What Is the Origination Fee?

By
Mortgage and Lending with The Mortgage Experts at America's Mortgage, a Division of Cherry Creek Mortgage Co. NMLS #241555

Q: What is an origination fee?

A: The origination fee is pure profit for the mortgage broker. Part of it may go to the mortgage broker's employer, but it is still 100% profit for the mortgage company.

Sometimes a mortgage lender will tell you that the origination fee is being used to buy down the rate, meaning it's being used to secure a lower interest rate by making a one-time up-front payment. That is not correct. Loan discount fees (sometimes referred to as "paying points"), and not the origination fee, are used to buy down the interest rate. It's important to have the fees listed on the correct lines on the Good Faith Estimate and the final settlement statement in order to be in compliance with the Real Estate Settlement Procedures Act (RESPA).

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Topic:
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Location:
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Tags:
mortgage tips
origination fee
discount fee

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Anonymous
Anonymous
William

Hi Chris,

We are very new to refi, first time, and we just received the GFE today.  We would like to get your opinion on it.

The property is in CA. 

Here are the details:

Loan Amount: 1500000

Box 1: 19650.00

Box 2: -20800.00 (3.375%)

Box A = -1150.00

Box 3: Appraisal Fee $800 + Credit Report $50 = $850.00

Box 4: Title Services and lender's title insurance = $ 2350.00

Box 6: $224.00

Box 7: $130.00

Box 8: $0

Box 9: $0

Box 10: $1546.88

Box B: $5100.88

A+B = $3950.88

Our credit score is around 800.

What do you think?  Is this a fair deal? Is our broker making a reasonable fee?

Thanks for your help !

William

 

 

 

 

 

 

Apr 06, 2012 02:15 AM #95
Rainmaker
124,783
Chris Thomas
The Mortgage Experts at America's Mortgage, a Division of Cherry Creek Mortgage Co. - Denver, CO

William - Your broker is making $19,650.  The number in Box 2 ($20,800) is the rebate the broker gets for charging you a higher interest rate than the par rate.  He is giving you a credit of $1150, which is shown in Box A.  The difference between the two is his profit.  If you think 20K is fair, then you are getting a good deal.  I think that's a bit on the high side, but how much you pay your lender is totally up to you.

Chris

Apr 13, 2012 03:58 AM #96
Rainmaker
124,783
Chris Thomas
The Mortgage Experts at America's Mortgage, a Division of Cherry Creek Mortgage Co. - Denver, CO

Maria - The interest rate sounds about right.  HARP rates are a bit higher than regular rates.

I don't know about the tax stamp.  I suggest you call a title company or the state to get an answer on that one.

Chris

Apr 13, 2012 04:03 AM #97
Anonymous
Anonymous
vicky

hi chris, i just came across ur blog and i would like to have a question on the closing cost too...

i bought the house in louisiana for 140,000.00 an just got the GFE estimates but it is so confusing me, can you help me with that...

the house 140,000.00 and the down payment is 15% with interest rate 4.5%

The loan : 120,785.00

Origination charge : 1840

Appraisal :460

Credit report : 65

Up-front mortgage insurance : 1785

Title services and lender's title insurance : 750

Owner's title insurance : 797.72

Government recording charges : 325

Initial deposit for ur escrow acc : 765

daily interest charges : 223.37

Homeowner's insurance ( hazard + flood ) : 2640

The total : 9651.09

What do u think ? is that too high ? and are there anything wrong with the estimate ? i cant figure out, plz help me .thanks chris

Apr 23, 2012 09:59 PM #98
Anonymous
Anonymous
lucia

Hello Chris

I went to a realtor and he said that the loan origination fee (1%)will be paid by the seller. its that true? that i dont need to worry about that and I only need to bring the 3.5% that the FHA asks for.  my credit score is above 640 but i did chapter 7 bankruptsy two years ago. The broker is telling me to open at least two more credit cards(I only have one save card that the bank gave it to me) should I open more credit lines? he also said that if I dont want to open them he can use my cell bills and others as prove of a good payment record.

in the other hand the broker is charching me 500.00 for appraisal

thank you.

should i also ask him about the yield premium? because he didnt mention it.

