mortgage, his or her interest rate will be above the prime rate. And along with wearing the scarlet letter of poor credit, they are further penalized with a barrage of additional fees and costs that have come to be known as “junk fees”.

I had opportunity to take a good look at my client’s HUD-1 statement and let me tell you, I was shocked at the amount of “junk fees” that were being charged. When I inquired as to why they would submit to such fees, they were without a good response. They only learned about them at closing, which was the first time they had seen their closing statement. My clients desperately needed the refinance and were not in a position to argue the fees or decline the mortgage. They were over a barrel. They did not know what they were getting into… they only knew that they needed this re-finance to escape the high percentage rate and accompanying payment of their existing ARM. They were already 2 payments behind and had allowed their homeowners insurance to expire and had not paid their 2006 taxes. They were indeed over a barrel.

They were working with what they thought was a mortgage broker they could trust and in so doing, relinquished control of the process. They did nothing to educate themselves in the lending process and they would not have known what questions to ask anyway. They got a first-hand lesson in the oldest profession and the term “junk fees” is now a part of their vernacular. It’s time that it becomes a part of yours. Are you familiar with the minefield of junk fees that you may encounter on the road to getting a mortgage?

Mortgage junk fees are itemized upfront lender charges, which, if a borrower’s convenience was the major objective, would be consolidated into a single charge. It must be stated that not all upfront lender charges are junk fees. For example, points which are upfront charges expressed as a percent of the loan, are part of the cost of credit along with the interest rate. For this reason, and because they are deductible, they should not be consolidated with other lender charges.

Interim, or per diem interest, which is interest from the closing date to the first day of the following month, should not be consolidated either. Since the charges depend on when during the month the loan is closed, it is always reported separately.

Escrows are payments to fund an account from which the lenders will pay the borrower’s taxes and insurance, rather than a lender charge. They are also reported separately as well.

Don’t confuse lender charges with third party charges. Third party charges include charges like appraisal fees, survey costs and credit report fees.

I’m not sure that the term junk fee is a proper application: it infers that no real service is being performed by the lender, and/or that a particular fee is too large. This mindset causes borrowers to look for information about how large a particular fee ought to be, and to bargain with the lender to get one or more of the fees reduced or even waived.

This is almost always a waste of time. If a lender is using excessive fees to pad his bottom line, and some do, a home purchaser typically will not learn about it until he or she is so far along in the process that his bargaining power is nil. This is done this way purposely by the lender.

The HUD-1 statements arrive notoriously too late to argue or debate. The only power you really have at this late time is to walk away from the deal… and few are prepared to do that.

There are no real benchmarks that have been established to discern what a borrower might expect to pay for these different lender services. I wince when clients ask me for a benchmark or what a reasonable charge would be, primarily because many of the services that are being charged are unreasonable or unnecessary or duplicative. Yes, they are unreasonable, unnecessary and duplicative, but in the present lending climate, they are unavoidable. A borrower should be comparing the rate, points and total junk fees of different loan providers.

So what makes these charges junk? Essentially what makes fees junk is that information about them is difficult for borrowers to obtain, it is confusing when they do get it and lenders give themselves the option of changing the numbers right up until the time that the closing package is sent to the closer.

Junk fees are kept under wrap. This would lead the logical thinker to assume they must be something that the lender wants to hide for spurious reasons. A major problem is that the information about junk fees is extremely difficult to obtain early enough to be of use in the mortgage shopping process. In this respect, junk fees are different from points, the other lender charge. Points are an upfront lender charge expressed as a percentage of the loan amount. Because points are viewed as part of the cost of credit, they are displayed wherever the interest rate is displayed. When you are quoted a price on a mortgage, or see a quote in the newspaper or on the Web, it invariably will consist of the interest rate and any points being charged for that interest rate.

IT WILL NEVER INCLUDE A DETAILED LIST OF THE JUNK FEES!!!!!!!

These lender junk fees consist of all upfront charges made by a lender except rate and points. There is no place a consumer, while mortgage shopping can find information on total junk fees… except directly from the lender, and that is often very difficult if not impossible.

