Court Ruling A Blow To Home Lenders' Fat Fees

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In a major blow to the mortgage industry, a federal appeals court ruled that many of the fat fees lenders earn during the settlement process may amount to illegal mark-ups if the lender performs no significant service to earn the additional fees. The ruling found that Wells Fargo Mortgage Corp., one of the largest mortgage lenders in the country, marked up fees charged to borrowers from third-party vendors without adding any additional value or service .

A class action suit claimed that Wells contracted for loan origination services from third-party vendors at a cost of $20 to $50, then charged its borrowers $150 to $300 for the same documents. The suit also challenged fees charged to use of Fannie Mae's and Freddie Mac's automated underwriting systems, which cost Wells $20 per application, but for which it charged up to $300.

The ruling comes several months after Congress shot down a bid by the Department of Housing and Urban Development to reform the settlement process and rein in settlement costs, under which borrowers are charged thousands of dollars for property and flood zone appraisals, title work, document preparation, credit report fees, and underwriting.

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