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What you should know about the “Adjusted Origination Fee”

April 26th, 2010

When HUD announced last year, with much fan-fare, that beginning January 2010, a new Good Faith Estimate would be used which would empower the Borrower to shop for the best deal! How quickly lender’s and broker’s learn to game the system. Here are some things you should know-which the lender won’t tell you- about the “Adjusted Origination Fee”. Keep in mind this fee is the principal item when comparison shopping.

The “Adjusted Origination Fee” is the total of all one-time fees charged in connection with the origination of a mortgage loan. I.E. Origination charge, discount points, processing, underwriting, doc prep fees, admin fee or any other fee charged when originating the loan. Simple enough, right? Not!

Instead of itemizing all of the one-time charges, the Borrower is shown a single fee which should accurately represent all of the “originating” fees. Here’s where and why the train comes off the tracks; Miseducation is a big one. Since HUD has not implemented a standardized training manual of how to accurately implement the new GFE, each lender is left to their own devices to interpret and execute this convoluted requirement. We hear all the time how the lender’s “legal/compliance departments” have read the changes and say this is how it’s to be. When you begin to probe it becomes pretty clear the person making these decisions doesn’t have an applicable background which qualifies them to make these determinations, often times to their own shame.

The other part of the problem is Mortgage Brokers who don’t disclose correctly are trying to cover their mistake so they don’t have to take the hit out of their commission. I’m all for making money-honestly. When you make a mistake, fix it. Unfortunately, this tends to be the case more often than not because now the allowable “tolerance” is out of whack-and it’s too late.

You may say to yourself, “This is nice, but what do I need to look out for”? This is just for you;

The Adjusted Origination should NEVER include a “Yield Spread Premium” or “Broker Fee” (that’s a fee paid by the Lender to the Mortgage Broker for bringing them the loan and/or the interest rate chosen. This should be handled as a commission because the Borrower doesn’t pay this fee, at all, ever.). I’ve had this come up a couple of times lately when we get the request for the final hud. They want to include the YSP into the Adjusted Origination. The only problem I have with this is it isn’t a Buyer paid charge, so it should be there in the first place. To make a material change like that, after the fact, is flat-out fraud.

Ask the Loan Officer/Mortgage Broker for a breakdown of how they arrived at the Adjusted Origination. Most of the fees included are standard. After all, you’re paying for the loan so you should know what’s included.

Impounds, Mortgage Insurance and Interest should NEVER be included, either. These fees are separate since they do not factor into the overall cost-basis of the loan.

Lastly, for the Escrow Professional, when the loan funds you may encounter an issue because the lender, having disclosed the adjusted origination as a lender charge has decided only part of the overall fee belongs to the lender, the rest belonging to the Mortgage Broker which needs to pass through. Here’s the fix, either break-out the entire adjusted origination and include them into “801”, or require the lender net fund the entire Adjusted Origination and pay the broker directly. These are the two easiest, and best, fixes I’ve been able to figure out so far.

Until next time…

Tags: Adj Orig Fee, Adjusted Origination, escrow, escrow company murrieta, escrow company temecula, Escrow FAQ, Escrow Murrieta, Escrow questions, Escrow Temecula, HUD, Murrieta Escrow, murrieta escrow company, New GFE, New Hud, Sunset One, Sunset One Escrow, Temecula Escrow
Posted in Escrow F.A.Q's, New HUD-1-FAQ's/Updates | Comments (0)

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What you should know about the “Adjusted Origination Fee”

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