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FHA Origination Fees or Origination Fees - FHA Fees - FHA loans - What does it all mean?

By Jeff Belonger

Mortgage and Lending with Social Media - Infinity Home Mortgage Company, Inc

June 13, 2009 12:34 PM

fha loans & fha mortgages

It's time to have a quick class on FHA loans, the fees for FHA mortgages, and just a basic understanding on how all of this works. This is truly frustration on my part from some loan officers blatantly lying to borrowers, just to justify their fees and such. It's total BS and it needs to be talked about.

Just today, I spoke to a borrower that is having a concern with their 2nd lender, after the first lender failed them miserably. This lender is charging them 6.00% with 1 1/2 points as an origination fee. His credit scores are above 670 and the purchase price is $272,000 with the minimum down. And they are being charged a $495 commitment fee. With this scenario, they should be getting at least a 5.50% interest rate. Here is what they are being told.....

loan officers that lie

So here is the story of one borrower after speaking to their current loan officer. They were told that they are getting 6.00% and not 5.75%, because of his credit score of 670. Well, I don't know one investor as of 6/13/09 that would charge you 1/4% percent, let alone, a 1/4 point, for credit scores above 670. He was told it was because he didn't have a credit score of 700.

Secondly, he was told that out of the 1 1/2 points of the FHA origination fee, that a 1/2 a point goes to FHA and the other 1 pt goes to the lender that they are selling this too. Even if the other lender was collecting something, FHA or HUD doesn't collect origination fees. Sadly, this is the 3rd time just this year that I have heard a loan officer tell a borrower that part of the origination fee goes to FHA. Rut Row... see Pinocchio's nose on the loan officer? His nose should be much longer, because this is one of the biggest lies that I have heard. The commitment fee being charged? Very average in most csses.

So, let's define FHA origination fee or just origination fee. It is explained to be a fee charged for the processing of the loan application. This is even the same definition in the HUD buying handbook. The fee is often expressed as a percentage of the loan amount, which does vary among lenders. The basics behind this, no matter who gives what definition? It is a point to pay for your rate. Either the lender is buying your rate down, or using it for extra profit. In my example above, it is being used for a larger profit.

So, what does HUD/FHA collect on all FHA loans? Just the Upfront Mortgage Insurance Premium (MIP) and the monthly mortgage insurance MMI. The lender gets all other lender related closing costs. I hate saying this, but if a loan officer tells you that part of the origination fee goes to FHA, don't walk, run very quickly and far away. This is not my opinion, but a real cold hard fact.

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William J. Archambault, Jr.

The Real Estate Investment Institute - Houston, TX

Jeff,

The questions is are their enough gullible consumers to satisfy all the con-men after you post something like this.

Keep up the good work!

"The only protection the consumer has is the personal intergerty of his loan origianator!"

Bill

Jun 13, 2009 12:49 PM

Eric Bouler

Gardner Realtors, Licensed in La. - New Orleans, LA

Listening to your Needs

I am doing more FHA loans than ever. I even quoted you as an authority on my blog. I use your blogs as a reference on a weekly basis. bet you did not know that. Thanks

They are very informative now that I need them. Had to do a number of spot approvals on New Orleans Condos. Always a good idea to make sure everything will work or have a high % of success.

Jun 13, 2009 12:55 PM

The Somers Team

The Somers Team at KW Philadelphia - Philadelphia, PA

Delivering Real Estate Happiness

Jeff - It is amazing how many bad mortgage "pros" that are out there, basically misleading consumers and giving them bad info. We just had one of our buyers pay close to 5 points and there was about a half point yield spread. It was crazy ! But the buyer swore that she wanted to use "her friend" so that is what she did. Afterward, I think she will think again before using her "friend". Great post as usual ! ~ Chris

Jun 13, 2009 01:01 PM

Andrea Swiedler

Berkshire Hathaway HomeServices New England Properties - New Milford, CT

Realtor, Southern Litchfield County CT

Jeff, as always, very good infromation for you to share with us. I am always learning from you, that's for sure. Thank you!

Jun 13, 2009 01:01 PM

Jeff Belonger

Social Media - Infinity Home Mortgage Company, Inc - Cherry Hill, NJ

The FHA Expert - FHA Loans - FHA mortgages - USDA loans - VA Loans

WILLIAM.... . I wouldn't really call the consumer gullible. IF they don't do this for a living, how would one really & truly know? You would expect most people in our industry to be upfront and professional. We know that number is a lot less than one would expect. thanks for that statement at the end.