I am thinking about calling lendingtree to see how much money and interest rate they give to compare.

i have hear that ur credit cannot be run so many times

thank you for your time Chris

Apr 24, 2012 09:11 AM #99
Rainmaker
124,783
Chris Thomas
The Mortgage Experts at America's Mortgage, a Division of Cherry Creek Mortgage Co. - Denver, CO

Vicki - Is this an FHA loan?  Those are the only loans with an up-front mortgage insurance premium, but the amount they quoted you is incorrect.  Also, why would you want to get an FHA loan if you have 15% down?  That makes no sense unless your credit is very low.  With an FHA loan, you must pay mortgage insurance for 5 years and the rate is much higher than it is for a conventional loan. 

Chris

Apr 27, 2012 09:08 AM #100
Rainmaker
124,783
Chris Thomas
The Mortgage Experts at America's Mortgage, a Division of Cherry Creek Mortgage Co. - Denver, CO

Lucia - Find a new lender.  If you have a 640 credit score, you do not need to open more accounts.  That is horrible advice.  There is no minimum number of accounts required for an FHA loan.

Also, do not use LendingTree.  That is just a lead service that sells your information to lenders.  All of the lenders I know who use lead services are pretty bad.  They buy leads because their customer service is so bad, they can't ever get any referrals. 

And one last thing - your real estate agent is not allowed to negotiate the terms of the loan for you.  Your lender should be the one telling you who is going to be paying for the closing costs.

Chris

Apr 27, 2012 09:17 AM #101
Anonymous
Anonymous
lucia

Hello Chris this is Lucia again I have my Good Faith Estimate now.

loan amount 279,850    interest   3.875%

Items payable in connection with the loan:

appraisal fee  475

processing fee   450

underwriting fee  795

title chargers

closing/escrow fee   1100.00

notary fee    175

title insurance    470

 

government recording & transfer charges

recording fees    101.00

items required by lender to be paid in advance

interest          for 15 days @ 30,1227   451.84

hazard ins. premium           660.00

reserves deposited by lender

hazard ins. premium 2mnts @ 55         110.00

taxes & assessment reserves 4 mnts @ 302.08          1,208.32

 

 

 

 

Apr 27, 2012 10:45 AM #102
Anonymous
Anonymous
lucia

Got it.

thank you Chris

 

Apr 27, 2012 11:11 AM #103
Anonymous
Anonymous
vicki

Hi chris...this is me again.

i guess it's a FHA loan, my credit score is 670 and i really don't know much about the loan. can u tell me what is incorrect amount ?Thanks for answering my question. and what should i do now ? should i find another lender ? or i need to talk to the broker  ? thanks chris... hope to get answer soon

Apr 29, 2012 05:26 PM #104
Anonymous
Anonymous
Cindy

Hi Chris,

Great stuff, really appreciate your time.  Here's my situation if you can help:

San Diego, CA - Bought in 2008 -

1) Refi after 4 years (purchased at 368,000 condo)

2) using same lender & banker

3) banker told me last week that "although it had .375 points day before, there were none that day for 4% loan, I said great, let's get started.

4) I owe 265,177 on 2005 condo in great metro area. 

4a) Initial loan amount - 273,900 at 4% with $1307.64 monthly payment

5) I am HARP 2.0 qualified, have 725 credit score

6) have been employed for 10 years same company - no risk, good candidate

7)got GFE -

Origination fee -               1190.00

4.0% loan points -            1027.13 (wasn't supposed to have this per our conversation)

  BOX A -                         2217.13

 

REQUIRED:

Appraisal -                        440.00

Credit Report -                    11.00

Title Services/

Lender Title Insur -           1430.00

Owner title Insur -                 0.00

Flood Life of Loan -              19.00

Tax Service Fee -                 65.00

Govt Recording Charges -   165.00

Transfer Taxes -                    0.00

Initial deposit to Esc acct- 1540.02

Daily Interest CHarges -

30.02 for

Homeowners Insur -         238.00

BOX B                           4838.64

A + B =                         7055.77

 

I feel like the HARP was supposed to be painless, no fees or closing costs or appraisals and yet I am having all of those.  Does this program look sound to you?  Are my missing anything.  I told him I didnt want to pay any origination fees but I realize that there should be some, I just dont know what else he is getting here as he is local but hasnt met with me even when I try.  I just want lowest monthly payment and no out of pocket costs for this refi.

