Mortgage Broker Commission & Fees

[Trixie88]

Hi everyone. A friend of mine is about to close on her escrow in Los Angeles and I had a chance to see her Estimated Closing Statement. We were both surprised by some of the unexpected fees.

My friend doesn't want to question anything because the broker is a "friend." He agreed to give her a "discount" by only charging her a 1% commission for his services. However, he never mentioned any additional fees and I'd like to help her figure this all out.

Here are the highlights of items that are related or seem questionable:

Purchase Price: $240K
Loan Amount: $216K

Loan Origination fee to BANK... $2,160.00
Credit Report to BROKER... $28.00
Tax Service fee to BANK... $100.00
Document fee to BROKER... $250.00
Processing fee to Platinum Processing Services... $575.00 (we don't know who this is, although my friend says the Broker does some work for Lending Tree...?)
Yield Spread Premium to BROKER POCL $1,350.00 (amount not included in statement total)
Administration fee to BANK... $350.00
Administration fee to BROKER... $995.00
Loan Set-up fee to BANK... $455.00

Do all these fees seem appropriate? Is there anything that seems overpriced or unusual?

I appreciate your help and advice!

[Moe Bedard]

Trixie,

Have your friend go over the GFE with someone from their bank.............

The lender friend isn't giving your friend a discount here at all...............the 1% origination isn't a discount..........that is a fee that brokers charge for originating the loan and shopping it around to a bank (the broker is the middle man).........if they went down to .50% or .25% or even 0% then that would be a discount.

Yield spread premium (YSP) is extra profit (calculated as percentage of your loan amount) which is created only by the loan originator locking and closing the loan at a higher than market rate.

For example, your loan amount is $200,000. The loan officer locks and closes you at 6.5% interest rate. The real market rate…the truthful rate…the rate you could have…should have had… was 6.0%. The spread between the rates yields a premium (another way of saying…money). The .5% rate spread on average creates 2.0% of your loan amount as the yield spread premium profit. That means the loan officer made an extra $4,000 (2% x $200,000 loan amount) on your loan in addition to any origination, processing, application, or underwriting fees they disclosed on the Good Faith Estimate or closing statement.


There are other unnecessary fees in this Good Faith Estimate that just should not be there.................but the best thing that your friend can do is to go directly to a lending institution such as a credit union or a bank to get a comparison Good Faith Estimate on the very same loan so that your friend can see exactly what fees should not be there and then take that to the broker and negotiate them off...............

[JoJoJodyJo]

If the loan origination fee is being paid to the bank, the broker is not getting it - the bank is.

The processing fee is to an outside service - and is considered a hard cost - the broker is not getting the money and is forbidden by law to make a profit off of outside services. Same with the credit report. Even though it's paid to the broker, it's actually a reimbursement for money the broker has already paid. To avoid trust fund issues, the broker pays the credit report fees and is reimbursed by the borrower. Once again - not making a profit.

The broker is being paid the Admin fee of $995, the YSP of $1,350, and the doc fee of $250. Since he works for Lending Tree, he's not personally making all of this money. He's getting probably 40 to 75% of the YSP, and the rest is going to Lending Tree.

So if the payees are correct on the GFE, the breakdown goes like this:

Bank $3,065
Outside Services $603
Broker $2,595

The bank is making more than anyone.

[Trixie88]

Thanks *** & Jody.

So in the instance of "Loan Origination fee to BANK... $2,160.00" the bank would never send all or some of that money to a loan broker?

My friend decided not to question the charges at all, so it'll all be moot. Since they negotiated a 1% commission, the numbers still don't add up completely. But I guess she was prepared to spend $10K in closing, which probably worked against her when she started telling people that. It seems as if she spent a lot more money for a broker and ended up with a higher rate that she probably wouldn't have gotten without one...

It makes me think of my first home where I settled for 1% with our broker, but then she added over $1000 in other charges and fees (admin, processing, etc) which all popped up in the Estimated Closing Statement - there were never any conversations about these additional fees beforehand. When I questioned it with her, she acted like it was standard stuff and that I was asking a lot to have them removed.

I have another question... do banks ever pay bonuses or or something similar to brokers outside of the YSP and fees we've been discussing? Anything that's not listed on a closing statement?