ERIC..... glad to hear that you are getting many spot approvals approved... if that is correct. In any case, no, I didn't know, because I wasn't getting google alerts. But I do appreciate the kind comments. Thanks for your support.

CHRIS & STEPHANIE.... . this sucks... because I get referrals from friends and family... and help family & friends. It's a shame that she would call around at least, just to make sure. That is a lot of points, unless she bought the rate down much lower. So I can truly say if she paid a lot. In any case, thanks for the polite compliment.

ANDREA.... . I am glad that I am able to help you in the education department in regards to mortgages and FHA mortgages. Thanks for your support.

Jun 13, 2009 01:10 PM

Jeff Dowler, CRS

eXp Realty of California, Inc. - Carlsbad, CA

The Southern California Relocation Dude

Jeff - I always appreciate your straight-to-the-point approach in your posts on mortgages and issues we need to be aware of.

Jeff

Jun 13, 2009 03:07 PM

Mark Cote

Mortgage Protection & Retirement Protection - Manchester, NH

The worst part is that with the low rates in the past few months, a ton of ex mortgage guys came back with the intention of making as much as they can before rates went back up. Most of these guys were sub-prime guys who know nothing about FHA or all the other million changes in the past 2 years.

As an old broker once told me, "when rates drop even the people serving you coffee can sell mortgages"...and those are the type of people that give us a bad name! They come back into the industry, or new people come on board with no experience and are just told to hammer the phones. No need for experience, you can google the answer's to questions as they come up! At least the LO licensing should help out with this practice.

And ofcourse, there are still plenty of LO's that know full well that they are scamming people into paying extra points and fees. There always will be scumma's, in every industry, and the best defense is becoming known as the expert, as Jeff is, and getting the word out there!

Jun 13, 2009 04:42 PM

William J. Archambault, Jr.

The Real Estate Investment Institute - Houston, TX

Jeff,

I was trying to be polite. I meant ignorant, but to many ignorantly mistake ignorant for stupid. "how would one really & truly know?" You're right thats ignorance, not stupity or gulible.

Bill

Jun 13, 2009 04:59 PM

Missy Caulk

Missy Caulk TEAM - Ann Arbor, MI

Savvy Realtor - Ann Arbor Real Estate

Jeff can a point or two be charged on a VA loan?

Jun 14, 2009 12:40 AM

Jeff Belonger

Social Media - Infinity Home Mortgage Company, Inc - Cherry Hill, NJ

The FHA Expert - FHA Loans - FHA mortgages - USDA loans - VA Loans

JEFF..... thanks and my pleasure... hey, we all need to make a living & money. But to tell someone a fib, okay, I guess I wouldn't kill people. But to blatantly lie out-right and tell people that some of the costs or fees that you charge, are someone else's fees? damn it... and this is why I don't trust more than about 20% of all loan officers, period.

MARK.... these are some good points that I never thought of...and it makes sense. I don't know of any, but some of these loan officers just blurt out these lies... and some of these borrowers are now finding me on the internet and I am telling them... even if they don't use me, to run away, not walk, from these that lie. Thanks for the kind words at the end...

WILLIAM.... . I know you are and I truly understand. I always try to be polite and give the benefit of the doubt... but in some cases, I just don't hold back. But ignorant or not, I just don't blame the borrower in many cases. It's the loan officers that just don't care and or won't take the time to educate others.. or learn correctly themselves. thanks

MISSY..... yes, you can. And you can get the seller to pay up to 4% in costs and up to 3 pts..

Jun 14, 2009 12:57 AM

Tim Bradford

Cleveland, OH

NMLS 250013

Jeff, Another great post and thank you for this post. I will defiantly re-blog it. I am sure you will address Missy's question about points on a VA loan. I know you have written about paying points, and points are not always bad.

Jun 14, 2009 01:02 AM

Connie Harvey

Pilkerton Realtors - Brentwood, TN

Realtor - Nashville TN Real Estate

Since we're seeing more and more FHA loans, it's good to have correct information to pass on to the Buyers. I had always thought that the origination fee was where the loan originator got paid.

Jun 14, 2009 01:29 AM

Jim Eyre, Everett, WA

Bank of America Home Loans - Everett, WA

Jeff, It's great to see and hear another loan officer of similar mind! Thanks for upholding the "upper end" of professionalism in our industry.