Is this doable?

Thanks for your time.

Cindy

Apr 30, 2012 07:01 PM #105
Anonymous
Anonymous
Cindy

Hi Chris,

One more things, you stated in one of your above blogs the following, "When you refinance, you do not need a new owner's title policy.  The one you got when you bought the house lasts until you sell the house.  You will need a new lender's policy because the lender is different than the current lender and the policy is not transferable."

I want to understand how you mean this. I think I have 0.00 for this on my page above as this is not the lender's title or title services, correct?  It's Owner's Title Services.

 

Thanks again!

Apr 30, 2012 07:06 PM #106
Rainmaker
124,783
Chris Thomas
The Mortgage Experts at America's Mortgage, a Division of Cherry Creek Mortgage Co. - Denver, CO

Cindy - If you have questions about your loan, you really need to get the answers from your lender.  If they won't return your calls or can't answer your questions, then you need to find a new lender.  Why would you pay someone (and trust me, they are making thousands of dollars by selling you a mortgage) who won't answer your questions? 

Chris

May 11, 2012 07:37 AM #107
Anonymous
Anonymous
nathan

Is this a good deal or should I run?  I signed the papers for my refi yesterday but I have until sunday to cancel if I need too..

great credit -- 800+

30yr fixed 4% pulling cash out on equity

current loan amount 99,500

new loan amount 190,000

getting back 86,637.15

 

origination charge -- 5975.00

your credit for interest rate chosen -- 6175.00

399 appraisal

credit report -- 75.90

admin fee to sterns lending -- 850.00

processing fee -- 500.00

initial deposit for escrow -- 2218

title services and lenders insurance -- 938

agents portion of total title insurance premium -- 563.37

settlement or closnig fee to title services --250

lenders title insurance -- 633.00

underwriters portion -- 69.63

endorsement to title -- 55

governemnt recording -- 70

total settlement charge -- 3766.61

 

Aug 16, 2012 10:28 PM #108
Anonymous
Anonymous
Marty

I have a question regarding mortgage brokers vs lenders.  I recently obtained a new home load via Princeton Capitol for $417,000 total loan amt at 3.5%.  The origination fee was $1100.   The loan was then 'sold' to Wells Fargo.  You would think that one could get at least the equivalent deal going directly to Wells Fargo - however,  checking the Wells Fargo site - the same rate would require an Orig Fee of 1% of the loan value  or $4,170.  Why would Wells Fargo buy a loan from a broker that originated the loan at a significantly  lower rate than Wells would offer directly to the consumer?

 

Aug 28, 2012 06:16 PM #109
Rainmaker
124,783
Chris Thomas
The Mortgage Experts at America's Mortgage, a Division of Cherry Creek Mortgage Co. - Denver, CO

Marty - There are two sales channels for mortgages: retail and wholesale.  When you get a loan directly from the lender, you are using the retail channel. 

There are higher rates for retail loans because there is overhead associated with the transaction.  Wells Fargo has to pay their employees whether they sell anything or not, they have to pay benefits to employees, there are costs associated with the buildings they own, etc.

When you get a loan from a broker, you are using the wholesale channel.  There are cheaper rates with wholesale loans because there is no overhead for the lender.  If a broker does not sell anything, he doesn't get paid anything.  It is 100% commission income. Also, the lender (Wells Fargo) needs to entice the broker to use them as the lender.  The broker has relationships with many different lenders and the only way those lenders can get a broker to choose them is to offer cheaper interest rates. 

