I recently wrote about being fed up with out of state lenders and the lousy service they often provide borrowers. My low opinion of these lenders is based on personal real estate sales experience in dealing with Buyers who use lenders from their home state, or the “Internet”, instead of Austin lenders when purchasing homes in Austin. The deal that prompted my current outrage finally closed Friday after delays caused by the lender. This lender, eLendDirect, is a prime example of why we think buyers are much better off obtaining mortgage loans from lenders who 1) are established in the community in which the home is located, 2) have ongoing relationships with local Realtors, Appraisers and Surveyors, and 3) have in-house (or a good relationship with) underwriting.
Not only did eLendDirect.com provide poor service to our buyer and jeopardize the deal, eLendDirect charged our buyer the highest loan fees that I’ve ever seen in 15 years of buying and selling real estate in Austin. I literally almost fell out of my chair when I saw the settlement statement. The loan fees were outrageous.
Those of you familiar with settlement statements (at least in Texas) know that the lender fees are listed in the 800 series of line items. What we want to see when reviewing a settlement statement for a buyer is that the lender fees are at or about $1,200, excluding the loan origination fee, discount points and survey. With 90% of the loans we see, the costs are slightly above or below the $1,200 rule, which we think is a reasonable amount in most cases. If the fees are higher, it can be because the buyer is receiving a very competitive interest rate and the Broker is making up some of their profit in fees. When the fees are a lot lower, it’s usually because the lender is hungry for business (and making less profit on the loan) or is making some profit on the interest rate itself, or a combination of both.
But for the most part, assuming a qualified buyer with good credit, $1200, give or take, is what we are accustomed to seeing as the buyer fees. eLendingDirect charged our buyer on this deal fees of $3305 – more than $2000 over what we normally see.
Let’s review the eLendDirect fees charged to the buyer on this deal. Even a below market interest rate, which this loan was not, could not justify charging fees like this, in my opinion.
$450 – Appraisal Fee
$10 – Life of Loan Fee
$595 – Broker Processing Fee
$73 – Tax Service Fee
$537 – Mortgage Broker Fee
$695 – Mortgage Broker Fee – Admin Fee
$695 – Mortgage Broker Fee – Quality Control Fee
$250 – Administrative Fee
I called the loan officer at eLendDirect to point out the inflated fees and ask if perhaps an error needed to be corrected. She was unapologetic and defensive of the fees, saying “the buyer approved them up front” (which turns out not to be true). I responded by saying that whether those fees were disclosed up front or not does not change the fact that they are not competitive or consistent with what other lenders charge for similar loans. The fees were not just “high”, but embarrassingly high. Higher than any I’ve ever seen on any loan prior to now. The lender would not budge. So, eLendDirect nearly fouled up the deal, did cause the closing to be delayed, and to add insult to injury, raked the buyer over the coals with unjustifiable loan fees.
The buyer says she was never given a Good Faith Estaimate and did not see the fees until it was time to sign everything. At the point where a buyer is signing loan docs, it’s very hard for most to walk away from a deal over loan fee disputes. It’s unfortunate that the industry even allows buyers to be placed in that situation, but it happens often. Often times, the interest rate also ends up being higher than promised (bait and switch), but buyers feel pressured to do the deal anyway.
This particular bad experience has prompted us to start asking not only for a pre-approval letter from the buyers we work with, but also their Good Faith Estimate. This will accomplish a few things. First, we can make sure the buyer actually received a Good Faith Estimate. Second, we know the buyer has something in writing against which to compare the loan charges that show up on the final settlement statement. Third, we can help the buyer decide whether they are receiving a competitive interest rate and fees on the proposed loan.
The reality is, however, that the Good Faith Estimate isn’t worth much. Fees and rates are subject to change, but it does provide at least something to refer back to when the final loan charges are egregiously out of line with what was promised up front.