Junk Fee

Author:  Terri Ewing        Published: August 14, 2008

Junk Fee Defined

A junk fee is a fee that is charged to the borrower by the originator but serves no purpose other than to increase the revenue of the originator. Junk fees are not a percentage of the loan amount but rather a lump sum between $50 to $1,000 depending on the fee.

It is hard to say exactly what every junk fee is since they are “made up”. A good rule of thumb is to look at how many fees are going directly to your originator. The originator makes money from the origination fee, from increasing your rate, or both. Then, they usually charge a $200-$400 processing fee. The origination fee and a small processing fee are not junk fees.

Services performed by those other than the origination company are called third-party fees and are legitimate fees. You can ask for and get invoices for these fees making sure of the amounts and confirm the third party will receive the fee at closing. Examples of third party fees are underwriting and closing fees. Lenders charge to underwrite loans and title companies charge to close them.

The appraisal and credit report fees can go to the originator or to the companies who performed the services. If either of these fees goes to the originator, they would turn around and pay the credit reporting service or the appraisal company. The originator should not make any markup from third-party fees. Once again, ask for the invoices on these two fees to insure no markup.

In short, if the fee can’t be invoiced by a third party and/or it’s payable to the originating company above the origination and processing fees, it’s a junk fee.

Author: Terri Ewing