The broker does not necessarily have to sell you the loan at the cheaper rate.  Here's what usually happens.  Let's say the retail rate is 3.5% if you use Wells Fargo directly.  The interest rate for the broker is probably 3.375% for the exact same loan.  However, instead of giving you the lower rate, the broker raises the rate to 3.5% (he knows what you would pay if you went to Wells directly), and then Wells pays him a rebate of a couple thousand dollars.  He keeps the rebate (which makes him happy) and you get lower closing costs (which makes you happy).  Everyone wins, including Wells Fargo, because there is a lot of profit in the loan for them as well.

Hope this helps!

Chris

Aug 28, 2012 08:43 PM #110
Anonymous
Anonymous
Marty

Thanks Chris- makes sense - although I am still a little surprised that there is such a big spread - the broker has overhead too and I would not think it is that much less than a company like Wells Fargo which has the infrastructure in place and  - as you pointed out  - has to pay those employees anyway.

Obviously there needs to be an incentive for the broker who now takes on the risk of qualifying the borrower and closing the deal.  

So now my question is - why would Wells Fargo even bother with attempting to make a 'retail' loan since their terms are so non-competitive?

Also, it was a surprise for me to learn that banks are making more on loans today than the historical norm!  I'm not complaining (too much - who would have ever thought the rate to the consumer would ever hit 3.5%)  but it is surprising that the Fed is maintaining low rates in part to spur lending and consumption and the banks are taking advantage of those rates to increase their historical spread and in turn somewhat negate the actions of the Fed!

 

 

Aug 28, 2012 10:24 PM #111
Rainmaker
124,783
Chris Thomas
The Mortgage Experts at America's Mortgage, a Division of Cherry Creek Mortgage Co. - Denver, CO

Marty - Regarding the overhead, I meant that Wells does not have any overhead when a broker sells one of their loans.  Brokers are a free sales force for lenders. 

Wells sells loans through the retail channel because there are plenty of borrowers who think they are getting a better deal if they go directly to the bank.  They are wrong, but that's how effective all the advertising is.  There are also a lot of people who get all warm and fuzzy sitting in the middle of the retail bank at the desk of a loan officer.  They get to feel important for a few minutes, and they pay a higher interest rate for the next 30 years.  The banks know this and take advantage of it.  It is capitalism at its best. 

If a business can operate effectively through both the retail and the wholesale sales channels, they are going to do it.  None of this has anything to do with how fair it is for the consumer.  It's all about making the most money possible.

By the way, the Fed controls short term interest rates, not mortgage rates.  Mortgage rates are determined by the demand for the mortgage backed securities that Fannie Mae and Freddie Mac issue.  Foreign governments buy the bonds.  If there is a big demand for them (as there is now that no one wants to invest in Europe), then rates are low.  We have low rates in this country because Europe is a mess.

Chris

Aug 29, 2012 06:46 AM #112
Anonymous
Anonymous
Aaron

Hey Chris, I am just about to sign the papers for my FHA loan refinance. I'm just not sure if things are fair or not. 

The Origination fee is 7,029.91 ! How much are they taking?

My credit score is 760

They are charging me 3% "points" for the origination fee

Box 2 I recieve a 8,797.46 credit for a rate of 3.625%

My credit report and upfront mortgage ins. are 65.46

title services and lenders' title insurance 981.93

daily interest charges 304.64

total charges for all other settlement services 2550.15 

Total estimated settlement charges 782.60. 

It feels like they are taking the 3% fee and having a big old laugh at my expence. 

Is this true? My current interest rate is 5.5% FHA 30 fixed. 

What should I do? The mortgage broker is a friend.

I haven't talked to him about it yet. I looked at my original loan documents and wasn't

Charged 7000$ for an origination fee. 

Sep 13, 2012 01:08 AM #113
Rainmaker
124,783
Chris Thomas
The Mortgage Experts at America's Mortgage, a Division of Cherry Creek Mortgage Co. - Denver, CO

Aaron - Your friend is making $7000.  Nice friend - make sure he takes you to a very expensive restaurant afterwards.  He can certainly afford it.

Chris

Sep 13, 2012 04:32 AM #114
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