Q I was wondering which costs of a refinance are negotiable. I am in the process of refinancing my mortgage with a local bank and the loan officer tells me that the funding and review fee has gone up $250. When we bought our home two years ago, that fee was only $150. – J.O., Everett
A Many mortgage customers think they are being gouged by junk fees such as processing, underwriting and document preparation charges when they close a loan. I used to feel the same way when I bought my first home. But now that I have run a mortgage company for many years, I can honestly say that in most cases those fees are actually there just to cover the administrative expense of processing a mortgage. And in the past couple of years, those administrative costs have been increasing.
Despite computerization, the mortgage business is highly labor intensive, and much of that labor force is relatively highly paid. Each loan has dozens of details that must be analyzed and verified. And when you’re talking about deals involving hundreds of thousands of dollars, there is no margin for error.
There is little that the average bank or mortgage company can do to control the increasing administrative costs. Unlike many other businesses, there are no “economies of scale” in the mortgage business. In fact, my experience has been that small mortgage companies are often much more efficient than large banks and mortgage companies because there are fewer sets of hands touching each loan file.
So if in most cases the administrative fees are not simply extra fees added onto your loan to increase the lender’s profit. Are any of the loan closing costs negotiable? Yes. During the refinance boom that ended last summer, most mortgage companies had more business than they could handle so they were not often willing to cut their fees. But now that interest rates have increased, most mortgage companies have seen their business drop off dramatically and they may be more willing to negotiate.
But be aware that most of the closing costs in a mortgage transaction are costs over which the typical loan officer has no control. For example, the appraisal, title, escrow and credit report fees are all paid to someone else. These providers set their own fees and the mortgage company passes them on to the borrower. Many mortgage companies also use document preparation services and flood report services. Again, those costs are simply passed on to the borrower. In the case of mortgage brokers like my mortgage company, the wholesale lenders we deal with typically charge processing and underwriting fees, which we also pass on to our clients.
So what’s left to negotiate? Not much. Typically only the loan origination fee and the mortgage company’s own processing fee. You can ask if the mortgage company is willing to reduce or waive its processing fee. That would typically save you about $250 to $350. But always shop around to make sure you are getting a fair deal. The mortgage company that is willing to drop its processing fee may be making up the money by giving you a slightly higher interest rate.
Also be aware that there is usually a correlation between the loan rates and fees that you pay and the amount of service you receive. Most legitimate mortgage companies offer approximately the same interest rates and loan fees on any given day. So-called discount lenders may be willing to do your loan for less, but you may have to suffer through weeks of unreturned phone calls, missed deadlines, etc. In other words, you usually get what you pay for. If you want a rock bottom rate and fees, expect the hassle factor to increase significantly.
Mail your real estate questions to Steve Tytler, The Herald, P.O. Box 930, Everett, WA 98206. Fax questions to Tytler at 425-339-3435, or e-mail him at economy@heraldnet.com
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