Financing in Los Angeles>Question Details

Marianne, Home Buyer in Los Angeles, CA

Lender Refuses to Separate "Points" from other "Loan Origination Fees" on GFE & HUD-1. What is Advantage to them? My Recourse?

Asked by Marianne, Los Angeles, CA Sat Jun 4, 2011

Hi Folks --

Another very picky question for the experienced RE experts in LA.

Responses from Lenders, Underwriters and Escrow Agents especially welcome:

My Closing on a LA condo is June 15 -- and now more "new" fees are appearing on my GFE and HUD-1 estimates.

So, I've started going through them carefully.

My biggest peeve: I have $3K in "Loan Origination Fees" as a lump sum on my GFE Box #1 and my HUD-1 Line 801.

My Mortgage Broker -- in conversation & in emails -- defined these Fees as $xx amount in Processing & Underwriter Fees, and 1% fee "for getting my Interest rate."

That 1% is a POINT, no? Whether they call it that or not, that's what is, right?

IF they separate the 1% into Box #2 on the GFE and Line 802 of the HUD, that 1% is a Tax Deduction for me.

But Lender refuses. And Escrow will only follow GFE.

Why? What's the advantage to Lender NOT to report my Points separately?

They plan to sell my loan.

I don't want to lose tax deduction.

What's my recourse?

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Answers

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BEST ANSWER
Question: If you are being charged for an Interest Rate, is that not POINTS -- even if you call it "Origination Fees"? Or foot massage fees?
Answer: Yes, points, origination, discount fee, it can all be the same.

Question: If this is a Direct Lender, what is this "cost of getting me the loan"?
Answer: It's their cost, as it describes. I agree they are going against customary procedures and not listing the "Point" on #2, but I don't see how that impacts you, as whether it is grouped together on #1 or itemized on #2 does not affect your bottom line on "A", like I pointed out on my "Lender vs. Broker" example.

Question: Shouldn't this 1% that is allegedly tied to my Interest Rate be called a Point and stuck in Box #2 of GFE // Line 802 on HUD-1 -- thus making it a tax deduction for me?
Answer: Did you read the IRS links in my prior response? Did you read where it says that "points" can also be called "origination"? Do you fully understand the 11 step chart? If not, then before you make a bigger fuss than you need to regarding where this fee should appear on your closing statement and what it should be called, you should call up a tax professional and have it explained. In my opinion you are making a mountain out of a molehill about that part.

Question: Why am I getting resistance from the Lender? Why are they refusing to call that 1 % a Point when it is obviously a Point -- at least my layman's understanding of the definition of Point.
Answer: That is a good question - I can only assume it is how they structure all of their loans, so while it does sound odd to us that have been trained what we feel is appropriate, they may have a different take on it. I don't see what they are doing violating any laws though.

Question: Is there a financial advantage to the lender to NOT call this a point, and to lump it under Lender Fees // Loan Origination Fees?/ Do they have to give that $$ to the next lender who buys my loan?
Answer: No financial incentive for the lender to do it, all fees they collect go to their company. They will actually get money when they sell your loan (or else not many lenders would be making loans), as the servicing rights to your loan have value.

Question: If they continue to call a Point a Point, then what recourse do I have?
Answer: If after you read the links above, understand the 11 step chart and/or speak to a tax professional, it is deemed that it is not tax deductible and if the lender would have portrayed it in #2 then it would have been, then I would recommend you contact the loan officer's manager and ask if there is anything that can be done to move the "point" to box #2. There is no law that says they cannot do that (you cannot increase box #1, but box #2 can increase/decrease), but keep in mind their compliance division has the final say on what they will permit.

Question: I'm getting 4.75 % interest at 1 point on $211K loan. I have more than 25 percent down. It's a condo. My median credit score is 719. / am I paying too much? My Loan Officer told me the other day that I was getting the very best, most recent rate -- yet I know the market has been down the last two weeks since they last lowered my rate. I hate to be blunt, but was she lying? Should I insist they lower my interest rate?
Answer: Only thing missing is how much of a down payment... you said "more than 25% down", when you are at a 719 FICO score it is important to know what % you are putting down, 25%, 30%, 35%, or 40%+ make a difference. If your interest rate is already locked in, there isn't anything that can be done as far as the interest rate. Fees can always be reduced, up to the lender if they want to though - but with 10 days left and you paying $100 per diem, I don't see you have much negotiating power in this situation. Never hurts to ask.

