Mortgage Broker fee - I think I'm being taken advantage of

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Topic Author
anon1212
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Joined: Mon Nov 27, 2017 7:11 pm

Mortgage Broker fee - I think I'm being taken advantage of

Post by anon1212 » Thu Apr 12, 2018 9:31 pm

I recently bought a house. I initially applied for a mortgage directly with a bank, the appraisal came back low so I went with a mortgage broker that was recommende to me by a colleague.

I had a frustrating experience with the broker, he dragged things out and ended up not getting a mortgage approved by the closing date. I was able to convince the seller to extend the sales contract for an additional 30 days and I told the mortgage broker I was going to apply for a mortgage from another bank on my own as well and that he should continue working on mortgage and I would go with whoever could close soonest.

I ended up getting the mortgage directly from the bank I applied with. The mortgage broker said he was set to close with another bank as well but the interest rate was significantly higher (5.125% vs 4.375%).

The mortgage broker convinced me to sign an unsecured interest only revolving line of credit through him with a local bank to help with the cost of renovations. I closed on this loan right after i closed on the mortgage with the other bank. Immediately after I signed the revolving line of credit he handed me an envelope and said here is my invoice. I took a look at it in the car and he invoiced $8400+ for "financial services".

The only talk we had of his charge was at our initial meeting where is said it would probably be "$6000-7000". I emailed him asking why his invoice was so high he said he had spent 196 hours of work. I reminded him of what he had told me intially and he said he will change charge to $7000.

Effectively he closed a $100k line of credit with me and is asking for $7k. I feel like he only wanted me to close on the line of credit so he could say he had facilitated me to close on something since I went with a different bank for the mortgage. I also find it hard to believe he spent almost 200 hours working on my mortgage. I was able to close on a mortgage with a different bank on my own and estimate it took less than 40 hours of work (from me who has limited experience doing this)

I never signed a contract with the broker, so I don't think I really owe him anything. I am just curious what your thoughts are as to what a reasonable fee would be or if he is trying to take advantage of me.

denovo
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Joined: Sun Oct 13, 2013 1:04 pm

Re: Mortgage Broker fee - I think I'm being taken advantage of

Post by denovo » Thu Apr 12, 2018 9:40 pm

I vote for $0. [partial delete to reflect clarification from OP]
Last edited by denovo on Thu Apr 12, 2018 11:27 pm, edited 2 times in total.
"Don't trust everything you read on the Internet"- Abraham Lincoln

denovo
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Re: Mortgage Broker fee - I think I'm being taken advantage of

Post by denovo » Thu Apr 12, 2018 9:56 pm

anon1212 wrote:
Thu Apr 12, 2018 9:31 pm


I ended up getting the mortgage directly from the bank I applied with. The mortgage broker said he was set to close with another bank as well but the interest rate was significantly higher (5.125% vs 4.375%).



The only talk we had of his charge was at our initial meeting where is said it would probably be "$6000-7000". I emailed him asking why his invoice was so high he said he had spent 196 hours of work. I reminded him of what he had told me intially and he said he will change charge to $7000.

Brokers are middle-men. They find a loan from a source and the interest rate is then marked up. Since you are paying a higher rate, the bank gives the broker money as compensation, it's known as a yield spread premium.

https://www.investopedia.com/terms/y/yi ... remium.asp
A form of compensation that a mortgage broker, acting as the intermediary, receives from the original lender for selling an interest rate to a borrower that is above the lender's par rate for which the borrower qualifies. The yield spread premium must be disclosed on the HUD-1 Form when the loan is closed.
I've never heard of brokers directly invoicing clients. They make money from the above. But you can see why using a broker is generally a dumb idea. You get the best rates by getting a loan directly from a company that originates loans, as you found out when you shopped around.

I am not sure if lines of credit have any kind of yield premium that he made money on. It may be in your forms if you look carefully.

I don't see why the broker should be invoicing you since you didn't sign a contract with him agreeing to pay him if the loan falls through.
Lesson Learned. Mortgage brokers are a bad idea.
Last edited by denovo on Thu Apr 12, 2018 10:57 pm, edited 1 time in total.
"Don't trust everything you read on the Internet"- Abraham Lincoln

Topic Author
anon1212
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Joined: Mon Nov 27, 2017 7:11 pm

Re: Mortgage Broker fee - I think I'm being taken advantage of

Post by anon1212 » Thu Apr 12, 2018 10:08 pm

I never agreed to pay the reduced rate of $7k. I asked why the total invoice ($8400) was greater than the amount he had quoted me to close on a mortgage, considering that I didn't close on a mortgage with him. then he said "yea I remember saying $7k, so I'll take $7k"

I don't mind paying the guy something, but I was under the impression a fair fee would be about 1% of the loan value, which would put us around $1k.

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unclescrooge
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Re: Mortgage Broker fee - I think I'm being taken advantage of

Post by unclescrooge » Thu Apr 12, 2018 10:17 pm

Did you sign a contract? If not, tell him to pound sand.
You don't owe him anything.
Something similar happened to a friend of mine, a physician. The broker claimed he referred my friend to the bank where he ended up closing with, and thus owed him $10k.
I don't think this is legal. He is just preying on you.

lotusflower
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Re: Mortgage Broker fee - I think I'm being taken advantage of

Post by lotusflower » Thu Apr 12, 2018 10:23 pm

I have used a mortgage broker on several mortgages. The way I think of it, they have access to wholesale pricing and they give you retail pricing. The process is not transparent at all, but I have never been able to find wholesale pricing on my own, and I think the brokers have done well for me and in general they worked hard to make sure the underwriting/funding/closing process went smoothly. I always thought they charged a lot of money, maybe 1%-2% of the loan costs, but I couldn't find away to get a cheaper loan even with their markup.

I have never received any kind of direct bill from a broker. They get paid out of the closing or directly from the lender. I wouldn't pay the bill, especially if you did not have a signed commitment. Also 196 hours is greater than one man-month. I seriously doubt the broker did that much work, even if he was part of a team.

mw1739
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Re: Mortgage Broker fee - I think I'm being taken advantage of

Post by mw1739 » Thu Apr 12, 2018 10:33 pm

You’re under no obligation to pay anything. He is paid by whoever he brings the loan to, not by you. This is a slimy practice.

Topic Author
anon1212
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Joined: Mon Nov 27, 2017 7:11 pm

Re: Mortgage Broker fee - I think I'm being taken advantage of

Post by anon1212 » Thu Apr 12, 2018 10:36 pm

unclescrooge wrote:
Thu Apr 12, 2018 10:17 pm
Did you sign a contract? If not, tell him to pound sand.
You don't owe him anything.
Something similar happened to a friend of mine, a physician. The broker claimed he referred my friend to the bank where he ended up closing with, and thus owed him $10k.
I don't think this is legal. He is just preying on you.
No contract was signed. I think this is what is going on. He knows me and my wife are physicians and bought an expensive house so he is trying to take a cut for himself.

I don't mind paying him something, but was thinking 1% of the loan he closed for me ($1000) would be more appropriate.

momvesting
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Joined: Tue Apr 12, 2016 9:18 pm

Re: Mortgage Broker fee - I think I'm being taken advantage of

Post by momvesting » Thu Apr 12, 2018 10:37 pm

If he is a licensed mortgage broker, in some states he could lose his license for this. I’d give your state’s mortgage licensing office a call and find out.

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