Interest rates are the lowest they've been in years, fueling fierce competition among mortgage companies offering all sorts of "no closing cost" or "$100 closing cost" deals to lure would-be homeowners and those seeking to refinance.

But are the deals really what they are cracked up to be? Not if you talk to local real estate agents and mortgage bankers."No question, it's buyer beware," said Larry Hintze, president of the Utah Mortgage Bankers Association. "Federal law requires (mortgage companies) to give a good-faith estimate of all fees in advance, but it appears in some cases that not all the fees are being listed up front."

The no- or low-cost advertising ploy - a gimmick used mostly by small, mom-and-pop mortgage companies - is causing all sorts of headaches for mainstream mortgage loan officers. And it is likely costing Utah consumers millions of dollars.

While many mortgage companies may not charge an actual "closing cost," they typically tack on a litany of other fees - called "junk fees" in the business - that can push the cost of a mortgage well above the 1 percent to 3 percent loan-origination fees typically charged by mainstream lending insti-tu-tions.

"Junk fees are widespread," Hintze said, "and they run from A to Z. They are limited only by the imagination of the mortgage company." While not illegal, junk fees are considered inappropriate and in some cases unethical. Mainstream mortgage companies have adopted a code of professional practices, but many of the smaller companies do not subscribe to the code.

The practice of imposing junk fees is being blamed largely on smaller mortgage companies, scores of which have opened offices in Utah in recent years. Many of the companies operate out of homes.

According to the Department of Financial Institutions, there are well over 400 registered mortgage companies in Utah, not including those affiliated with a bank. Since June 1992, 157 new mortgage companies have opened their doors in Utah.

Currently, there are few restrictions on mortgage companies. The only state requirement is that they pay a fee to the Department of Financial Institutions and file a formal notice they are doing business.

"It scares us to death," Hintze said. "All you need to be a mortgage company is a phone line and a fax machine. As an industry, we don't like regulation. But we need to set a standard, a minimum requirement for companies coming in this state. If it stays as easy as it is now, some consumers will get burned."

Ken Goddard, supervisor with the Department of Financial Institutions, said not a lot of complaints have been received about mortgage companies. But he doesn't expect there would be anyway.

"The typical residential first mortgage is somewhat self-regulating," he said. "The customer goes to whomever and puts up $300 to $600 for an appraisal and credit report. A company won't stay in business if they don't close loans. They make their money off of fees, so there is every incentive to get loans funded."

Goddard added there have not been a lot of complaints about junk fees either, but acknowledged that many people may not know which fees are standard and customary and which are not.

The best way to avoid junk fees, Goddard said, is to hold mortgage companies to their advance good-faith estimate of all closing costs. "If they haven't disclosed, we expect the mortgage company to eat it," he said.

A related problem is mortgage companies transferring fees typically assigned to the buyer to the seller of the property. "This is a particular problem on HUD loans because the federal government limits fees that can be charged to the buyer. So some mortgage companies pick up the slack by pushing them onto the seller," said David Read, a Salt Lake real estate broker.

The best way for sellers to avoid that kind of transfer costs is to specify in the earnest money agreement which fees will be paid by the seller and which by the buyer, and, if necessary, put a limit on how much will be paid.

"Unfortunately, sellers tend to pay buyer's fees they did not agree to," Read said. "Many of them feel that by refusing, they might delay the sale or cause it to fail. And that's what they (mortgage companies) are counting on."

Many of those involved in the business want to see tougher state laws on mortgage companies, and several proposals may be considered by the 1994 Legislature. "Unfortunately, we get no sympathetic ear until there's a public outcry. And by then it's too late," Hintze said.

Everyone involved in the business agrees the only real option for consumers is to check and double check the fees before the closing date. And hold the mortgage company and title companies to those fees that were agreed to.



Some mortgage fees are disputable

Among the hundreds of fees that could be included on a mortgage closing document:

- Tax service fees are fairly standard and typically run from $65 to $75. Resist higher fees in this area.

- Settlement or escrow closing fees are supposed to be split 50-50 between buyer and seller, but because of HUD limits on fees that can be paid by buyers, the fees are sometimes shifted to the seller. Sellers should make it clear up front how much they are willing to pay.

- Document preparation fees are typical and should run $25 to $30. Be careful here: Some mortgage companies bill the seller $100 to $150 to pay for preparation of the buyer's loan documents. This fee can be disputed.

- Underwriting fees - the cost the mortgage company incurs in selling the loan to someone else - are becoming increasingly common and are typically billed to the seller. These fees are little more than "extra profit" to the mortgage company and are the "worst abuse of junk fees," said real estate broker David Read. Underwriting fees are about $200 and are usually dropped when disputed.

- Similar to the underwriting fee is the warehouse fee, which, at $200 or more, is imposed for holding a loan until it can be sold. This fee can also be disputed and is usually dropped when questioned.

- Reconveyance follow-up fees run from $30 to $50 and are considered standard.

- Wire transfer fees run from $10 to $15 and are designed to cover the mortgage company's costs in wiring funds to the title company's account. These fees are extraneous and can be disputed. "It's like paying a mechanic $50 an hour to work on your car and then he bills you $10 for new rags," Read said.

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- Courier fees are similar to wire transfer fees and are designed to cover the cost of hand-carrying documents between those involved in the closing. They can be disputed.

- Overnight mailing fees are common when transactions involve out-of-state buyers or sellers and range from $15 to $25.

- Flood-check fees are charges for determining whether the property is in a flood zone. They are not customary.

- Photo fees, which mortgage companies sometimes charge for taking pictures of the property. They are not customary.

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