Question: And anybody out there ever hear of a "Appraisal Review Fee" of $275? it's because property is a flip -- but to conduct After Loan Approval? Am I right to feel suspicious?
Answer: They probably felt the appraisal wasn't very good quality, the comparable sales used may have been suspect (like they weren't the best comparables, or the information about them wasn't reliable), or they may have compared the value to an internal system they use and the variance between the two was large enough that it triggered a requirement for a appraisal review fee - $275 sounds like a field review where they send a second appraiser out to the property.
0 votes Thank Flag Link Sun Jun 5, 2011
Ask them to see your rate lock. The lock will tell you the cost of the rate you got. It sounds like you received a rate that is above PAR. Below is a clip from a blog I wrote here on Trulia that may help you understand better:

"Rate sheets have a range of interest rates listed and a cost associated with each; some costs are positive and some are negative. Selecting a rate with a negative cost would "rebate" a percentage of the loan amount back to the broker and thus, to you. This rebate is called "Yield Spread Premium".

For example:

4.375% = +.5% (cost of 1/2 point)

4.5%% = 0% (no points)

4.625% = -.5% (rebates 1/2 point)

4.75% = +1% (rebates 1 point)

Note: These are only examples and not necessarily accurate based on current rates.

In the above scenario, if you selected 4.375% you would have to pay 1/2 point (.5%) of the loan amount to get this rate on top of your other closing costs. If you selected 4.5%, there are no points to get this rate and it's called a "par" rate. If you selected 4.625%, you would get .5% of the loan amount rebated to you, to go towards closing costs, so your overall costs would be less. If you selected 4.75%, you would get a full 1% (1 point) rebated to you to offset other closing costs."

So as for your situation, if you chose a rate that did not have a cost associated with it, you are not paying points. You may be paying an origination fee or an underwriting fee, but you are not paying points to get the rate. They cannot put it there if it's not reducing the rate. If this is your only issue, you should probably close as you are scheduled to do. There is nothing misleading about disclosing the fees in the proper place.
1 vote Thank Flag Link Sat Jun 4, 2011
If they were bona fide points, they would be in box 2 with the 3rd choice checked that states: You pay a charge of $____ for this interest rate of ___%. If there is nothing there, you are not paying points. If they appear in box 1 then they are not actual discount points used to reduce rate.

Fees that are included in box 1 are Origination fees, processing fees and underwriting fees.
Bona fide points reduce rate.
Web Reference: http://WeFixRates.Com
1 vote Thank Flag Link Sat Jun 4, 2011
Hi, Marianne. Lenders are required by law to send your a GFE within 3 days of receiving your fully executed purchase agreement. Once that is sent and their costs disclosed, they can reduce but not add to or increase them. This is the law. The only exception is your interest rate. Because interest rates change from day to day, if the rate is not locked at the time, a lender is only obligated to uphold that rate and what if any thing it may cost you in discount pts to get it for a single business day. But once you lock that rate in, that rate and whatever it may have cost to obtain it, the lender is now held accountable to and for. But again, outside of that, once you have the GFE in hand, no other lender costs or fees can be increased or added.
0 votes Thank Flag Link Thu Jun 9, 2011
I am surprised anyone is answering this in detail.

April 6,2011 caused of changes in how the GFE must be done. Your lender is just following the new guidelines put in place for the type of lender he is. (at least I hope he is)

As for the tax deduction issue consult a tax preparer and call your congressman about the new GFE changes. (maybe they will listen to buyers)
0 votes Thank Flag Link Thu Jun 9, 2011
Hello Marianne,

Are you working with a Mortgage Broker or a Mortgage Banker? that will make a huge diffrence as how you should see the HUD-1,

1 Point is the same as 1% which is 1% of your loan amount.

Mortgage Broker's are allowed to charge origination fee and they must disclose that fee to the consumer on their GFE and the same exact number must be shown on the HUD, however Mortgage Banker have diffrent way of showing their Fee's. they could just charge a flat fee for processing, lender fee and all the other fee's that have associate with the loan and not charge you any Origination Fee. if you need any additoinal help feel free to call our office and talk to one of our Mortgage Professionals, they will be happy to walk you through your GFE and HUD-!

(310) 348-7878 or visit http://www.crestico.com
0 votes Thank Flag Link Tue Jun 7, 2011
This Question isn't for the Real Estate Pro, its for the lender, ask the lender why these fees and points are there and why they appear on the HUD-1 as they appear. If you feel they talked you into something that has no use to you or is not a substantial help to you then talk with an attorney. As far as all items of you loan, you loan officer should have explained everything to you in full before yo agree to the loan. And this is to everyone, do not accept the following line, this is all just standard written material saying you get your loan, if it were standard, then it is something you can still read, since you don't take out large loans everyday, so there is nothing standard about a loan to you! The bank wants to sell you points, ask why and to what good is it for you! Leave no stone unturned.
0 votes Thank Flag Link Sun Jun 5, 2011
Hi Gang --

So sorry, I am carelessly using the layman's term for "broker."