Why is this? The Federal Reserve requires lenders to report the APR, which is a comprehensive measure of credit cost that takes into account the rate and most upfront credit charges. No doubt the Fed reasoned that since the borrower knew the APR, the figure for the total credit charges that is used in calculating the APR was redundant. But it is not redundant, because many borrowers who would understand the figure for credit charges do not understand the APR and therefore are reluctant to use it.

Furthermore, there is good reason for borrowers to be leery of the APR, even if they do understand it. The APR assumes the borrower will be in the house for the entire term of the loan, which most are not. Borrowers who don’t expect to have their mortgage for 10 years or more can easily be led astray by the APR.

If you look down your long, long list of closing costs at the closing table, you are not going to find any under a heading called “Junk”. That’s because the lenders don’t like to admit that some of the charges they’re passing off as “necessary” are really “fluff”! Actually, they aren’t really fluff. To the lender they represent an important stream of income and profit. If anything, they fluff the lender’s pocket book.

But if you are shopping for a mortgage and looking to save money, junk fees are a good place to negotiate with the lender for a better deal. But the time to negotiate is before you sign the loan application. Once you have signed, you have sealed your deal for better or worse. So let’s start at the beginning of the process:

When you apply for a loan, the lender will need information from you, and information that only outside sources can provide. These include a credit report on you and anyone purchasing the home with you, and an appraisal of the home’s true value which will give the lender an estimate of what the house is worth from someone not directly connected to the transaction.

The lender is charge for the credit report and the appraisal as well as other legitimate costs. These are called third party charges and are passed on directly to you in the form of closing costs and fees.

But in other cases, the lender inflates the actual charges to you, to, shall we say, prime the pump. If the lender has an electronic appraisal done on your property, it might cost him $25.00, but he will charge you $125.00 or more. You feel good because technology saved you $175-$200 over having a live appraiser actually go and visit the house. But the lender, having pocketed $100 feels much better!

Sometimes the actual cost of the credit report is passed along and sometimes the lender will double or triple the true cost and pocket the difference. The average cost to a lender of a credit report request is $35.00.

Inflating actual costs is just one example of junk fees and costs that get built into your loan without you knowing it. A more egregious example is charges for made-up things like “underwriting fees” or “document preparation”.

What is an “underwriting fee”? A lender will tell you an underwriting fee is the cost that they incur to underwrite your loan. They need someone to go through your whole package to make sure it complies with secondary underwriting requirements.

Perhaps. With technology however, a lender can get your loan approved in as little as 3 to 4 minutes. What the lender is actually doing is electronically asking the secondary market investor, usually Fannie Mae or Freddie Mac for a home loan, if your loan will fall within their guidelines for re-purchase. The re-purchase of your loan typically takes places shortly after closing.

But an underwriting fee is purely a junk fee because the whole point of applying for the loan is so that it gets underwritten. You are being charged an extra fee on top of all the other fees to do exactly the same thing.

Another common junk fee is the document preparation. Basically, the computer programs print all the necessary paperwork at the touch of a button. Someone will key in the necessary information. But again, underwriting the loan and preparing the paperwork is within the general scope of, well, getting the loan approved for you.

The problem with junk fees is that they all sound so legitimate. It’s difficult to tell what’s real and what isn’t. As the borrower, you are entitled to an explanation of each and every charge in a way you can understand. If the lender throws some jargon your way, stop and ask for another explanation. Keep asking until you really understand what each and every charge is for.

Is there a way to get rid of all these junk fees? YES!!!! You can ask the lender to raise your interest rate (which also raises your monthly payment) in exchange for getting rid of the junk fees. This is rather cost effective if you are only going to have the mortgage or the property for a short time. It means more cash in your pocket or being applied to the purchase and less going into the fat cat’s pockets. You can also buy down the interest rate by agreeing to pay more points, but this may defeat the purpose of getting rid of the junk fees.

Competition amongst the mortgage community has increased because of the attrition of the burst real estate bubble. The real estate market is operating at an all time low. You have negotiating power if you assert yourself.