Jun 14, 2009 01:33 AM

Jeff Belonger

Social Media - Infinity Home Mortgage Company, Inc - Cherry Hill, NJ

The FHA Expert - FHA Loans - FHA mortgages - USDA loans - VA Loans

TIM..... Already addressed Missy's question... we just must have missed each other. In any case, yes, there is a time and place when paying points. Knowing someones goals are most important. Overall, thanks for the kind words.

CONNIE.... . yes, it's always good to have good and accurate information out there. But I hope I didn't mislead you. The origination could be to pay down the rate also. Example... if your loan amount is $600,000 and my profit margin is $5,000 and this is to include the company's costs and profit... then that leaves you $1,000 to pay down the rate some. But yes, if you do the numbers correctly, when one charges 1 origination, this is to pay the lender/loan officer part of their income. But it also depends on how much in lender fees are being charged also. thanks

JIM.... . thanks for the polite compliment. Hey, we are all here to make a living, but educating the consumer is a big thing for me, a huge concern. Just even teaching someone the basics, which seem to be overlooked so many times. Again, thanks for the kind words....

Jun 14, 2009 04:26 PM

Stephen Kappre

KW Hometown - Mantua, NJ

Helping You Home

The amount of liars we all come up against in our daily life makes me rather sick. Sadly, this guy's boss may have explained it to him this way, and as often even management has no clue/is lying. At least that is my experience.

Jun 18, 2009 05:20 AM

Tammie Jungling, NMLSR ID 455110

Clearwater, FL

One interesting point is... The origination fee up to 1% is based on the loan amount prior to the Up-Front Mortgage Insurance Premium is added to the loan amount. Saves the borrower few dollars and every bit helps.

Jun 19, 2009 09:47 AM

Sharon Richards

Kirsten Realty Tampa Florida - Tampa, FL

Jeff - Thanks for this post - good information for me - since most of my buyers are getting FHA loans.

Jun 19, 2009 03:00 PM

Anonymous

Jessica Davis & Tate Ramos

If I had not come across Jeff's Blog, I am not sure where we might be right now. What Jeff is referring to is us, last Saturday 6/13. We first applied for our FHA Loan back in April, with another NJ Based Lender who was recommended by our realtor. Our loan officer was lacking from the beginning, we just didn't have the experience with the Real Estate and FHA/ HUD system to realize it yet. After being denied for the loan on June 10th (due to the house being in a declining area), we were in a mad rush to find another lender as we were not going to allow this person to as she put it: "put us with another bank that will definitely come through", there was no time as our closing date is 6/25.

Our realtor then said I have someone who can help you, he put us in touch with this person, another NJ based lender the same day. This gentleman promised from the very beginning that the "loan was approved" (which I immediately thought was odd, since he hadn't seen our file). My boyfriend met with him the next day, provided him with the appraisal, our previous Good Faith Estimate, etc that was required. This loan officer then told us that the appraisal that had been done was not an FHA appraisal but a conventional one, that we had to have another appraisal done. We were then told that our interest rate would be 6% (because of credit score- mind you his credit score was just below 700) and that there would be a 1.5% fee (he explained the .05% was an FHA fee, and the 1.00% was their origination fee). I knew that FHA did not charge a fee, plain and simple. I then began my Google search and found Jeff. He emailed me and told me to call him. From that moment I just had a feeling we were in good hands. Jeff explained everything clearly, was more than patient with us, and even suggested a way to get this other lender to "work with us". Jeff did caution us because this other lender never even gave us a Good Faith Estimate (kept saying it was in the mail, it never came). This past Monday we switched over to Jeff. Jeff has accomplished in 5 days, what no one else could do in almost three months; that being: Give us Definitive Answers. Jeff has always answered our calls, emails; most importantly I feel he is honest with us; despite the fact that he does have other clients, not to mention his own life!

We are due to close next week... this is the first time in three months that I can truly say we are not worried.

We are due to close next week... this is the first time in three months that I can truly say we are not worried.

Jun 20, 2009 12:21 AM

#19

Eric Bouler

Gardner Realtors, Licensed in La. - New Orleans, LA

Listening to your Needs

Jeff, great job. Its always more than money. Its a passion to get the job done correctly. You may want to move to Congress one day,lol.

Jun 20, 2009 01:39 AM