My mortgage "broker" IS the Direct Lender -- not an outside person.

She works FOR the mortgage company. She's a senior Loan Officer for the mortgage company // lender that processed, did the underwriting, and is actually funding the loan.

I was told repeatedly -- in emails and in conversations with the Loan Officer -- that I was being charged 1% for my interest rate of 4.75%.

If you are being charged for an Interest Rate, is that not POINTS -- even if you call it "Origination Fees"? Or foot massage fees?

I am also being charged Other Origination Fees: $675 processing, $550 Underwriting.

My Loan Officer said -- in emails and in conversations -- that as a Direct Lender, these Other Origination Fees (the Processing and Underwriting) were the only LENDER FEES. (There are other fees, like Settlement fees, and Notary, that are allegedly going to a 3d Party.)

Yet, They are lumping altogether the $$ of the 1% and these other Origination Fees in Box #1 of GFE // Line 801 on HUD-1.

If this is a Direct Lender, what is this "cost of getting me the loan"?

Shouldn't this 1% that is allegedly tied to my Interest Rate be called a Point and stuck in Box #2 of GFE // Line 802 on HUD-1 -- thus making it a tax deduction for me?

Why am I getting resistance from the Lender? Why are they refusing to call that 1 % a Point when it is obviously a Point -- at least my layman's understanding of the definition of Point.

The mortgage company // lender is planning to sell my loan immediately.

Is there a financial advantage to the lender to NOT call this a point, and to lump it under Lender Fees // Loan Origination Fees?

For example: If they call it what I think it is, ie, a Point, to they have to give that $$ to the next lender who buys my loan?

I feel there must be a financial reason they are resisting calling this 1% a Point and separating it out on the GFE and HUD.

In short: I don't think my Lender is incompetent in lumping the 1% to Lender Fees for a singular "Loan Origination Fee." I'm worried that they're not on up-n-up.

If they continue to call a Point a Point, then what recourse do I have?

Also, while I've got your attention:

I was intrigued by the respondent's chart below of Interest rates and "points."

I'm getting 4.75 % interest at 1 point on $211K loan. I have more than 25 percent down. It's a condo. My median credit score is 719. (Yes, shucks, just missed that magic 720.)

At the very latest rates out there, am I paying too much? My Loan Officer told me the other day that I was getting the very best, most recent rate -- yet I know the market has been down the last two weeks since they last lowered my rate. I hate to be blunt, but was she lying? Should I insist they lower my interest rate? Closing is in 10 days...

And anybody out there ever hear of a "Appraisal Review Fee" of $275? They conducted it just the other day, after I raised a stink about the fee -- but 2 weeks after my loan was Approved. They claim it's because property is a flip -- but to conduct After Loan Approval? Am I right to feel suspicious?

I know, I must sound like the world's biggest nitpicker. But you really wouldn't believe the shenanigans -- from lost files, to underwriter going on vacation for 10 days. We blew the Closing Date, and I'm now paying a $100 per diem to Seller. So I am less than pleased with my Lender, and really looking at everything they're doing...

Thank you so much!! I am SO grateful for your expert advice and experience!!

xoxoxoxo
0 votes Thank Flag Link Sun Jun 5, 2011
Marianne, this goes hand in hand with the other question that Sinead McAllister answered, as it also has to do with the new Good Faith Estimate & HUD-1 statement that was required to be used for new mortgage transactions beginning 1/1/2010.

When your are dealing with a LENDER (the one who is going to loan you the money) the new GFE will be, in theory, similar to the old GFE's that people may remember. It will have the lender's fees (like underwriting, processing, funding) as "1. Our origination charge" on page 2 of the GFE. If the rate you selected will cost you points, then in "2. Your credit or charge (points) for the specific interest rate chosen" the 3rd checkbox will be checked and the two blanks will be completed. If the rate you selected will pay you a lender credit (money the lender is going to give you to pay your other costs) then the 2nd checkbox will be checked and the two blanks completed. The result of that math is "A: Your Adjusted Origination Charges".

