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Loan Officers Can Lowball Third-Party Fees to Make Their Loan Offering Look Better.

This might be one of the biggest con games in the business. But let's think about the dynamics of all this, so that it will make sense.

When you get ready to compare lenders and you get your GFE, what is the normal tendency? Do you first look at each individual item? No, you jump to the bottom line where it says "total closing costs." Loan officers know this. And they play this game every day. You don't. I'll give you an example.

You contact two lenders. Each lender quotes a similar interest rate and similar lender fees, but third-party fees vary considerably. Third-party fees include such nonlender fees as attorneys, title insurance, surveys, escrow, and settlement charges.

Each loan officer faxes his GFE over to you, and you first review all the fees associated with the lender (these fees are listed first, at the very top of the GFE). Lender A quotes:

Discount point $2,000

Appraisal $ 350

Credit report $ 22

Tax service $ 72

Flood certificate $ 15

Processing $ 300

Underwriting $ 550

Total $ 3,309

These are common lender fees. Lender B quotes:

Discount point $2,000

Appraisal $ 350

Credit report $ 15

Tax service $ 72

Flood certificate $ 15

Processing $ 200

Underwriting $ 200

Administrative $ 200

Total $ 3,052

So far, so good, right? These two competing lenders are quoting similar closing costs, and the difference between them really isn't all that great. Lender A appears to be about $300 or so more expensive than Lender B.

But the GFE doesn't just include charges from the lender. It also includes any and all charges that you might anticipate from third parties, including attorney charges, taxes, title insurance, surveys, settlement fees, and anything else that is usual or customary in your area.

In this case, though, the GFEs take a remarkable turn from one another. Lender A goes on to quote:

Attorney $ 100

Title insurance $ 500

Escrow $ 150

Document prep $ 150

Survey $ 250

Total nonlender fees $1,150

Lender B also continues with its quote:

Attorney $ 200

Title insurance $ 500

Escrow $ 250

Document prep $ 250

Survey $ 400

Total nonlender fees $1,600

At this point, Lender A looks better when quoting nonlender fees by $450. Now, when you add everything together:

Lender A $4,459

Lender B $4,652

Looks like Lender A is the way to go, right? Guess what, you were lowballed on the nonlender charges. Nonlender charges are what they are; what your loan officer quotes you has no bearing on them.

But if you are an unwary consumer, you will go to your closing, review your final settlement statement, and see the actual charges issued by the attorney, the title company, and everyone else. The charges are nowhere near what Lender A quoted you—in fact, they're off by about $500.

So you protest: "Hey, these aren't the fees quoted by my loan officer. You're charging too much!"

"No, I'm sorry," says the attorney. "I've always charged $200, and all of the rest of these fees are in line as well."

What has just happened is that you were taken. Not only did Lender A misquote these fees to you on purpose, but now you must pay the actual charges warranted by your closing. And you must also pay Lender A its higher closing costs. Lender B was the better deal, and it was also honest about nonlender fees, but once you get to closing, it's too late.

How do you protect yourself from all of this? It's difficult, I know. Who in the world would know how much an escrow fee costs other than an escrow company? Or how about title insurance—how much does that cost? The fact is that none of these fees are common knowledge among consumers. A gallon of milk? Sure. A gallon of gas? You bet. But a survey? Come on!

You protect yourself by reviewing the GFEs you've received. If one lender is much lower than anyone else and those low quotes are for third-party services, then you can do two things:

1. Pick up the phone and call your Realtor.

2. Call the various services being quoted directly and ask them how much they charge.

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