Here is a quick rundown of some of the lender charges you can expect to pay when you purchase a new home or refinance an existing mortgage, along with an approximate range of what you might be charged for these services:

• Lender’s points, loan origination, or loan service fees. The lender’s points – a point equals 1 % of the loan amount – may also be referred to as the service charge. The points are the largest fees paid o the lender and usually run between 1 and 3 percent of the loan amount.

• Loan application fee. The money charged by the lender to apply for the loan. This fee is almost never refundable, which means you better be sure you want a loan from a particular lender – and – be approved for it before you apply. COST: Usually $0 to $350

• Underwriting fee. Will someone tell me what an underwriter does? Theoretically, when a mortgage company brokers (sells) a loan to the company that will actually fund the mortgage loan, the lender wants to make sure that everything is in order. The lender double checks the various verifications

(employment, income) and makes a determination whether or not to make the loan. This process is done by an underwriter. It is my belief that this is a mythical concept and there is no such entity or person and that the charge is fabricated, COST: Usually between $200 to $400.

• Lender’s credit report. The lender may actually pull up two credit reports on you. The first will come just after you have filled out the application and paid the fee; if there is a second report, it will be pulled just before funding the loan and closing, to make sure you haven’t made any enormous purchases (like a new car) or gotten into credit trouble during the elapsed time. Most first time borrowers are unaware of the second credit check. They also don’t know that a credit report will be pulled on anyone purchasing the home with you, even if they are not on the mortgage. COST: Usually between $17 -$75 per person on the title.

• Lender’s processing fee. With this fee, the lender is attempting to pass onto you some of the cost of doing business. The processing fee is the fee for processing the loan application. COST: Usually between $75-$125.

• Lender’s document preparation fee. The cost of actually preparing the loan documents for the closing. COST: $0 to $200.

• Lender’s tax escrow service fee. This is a one time charge for the lender to hire a separate company to make sure your lender receives the property tax bill. COST: Usually from $40 to $120.

• No property tax escrow fee. If you choose not to have your lender escrow your property taxes, you may be charged a one time fee for the “privilege” of paying your own property taxes. Note: There are a few states that are reviewing the legality of this charge. COST: Up to ½ of 1 % of the loan amount.

There are countless other fees, most are inane and many redundant. But they are inevitable. All I can suggest is that before you agree to a specific loan by a specific lender, you educate yourself in the loan process and shop wisely. Keep the following maxims in mind when you are shopping for a mortgage.

1. THE PURPOSE OF ORIGINATION FEES IS TO CONFUSE. Perhaps the worst of the junk fees is the origination fee, which is expressed as a percent of the loan, just like points. Actually, they ARE points, only in disguise. Their entire purpose is to allow the lender to appear to be charging fewer points than is in fact the case.

2. THE PURPOSE OF ITEMIZATION IS TO CONFUSE. Junk fees are itemized fees. Lenders are not required to itemize their charges and a few don’t. Those lenders charge one fee. Most of the remainder of the industry itemize because they believe they can extract more money from your wallet that way. A one-lump fee makes a borrower curious… when they are detailed, fewer questions are asked, and if they are asked, it is easier to explain away one at a time.

Lenders who itemize reduce their vulnerability to comparison shopping. Itemization shifts the consumer’s attention away from the total fees, which is the only number that matters in shopping alternative lenders, and induces borrowers to focus their attention on the validity of the individual charges. Does the term “smoke and mirrors” mean anything to you?

3. JUNK FEES ARE NEVER LOCKED. When lenders “lock the rate”, they commit to a specified rate and points known to the borrower. Except for a few lenders, they do not commit to a specified amount of junk fees. The Good Faith Estimate (GFE) that lenders are obliged to provide borrowers shortly after receiving a loan application, shows all the fees but doesn’t bind the lender. They can – AND DO – revise the numbers right up to the time of closing.

The bottom line is this: Junk fees are good to know about so you can ignore them. In addition to the rate and points, your focus should be on the total of other lender fees, exclusive of escrows and per diem interest. When you are shopping, ask the lender for the total in writing, and if the lender will lock it at the time he locks the rate and points. Most will if you demand it when you are in the shopping mode. It is too late when you are in the closing mode.