the corner.

Wayne Brooks · Answer

Compared to my experience, and the fees I regularly see in FL.

Environmental $150...huh?

We don't normally pay for a title exam fee, on top of a title search fee.

Escrow fee is just another name for settlement fee, seems high.  $500 tops.

Over all, pretty good closing costs.

I assume you made a typo when you said you Increased the sales price, and Decreased the seller contribution--to net the same, that would be a $12k increase for you.

Are these New Lender Fees Legitimate?

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