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Well, it all started innocently enough. One of our clients, whose refinance we had handled eight months ago, decided that she really needed to get rid of her credit card debt. She had just received a tantalizing offer from a mortgage broker - a “no cost” line of credit. Later, she admitted that she didn’t even think of calling us – it was “just a little loan.”

The broker’s loan officer was enthusiastic and helpful. Over the course of a week a loan application was taken, credit was pulled, and phone calls bounced back and forth. But, sadly, the client’s credit wasn’t what the broker needed to get that line of credit.

“Hey,” said the loan officer, “Why don’t we just refinance you and take enough cash out at settlement to pay off those credit cards.” It turned out that the loan officer could get the client a loan at about 1% more than the interest rate on her current 1^st mortgage, but, said the loan officer: “we’ll get all of those credit cards paid off and save a ton of money.”

At this point our client admitted that she thought of us briefly, but the broker’s loan officer had already done so much work, she felt she obligated to take a look at the loan. So she told the loan officer to work up the figures and asked (thank heavens) for a Good Faith Estimate to get an idea of the cost of the loan.

The Good Faith Estimate was duly forwarded to our client. And it was, from the perspective of the broker and the loan officer a very good deal; a very, very, very good deal.

For right at the top of the Good Faith Estimate (line item 801- Loan Origination Fee) the loan officer had kindly listed the broker’s fee for arranging the loan – it was 5% of the loan amount – 5% of $370,500 – that’s a total of $18,525 –

Yes, my friends and neighbors; yes, my brothers and sisters; your eyes do not deceive. That’s a fee of $18,525. Oh, yes we do manage to scrape by in this business.

Here’s my favorite part. When my client questioned the 5% fee, the loan officer informed her that a fee of “3% to 5% is the industry standard for brokers.” There you have it. We have an industry standard of 3% to 5%. Actually, the 3% is pretty close – most of my colleagues in this industry do try to get 3% - they’ll usually charge a 1% Loan Origination Fee and then offer the borrower a rate that will ensure that the lender will give them 2%. For ourselves, we’ve never, ever charged 5% and normally our fixed fee is less than 1.5% of the loan amount.

Ok – so it was outrageous and obviously our client finally called us and we were able to structure a loan that did everything promised by the other broker at a lower interest rate and at a fee of 1.5%. We feel good about it, the client feels good about it and we candidly don’t care how the other broker feels about it.

Now, what have we learned?

First, we dropped the ball. The initial error was ours. We do ourselves and our clients a disservice if we don’t remind them that we handle almost all mortgage loan products – all types of 1^st mortgages, all types of 2^nd mortgages (including lines of credit), loans for primary, secondary, and investment properties, and small commercial loans. Moreover, if don’t think we can’t provide our clients with the best possible deal, our clients must be brought to understand that we’ll happily refer them to someone who can.

Second, young, inexperienced loan officers make dumb mistakes. This one did in blatantly trying to push a 5% fee down our client’s throat. This one was easy to catch. However, the wiser more experienced loan officer would have hidden that fee in junk charges and in the lender’s yield spread premium. In most cases, the borrower isn’t so lucky and most borrowers are never really made aware of the damage being done.

Give me a call if you’ve had a similar experience – I actually do love this business.