So as a hypothetical when dealing directly with the LENDER (using a $200k loan amount):
6% rate
$1,000 in "1. Our origination charge" (lenders fees)
$0 in "2. Your credit or charge (points) for the specific interest rate chosen"
$1,000 in "A: Your Adjusted Origination Charges"

5% rate
$1,000 in "1. Our origination charge" (lenders fees)
$2,000 in "2. Your CHARGE for the specific interest rate chosen" (amount it costs to get that discounted rate)
$3,000 in "A: Your Adjusted Origination Charges"

4% rate
$1,000 in "1. Our origination charge" (lenders fees)
$4,000 in "2. Your CHARGE for the specific interest rate chosen" (amount it costs to get that discounted rate)
$5,000 in "A: Your Adjusted Origination Charges"

On the rate sheet, it looks like:
Rate: 6% Price: 100.000 (means no lender credit, no lender discount fee charges either)
Rate: 5% Price: 99.000 (means the lender charges a 1% discount fee)
Rate: 4% Price: 98.000 (means the lender charges a 2% discount fee)

When you are dealing with a BROKER (mortgage, not real estate) the end result is the same, but how you get there is a little different. The reason being is that any compensation that a lender pays a broker (called "yield spread premium, or YSP) needs to be disclosed on the GFE, but it first needs to be paid to the borrower as "2. Your CREDIT for the specific interest rate chosen", and in order for the broker to get it back they have to charge the borrower for it by increasing "1. Our origination charge" by that same credit amount.

So the previous example, but on a BROKERED transaction, looks like (assuming 1% in YSP, same loan amount)
6% rate
$3,000 in "1. Our origination charge" (this is the $1k lender fees + $2k in YSP the broker is charging you)
$2,000 in "2. Your CREDIT for the specific interest rate chosen" (this is the $2k in YSP a 6% interest rate generates)
$1,000 in "A: Your Adjusted Origination Charges"

5% rate
$3,000 in "1. Our origination charge" ($1k in lender fees + $2k in broker origination)
$0 in "2. Your credit or charge (points) for the specific interest rate chosen" (it's $0 because this rate doesn't generate any YSP)
$3,000 in "A: Your Adjusted Origination Charges"

4% rate
$3,000 in "1. Our origination charge" ($1k in lender fees + $2k in broker origination)
$2,000 in "2. Your CHARGE for the specific interest rate chosen" (amount the lender charges for that discounted rate)
$5,000 in "A: Your Adjusted Origination Charges"

On the rate sheet, it looks like:
Rate: 6% Price: 101.000 (means it generates 1% in YSP)
Rate: 5% Price: 100.000 (means it is the "par" rate and if the broker wants to get paid, they better charge their own origination fees)
Rate: 4% Price: 99.000 (means the lender charges a 1% discount fee)

For those who wanted to follow along but couldn't because I didn't put these links at the top, here is the current version of the GFE: http://www.hud.gov/offices/hsg/ramh/res/gfestimate.pdf
New HUD-1 settlement statement: http://www.hud.gov/offices/adm/hudclips/forms/files/1.pdf

Marianne - it appears you are asking about this because you'd like to make it tax deductible. http://www.irs.gov/publications/p936/ar02.html is the IRS article that explains when origination points are deductible. Has a handy chart at http://www.irs.gov/publications/p936/10426g03.html. If you read carefully, it says:

Points may also be called loan origination fees, maximum loan charges, loan discount, or discount points.

But just because it is called one of those (and if you look at the HUD-1, it is), doesn't mean it's entirely tax deductible the year it was paid. Read that chart to determine.
0 votes Thank Flag Link Sun Jun 5, 2011
Hi.

I was told that the 1% was TO REDUCE MY INTEREST RATE.

In conversation and emails with Mortgage Broker, she referred to them as "Points."

When she gave me a list of Lender Fees, she said Processing and Underwriter, plus a couple of other strays.

If a fee is charged to REDUCE the Interest Rate -- or is tied to the Interest Rate -- isn't that, by definition POINTS -- whether it's called that or not?

And if the 1% was the Lender fee for "getting me the loan," shouldn't that have been disclosed as a Lender Fee?

Mortgage Company is a Direct Lender -- so what's their "cost" for getting me the loan that's not already covered by Processing and Underwriting?

And what is the Advantage to the Lender NOT to call this 1% a Point?

When they sell my loan -- as they intend -- do they have to give the new lien-holder the $$ they received from me as a Point, but not if they call it Lender Fees or "Loan Origination"??

I feel that this 1% SHOUD be in Box 2 with the 3rd Choice, as Mr. Denny states below.

It's all double-speak.

I'm just trying to figure out why the resistance from lender to calling it a Point when it is functioning as a Point since it's tied to my Interest Rate.

And I need to find out what my recourse is if I feel that my GFE is not being accurately itemized to reflect our loan Agreement.

I really do feel there's been misrepresentation.

What do I do with Closing only 10 days away?

Thanks all!!
0 votes Thank Flag Link Sat Jun 4, 2011
Origination is the lenders fee for getting your the loan, usually 1%. Points are to buy down/lower that rate. They are lumping them the correctly. It does not sound like you are paying points.
0 votes Thank Flag Link Sat Jun 4, 2011
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