The Irony of Fed Initiatives to Reduce Mortgage “Junk Fees”

This week I came across an article talking about how the Biden administration is working on a way to reduce “junk fees” in mortgage lending. They are saying that junk fees are up 36% since 2020.

It sounds like a really good idea! Let’s figure out how to reduce the fees so that we can get more people into houses.

Here’s the funny part: when is it ever good news when the government is trying to lean in and fix something?

The reality is that it’s not cheap to get a mortgage. There are a lot of pieces involved in getting it all together. One thing that I’ve seen a significant increase in is credit reports, which have tripled in price. Great – let the Feds figure out how to get credit bureaus to charge less for that. But the reality is that credit reports are a small cost compared to the other expenses of getting a mortgage.

The Reality of Mortgage Junk Fees

Here’s my favorite part about this: the other thing that has gone up significantly in the last three years is “discount points” that are charged to reduce an interest rate. It’s like buying down a rate. Because of where interest rates have been, they rose up so quickly, and theoretically, the rates will come back down again.

This current trend raises payoff risk for these investors. When people invest in mortgages, they are expecting a long-term return on their money. They are accepting a small interest rate because of the future profits. If it pays off quickly, then they lose money on the investment.

So, what do they do? They only offer rates with discount points attached. So, a lot of people who have bought houses in the past 2 years have seen this. Even on conventional loans, there are times when all rates have discount points. That’s a fee! Is it a junk fee? I don’t think so!

The Government: Solving a Problem They Caused!

So, here’s what it all comes down to: the Feds are saying that we need to bring fees down. But guess who charges the discount points: Fannie and Freddie, which are owned by the government. So, the government is complaining about the government’s fees that are included in mortgages. Of course, these fees aren’t the only increase, but they are a significant chunk of that number.

The other thing that has gone up is insurance. But I don’t think they are including this in the junk fees categories – at least not in the articles that I have been reading. It would be nice if we could see the Feds do something about that too.

Again, it’s another tongue-in-cheek moment to give the people reassurance that the Feds are on their way to take care of the problem when the government is the biggest part of this problem! To me, it’s another goofy thing that we are seeing out there. Usually, what ends up happening is that the consumer ends up getting hit harder. It will be interesting to see what they actually come out with on this.

If you have questions about finding the right mortgage for your needs, I’m always here to help. Call any time!