Court Strikes Down Fat SettlementFees
NEW YORK - (09/27/04) -- In a major blow to the mortgageindustry, a federal appeals court ruled Friday that many of the fatfees lenders earn during the settlement process may amount toillegal mark-ups if the lender performs no significant service toearn the additional fees. The ruling found that Wells FargoMortgage Corp., one of the largest mortgage lenders in the country,marked up fees charged to borrowers from third-party vendorswithout adding any additional value or service of their own. Aclass action suit claims that Wells contracted for loan originationservices from third-party vendors at a cost of $20 to $50, thencharged its borrowers $150 to $300 for the same documents. The suitalso challenged fees charged to use of Fannie Mae's and FreddieMac's automated underwriting systems, which cost Wells $20 perapplication, but for which Wells charged the borrowers as much as$300. The ruling comes several months after Congress shot down abid by the Department of Housing and Urban Development to reformthe settlement process and reign in settlement costs, under whichborrowers are charged thousands of dollars for property and floodzone appraisals, title work, document preparation, credit reportfees, and underwriting.