Mortgage fees are bloated, difficult to compare and full of undisclosed mark-ups on third-party products, according to a new analysis from Consumer Reports, the respected consumer advocacy magazine.

Consumers can shop for the best mortgage by comparing such factors as interest rates, points and annual percentage rates (APRs). But they can’t comparison shop on the basis of closing costs, the magazine stated in the “Bloated mortgage costs” section of its report.

“Because they include myriad charges for loan origination, processing, and so on, they are almost impossible to compare from lender to lender and often catch borrowers by surprise just days before they must finalize one of life’s major purchases,” the authors wrote.

Reports such as this one encourage borrowers to shop around for loans and to ask more questions when they obtain a mortgage. They also arm borrowers with information they otherwise wouldn’t be offered and wouldn’t know to ask about.

Are mortgage costs bloated? Tell us what you think.

Most fees, which usually add up to 2 percent of the amount borrowed, pay for legitimate lender services, the magazine reported. But, the report pointed out, the U.S. Department of Housing and Urban Development estimated that borrowers could save about $8 billion of the $50 billion they now pay each year in closing costs if pricing were simplified and fuller disclosure were required.

Consumer Reports magazine went to press before HUD withdrew its controversial proposed changes to the Real Estate Settlement Procedures Act (RESPA). That proposal drew 45,000 comments during the public comment portion of the rule-making process. Many of those comments came from within the real estate industry and were in opposition to HUD’s proposed changes.

HUD’s proposal would have changed the disclosure requirements for yield spread premiums and other mortgage broker fees, simplified the good faith estimate form and facilitated the sale of guaranteed-price bundled packages of mortgages and mortgage-related services.

The article explained the factors that can drive up closing costs, including yield spread premiums, hidden markups and unhelpful cost estimates. The piece explained each cost in a way that’s accessible to readers.

The authors pointed out that yield spread premiums boost the cost of a mortgage and raise an otherwise low interest rate. Yield spread premiums aren’t disclosed to borrowers, the article said.

Lenders often add their own markup to the costs of various services provided by third parties, the article added. The total price would be disclosed to the borrower, but the lender’s cost would not be.

“Banks may also pile on nuisance fees that should already be covered in overhead, such as charges for fax machine use and document storage,” the article stated.

Good-faith estimates don’t really help borrowers because the actual costs can grow by thousands of dollars by closing, according to the magazine.

In true Consumer Reports fashion, the article gave consumers tips on how to reduce mortgage costs. The article encouraged them to shop for mortgages at several local banks and online lenders serving their areas.

It also suggested borrowers should ask for the loan’s contract interest rate, the annual percentage rate and a good-faith estimate of closing costs and should consider paying closing costs up front.

The complete report, “Financial services: Don’t get taken by hidden fees,” also addressed other financial sectors, including credit cards, 401(k) retirement accounts and auto loans.


Send tips or a Letter to the Editor to or call (510) 658-9252, ext. 140.

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