From what you described, this agent/mortgage broker embodies everything that's wrong in our profession. I've never heard of a mortgage broker charging for such services unless the loan goes through. Many buyers get pre-approved and ultimately put things on hold or decide not to buy for one reason or another. I've never heard of them being charged for the lender's processing time. The time the loan officer spends in anticipation of the loan closing is just part of doing business.
Now, if you were in contract on a house and he already hired an appraiser to appraise the house, then he would be entitled to be reimbursed for that. But his processing "fees" sound like nothing more than sour grapes.
It's possible he may have had you sign something agreeing to pay him "processing fees." But, a buyer/borrower is supposed to get copies of EVERYTHING they sign. And it sounds like he clearly (purposely?) failed to do so.
What's more, you should have also received federally required Truth-In-Lending disclosures. You definitely should have received a Good Faith Estimate in writing WITHIN 3 DAYS of filling out your loan application. If you didn't get that, then he's in serious violation of the Truth-In-Lending Act. That's not only a Federal Violation, but if he's withheld copies of papers you've signed, you may have good cause to report him to California's Dept. of Real Estate ( http://www.dre.ca.gov
) as well. (As a side note, DRE was originally set up to protect the consumer from shady real estate practices.)
And as to his "claim" that the bank did him a "favor" by overlooking your husband's two-year work history, that's absolutely an out-and-out lie and smells of sour grapes. In today's economy/lending climate, no reputable bank is doing anyone any favors. They're scrutinizing every loan and making doubly and triply sure that it doesn't pose a risk. So if you were approved by this bank, it was because you absolutely qualified on your own merits; not because of any favors to your mortgage broker.
Based on what you said, I would tell this broker/agent that not only are you not going to pay his 'extortion' fees, but that you also may very well report his suspect actions and activities to the DRE and federal authorities. If he suddenly produces a document you signed showing that he's entitled to those processing fees, I'd immediately ask why you never were given a copy until now.
Fortunately, there are many good, honest, hard-working, ethical professionals in our business. But as in any profession, there always are sadly those who look out for themselves first and their clients/customers second. You unfortunately found one of those.
I've always found that those who try to wear both hats -- real estate agent and mortgage broker -- never do either very well. I would find a great, honest, ethical real estate agent in your area -- one who'll always put your needs and interests first and then have that RE agent recommend an equally reputable mortgage professional. That combination should help remove what's probably a very sour taste in your mouth right now.
It's very disheartening to hear stories like yours, for the rest of us who do our jobs honestly and admirably end up having to pick up the pieces and restore the faith in our profession with a client who's been exposed to the unsavory 'sharks' of our profession.
Obviously, I'm basing my answer solely on your brief description of what transpired, so it's possible there's another side of the story I wasn't privileged to hear about. Accordingly, as Deborah suggested, you may ultimately want to consult with an attorney if things get ugly and you and this mortgage/RE person get locked into a heated debate over these fees.
Best of luck to you. Once in the right hands, I'm sure things will go very smoothly and you'll get the service, professionalism and integrity you're sadly missing...and which you absolutely deserve.