For most loan fees, I have a tolerance of 0% on how much I’m supposed to be off.  What that means is that my loan fees need to be known and disclosed up front, many times before we even have all of the facts as a lender.  I can’t be wrong, and if I am, I pay the penalty to the tune of 100% of the difference.  This is the way it should be.  I know what my processing fee is.  I know what my underwriting fee is.  On any given day at any given time I can check rates and what credits or costs they offer consumers.  It’s easy for me to be accurate.

Why then, can’t title or escrow companies get their loan fees correct?  Just today, I had a cost estimate sent from a title company that included a “miscellaneous fee” for $50.  Now if I disclose that an a borrower asks “what is that fee for?”, what in the world am I to tell them?  “Well, Mr/Ms Borrower, that fee is for miscellaneous, obviously”.  Or the more famous (here in California)

Borrowers should not be confused when it comes to the costs of getting a loan

“buffer fee” of $400.  In case you can’t decide if a consumer should pay $1000 or $1400 at closing?  Unacceptable.  To me, to consumers, and I’m certain to regulators.  If average escrow/title costs are $2000 total, what in the world do they need a 20% buffer for?  For most of their costs they already have a 10% tolerance.  For unforeseeable changes of circumstances, there is no tolerance, so there’s a safety net already in place for lenders and title companies.  Therefore, there’s no reason, or at least no good reason, to include a “buffer” or “miscellaneous” fee to loan costs.  These types of inclusions are the exact reason our industry is so highly regulated.

Some would argue “we need a buffer in case there are additional costs that come up later”.  As I already covered, though, these instances are not subject to 0% tolerance rules.  Some escrow officers/title companies will even go so far as to admit their ineptitude, saying “we put in a buffer in case we miss something up front”.  To them, I say, “Be more thorough!”.  Do your job!  The numbers aren’t that difficult to get right.  Even on a purchase of several hundred thousand dollars, it’s not that difficult to get within a few hundred dollars to the exact number needed for closing – and this includes lender costs, title, taxes, insurance, state taxes, recording, and inspections.  No buffer needed.

When taking out a mortgage to buy a home, consumers need to know 2 things – what is the monthly payment, and how much do I need to spend to get the house.  There’s no reason that we can’t deliver on 50% of the information they need to know, the loan costs.

If you think I’m standing on a high horse, I’d advise you to go ask a regulator what they think of “miscellaneous fee” or “buffer fee” coming up on a worksheet.  To them, you’re gouging.  If a regulator sees that you’re telling a client “your costs will be somewhere be between $1000-1400”, they’ll probably see things hitting numbers closer to $1400 more often, and their reaction won’t be a pretty one.

Loan costs, like interest rates, are something that should be transparent, known in advance, and discussed clearly and freely with clients.  If they’re too high, consumers and competitors will let you know by your lack of a pipeline.  If they’re confusing, consumers will choose a provider that is more clear.  And if you destroy trust, you’ve lost your clients and business partners.  There is no trust in terms like “miscellaneous fee” or “buffer fee”.  Those terms scream “we don’t care!”, or “we don’t know!”, and neither build trust from a client.

     If you want to work with a lender that will work to earn your trust, give you straight answers about costs and loan terms, and will prepare you up front for a process that will leave you with no surprises at the finish line, then give the JM Loans team a try.

JM Loans: #MortgageMadeEasy