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28 | M R EP O RT FEATURE W hen borrowers seek mortgage loans from lenders, they tend to search for ones with the best terms, conditions, and interest rates, typically compar- ing these across different lenders. The savviest borrowers, however, will take an additional step in comparing origination fees charged by lenders, reviewing all itemized charges caused from a loan's origination to find the most beneficial offer for them. This practice coincides with advice from the Consumer Finance Protection Bureau (CFPB), which states, "The best way to tell if you have a com- petitive loan offer is to compare it to Loan Estimates from other lenders. Origination charges are upfront fees charged by your Lender and are an important part of the cost of your loan. When comparing Loan Estimates, make sure to compare the origination charges." A Closer Look at Origination Fees I n originating a loan, lenders will charge origination fees to cover the expenses associated with doing so. Typically, these fees include line items such as filing the documentation neces- sary to secure a loan through validating the borrower's informa- tion, such as employment, credit score, and income. Origination fees, as described by the CFPB, "… may include processing the application, un- derwriting and funding the loan, and other administrative services." Because caps on origination fees vary from state to state, each lender can determine how much to charge for these, to some extent. Additionally, this is a major reason behind the willing- ness of some lenders to negotiate their charges for these fees, rather than risk a loss of a borrower's business. However, it should be noted that "origination charges" and "origination fees" are different line items. Origination charges tend to be charged by lenders upfront, and typically represent a conglomerate of fees like originat- ing, underwriting, processing, and verifying a borrower's application. They may also include rate-lock fees and other costs associated with a loan. On the other hand, "origination fees" tend to refer to a specific, singular fee for a specific, singular service, although lenders may or may not itemize these fees as a single line item. For instance, Lender A may charge $1,195 as a total charge, whereas Lender Y might charge two separate fees for originating and underwrit- ing a loan for a total of $1,195. Meanwhile, Lender Z may opt to only charge for an underwriting fee of $1,195. If all three lenders have made the same assumptions about the borrower, then all three fees should be the same, even though borrowers may not un- derstand what fees in all com- prise the aggregate total charged to them. Origination Fee, Application Fee, Processing Fee, Underwriting Fee T o summarize up to this point, we now know that lenders may decide to only charge borrowers for an origination fee, while others might split that aggregate total into separate line items for application fees, process- ing fees, underwriting fees, or any combination of associated fees. What can make this lending process problematic, however, is that lenders can decide whether to itemize origination fees and charges, essentially, at will, at least so long as their "Origination Points" are disclosed as a separate line item. This becomes extremely challenging for borrowers to compare the total costs of loans side-by-side and line-by-line. For example, if all line items in a borrower's origination fees were contained in Section A of the official Loan Estimate (LE), gathering the total cost would be extremely simple for borrowers. Although, since other portions of the official LE could remain itemized, this makes it difficult for borrowers to understand the total charges they are responsible for. Rather, borrowers should be able to know how to find the aggregate total of fees charged by lenders originating their loan. Six of One, Half a Dozen of the Other U sing the table on page 32 as an example, we can see how Democratizing Lending Origination fees can present a web of inconsistencies. Is it time to "democratize" the lending process? By Yatin Karnik