Now let's talk about how you can get ripped off.  It is tragically simple to rip off an uneducated consumer.

• Closing costs - some closing costs are legitimate fees for services performed by a third party.  Your credit report and appraisal are examples of legitimate fees - some of these fees are collected up front.   Some legitimate fees like fees for processing are collected at closing.   Are all other fees junk fees?  It is impossible to say.  There are an endless number of ways that predatory lenders can manipulate closing costs.  They can waive most of your closing costs and charge you a higher interest rate (you still pay, of course, just not up front).  They can charge you for services that are never performed.  They can charge you $400 for an appraisal that costs $250.

• Origination Fee - There are legitimate costs associated with loan origination and your lender is entitled to make a fair profit.  To charge a 1% origination is fine, BUT to charge a 1% origination fee in conjunction with inflated or fabricated closing costs and premium interest  rates could be considered excessive.

• Discount points - Points paid for their stated purpose - to reduce the consumer's interest rate are fine.  BUT, a dishonest lender can quote you a certain rate at the time of loan application and produce something quite different at the closing table.  For example, you may be told that because of a past credit problem you don't qualify for the best rate.  You are 'forced' to either buy down the interest rate by paying additional discount points, or you agree to a higher rate, in which case the broker receives a rebate in the form of a Yield Spread Premium.

read more