Borrowers required to pay up to protect lenders

(Flickr photo by cbcd04)

Borrowing funds to finance a home purchase goes way beyond monthly payments.

The process is analogous to death by a thousand cuts.

First, you have to pay an application fee.  In other words, the money that the lender makes by charging loan interest just isn’t sufficient to cover the costs of assuring that you’ll make monthly payments on time.  (We know how well those procedures worked looking at the number of loan defaults in recent years.)

Then you fork over money for the lender to check your credit.

Let’s not forget mortgage origination, processing and underwriting fees — each of them more gravy for the lender.

Perhaps the greediest fee is for a property appraisal.

What is the purpose of an appraisal?  It is to determine whether the property — which is nothing more than collateral from the lender’s standpoint — is at least equal to the amount of the loan.

In the event of default, so the theory goes, the lender can foreclose and get back all its money.  (We know how well that worked out, too.)

But the point is this: The appraisal is to protect the lender, so why has it been the long-standing practice to have the borrower pay for it?

Consider Wells Fargo, the nation’s top mortgage lender.  Its net income last year was $18.9 billion, a 19 percent jump from 2011, largely attributable to booming the bank’s mortgage business.

Isn’t it enough?

Tomorrow: Lawbreakers

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Malcolm Carter
Licensed Associate Real Estate Broker
Senior Vice President
Charles Rutenberg Realty
127 E. 56th Street
New York, NY 10022

M: 347-886-0248
F: 347-438-3201
Web site

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