Junk Fees
Candlefocus EditorJunk fees are additional charges imposed on a borrower at the closing stage of mortgage approval. They can include a variety of costs, such as processing fees, courier fees, overnight fees, and notary fees. Although these individual fees may seem insignificant in the grand scheme of the overall mortgage, they can add up quickly and result in a much more expensive loan than originally planned.
The charges that comprise junk fees are considered excessive, not in good faith, and are almost always unexpected. This means that many borrowers are caught off guard at the closing table when they are presented with higher costs than they were originally expecting. Junk fees are not illegal or hidden, they are included in the HUD-1 settlement statement, which lists all the fees a borrower has to pay at closing.
Borrowers always have the right to challenge junk fees and negotiate fairer costs. However, very often, borrowers do not have the knowledge or experience to do this effectively. This means that lenders have the ability to find ways to include potentially excessive fees in the agreement and profit from them.
In order to protect borrowers from predatory lenders, the Consumer Financial Protection Bureau developed rules in 2015 to reform the closing process and protect borrowers from excessive fees. The rules state that no fee can be inflated more than 10% from the original lending estimate to the final closing statement. Nevertheless, even with these protections in place, junk fees still occur and can often be difficult to identify and negotiate.
Ultimately, junk fees can be a disruptive and costly experience for borrowers. Because lenders are able to create and add fees without borrower knowledge or consent, in some cases, these fees can prove to be devastating for a borrower’s financial situation. It is therefore important for borrowers to be aware of their rights and to thoroughly read through the closing documents to ensure that no excessive fees have been added.