What are the unwanted fees
Unwanted fees are a series of fees that a lender charges when closing a mortgage. These fees are often unexpected by the borrower and are not clearly explained by the lender. This surprise factor can give the impression that these costs are excessive and are charged to other legitimate closing costs without valid reason.
BREAKDOWN Fresh Junk
Spam charges are a subset of the costs that appear on each HUD-1 settlement statement. Traditionally, this statement was a stand-alone form where federal law required that a lender provide a borrower at closing. It contained a detailed description of all the costs associated with the loan. Before closing, when the parties accept the loan conditions and begin closing preparations, the lender was required to provide a good faith estimate (GFE) of these costs. In 2020, the Office of Consumer Financial Protection (CFPB) consolidated these documents into one form, the final disclosure.
The costs listed on the HUD-1 range range from standard items such as home inspection and title search fees to more questionable costs that some consider undesirable. The latter group may contain items such as document preparation fees, application fees, funding fees, verification of employment fees or automated subscription fees. The borrower has always had the right to dispute and negotiate these fees with the lender, but many lenders have found it cost-effective to assume that borrowers would not dispute all of these fees. Critics of the mortgage industry have also argued that lenders do not meet the good faith requirement of the GFE and generously add fees to the HUD-1 final return that have never been included in the GFE.
CFPB reform the closing process in 2020
The CFPB’s 2020 reforms to the closure process not only simplified the paperwork associated with the closure process, but also established restrictions on fees and adjustments that could be made after the GFE was provided to the borrower. Part of the purpose of these changes was to minimize the ability of lenders to add unwanted charges that the borrower might ignore. The major change that the CFPB has introduced into this new set of rules is a limitation on the authorized inflation of fees appearing on the Loan Estimate (LE), the document formerly known as GFE. As a general rule, no commission may be increased by more than 10% of the LE at the final declaration. If a major change in the circumstances of the loan has occurred, the lender must allow the borrower to examine a new LE.
Spam charges are generally not illegal. Even with the CFPB’s efforts to protect borrowers from deceptive lending practices, the borrower has the burden of carefully examining and questioning fees that seem unnecessary.