Dangers of Dodging Fees

To the mortgage shopper, junk fees can be annoying. A commonly held belief is that borrowers should shop around to avoid those fees. Not true. While Robert Bruss’ reader properly complained of the truly bizarre garbage fees quoted (“Give Junk Fees What They Deserve: A Big Rejection,” Nov. 11), borrowers simply cannot dodge fees altogether.

The mortgage industry has chosen to treat the costs of processing, underwriting and funding loans as variable costs, costs charged to each loan, instead of adding them to overhead. Each of these charges covers the discrete costs of a loan, and each borrower pays the costs associated with his loan. More specifically, the fees are not “pure profit” because there is an actual “pure cost” incurred at each stage in the loan process. The alternative is to absorb these costs into overhead and charge enough extra in the loan origination fee to cover these costs.

The problem is that if you choose to add to the loan origination fee, the jumbo loan borrower pays more than it costs to process his loan and the additional fee doesn’t generate nearly enough income to cover the costs on the smaller loan.

This has one class of borrowers subsidizing another class. The problem with trying to absorb costs this way is that whatever fee you choose, it’s wrong for all the other loan amounts.

RANDY JOHNSON

Corona del Mar

The writer is the author of “How to Save Thousands of Dollars on Your Home Mortgage.”