Question: I recieved my good faith estimate from my lender for a VA new home loan. They are charging me a 1% origination fee AND for:
1. Doc Stamps on Deed $1000 2. Underwriting Fee $175 3. Courier Fee $50 4. Settlement or Escrow Fee $200 5. Document Prep Fee $175 6. Tax Service Fee $73
I talked to the VA. They confirmed that these are unauthorized charges in combination with the 1% origination fee. The builder requires us to go through this lender for VA loans – we can’t shop around.
Any suggestions on the best way to handle this?
Answer: If the builder is requiring you to go through a particular lender this may be a violation of the Real Estate Settlement Procedures Act (RESPA). Also, I can’t imagine why the builder would care where you obtain the financing unless the builder is getting some kind of kickback from the lender, which is another violation of RESPA.
The Department of Housing and Urban Development (HUD) is in charge of RESPA enforcement. They have a web site (sorry, don’t have the URL handy) in which they have a section on the basic provisions of RESPA.
As for the charges, VA does set the maximum origination fee at 1%, but they do not set the maximum amounts for certain other fees. Having said that, $1,000 for the “doc stamps on deed” sounds high, or perhaps it should be paid by the seller. “Doc stamps on deed” may be a state or county real estate transfer tax. In most places it is customary for the seller to pay it, but the law doesn’t require the seller to pay it. If the sales agreement calls for the buyer to pay it, then that’s the way it must be closed, and the VA has no say in the matter.
A “tax service fee” is a fee the lender requires the borrower to pay (through the lender at closing) to a third-party company which will check the tax rolls every year to make sure the taxes have been paid on the property. Property taxes are a lien ahead of the bank’s mortgage, so if the taxes don’t get paid and the county forecloses, the tax foreclosure will extinguish their mortgage. Now, the bank will collect 1/12 the annual tax bill from you in your monthly payment and will use the money to pay your taxes for you every year. You would think this would be enough to satisfy them that the taxes are paid, but in their experience the tax collector screws up misposting payments so often that the services of the third-party company are necessary. It is a one-time fee and the company will check the tax rolls every year for the life of the loan. The $73 fee you quote is typical.
At one time the VA had a rule that the borrower was not allowed to pay any portion of an escrow or settlement fee. I haven’t done a VA deal in so long that they may have changed that rule. It was always a silly regulation. If it’s still in force you may be getting charged for it wrongfully. The VA should know the answer to this, as should any competent closing agent.
And by the way, RESPA does not allow the builder to require that you close at any particular escrow or settlement service. The purpose of RESPA is to stop kickbacks and to encourage borrowers to shop for the services they need in order to create competition in the marketplace.
As for the other fees, they may be a bit high. The only way to find out is to shop around.
I’d call HUD on the potential RESPA violations and I’d call the VA back and ask to sit down with someone in authority and go over the document. I’d especially ask the VA about the escrow fee, as that sticks out as a red flag to me.
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