Origination charges

Key Takeaways

• Origination charges are the lender's own fees for making the loan, and they appear as Section A under Loan Costs on both the Loan Estimate and the Closing Disclosure.
• Application, origination, underwriting, processing, verification, and rate lock fees all fall inside origination charges, so the total matters more than how a lender labels the parts.
• Discount points are listed in the same section but buy something specific: an interest rate lower than the borrower would otherwise pay.
• Fees paid to the creditor or the mortgage broker carry a zero tolerance, meaning the amount charged at closing cannot exceed the amount disclosed unless a changed circumstance permits a revised Loan Estimate.

What It Means

Origination charges are what a lender or mortgage broker keeps for its own work in creating the loan. They are the first thing a borrower sees under Loan Costs on a Loan Estimate, grouped as Section A, and they carry over to the same place on the Closing Disclosure at closing. The Consumer Financial Protection Bureau describes them as upfront fees charged by your lender.

Lenders itemize this section differently. One may show a single origination fee. Another may break out an application fee, an underwriting fee, a processing fee, a verification fee, and a rate lock fee. None of that changes what the borrower pays, so the total of Section A is the number to compare between competing offers, not the individual line names.

Discount Points sit in this section too and behave differently from the rest of it. A point is an upfront payment made in exchange for a lower interest rate, so it buys a measurable benefit over the life of the loan. Everything else in Section A pays for the act of underwriting and closing the loan itself, and none of it moves the rate.

How It Works in Washington

The layout of the origination section is federal, set by the TILA-RESPA rule that took effect for applications received on or after October 3, 2015. Washington adds its own fee disclosure on top of it. Under the Mortgage Broker Practices Act, RCW 19.146.030 requires a mortgage broker or loan originator to give the borrower a full written disclosure itemizing and explaining all fees and costs within three business days after receiving a loan application. That same statute treats compliance with the federal Real Estate Settlement Procedures Act and Regulation X as satisfying the state requirement, which is why a Washington borrower normally receives one Loan Estimate rather than two overlapping fee forms.

For a Washington broker the useful habit is watching the number, not just the form. Fees paid to the creditor, the mortgage broker, or an affiliate of either sit in the zero tolerance category, so the lender generally cannot charge more at closing than it disclosed unless a changed circumstance or other triggering event permits a revised Loan Estimate. A client who reports that lender fees jumped in the final week before closing has a question worth raising with the loan officer before signing anything.

Example

Dana applies for a $420,000 loan on a house in Puyallup and receives her Loan Estimate three business days later. Section A, Origination Charges, totals $3,800: a $1,200 origination fee, a $995 underwriting fee, a $450 processing fee, a $105 rate lock fee, and $1,050 for 0.25 discount points (0.25 percent of $420,000). Section B, services she cannot shop for, adds $850 for the appraisal and the credit report. Section C, services she can shop for, adds $1,900 for title work.

Dana asks a second lender to quote the same interest rate with the same 0.25 points. That lender's Section A comes back at $3,250, so moving the loan saves her $550 in lender fees. She closes with the second lender, and the Closing Disclosure still shows Section A at $3,250, because fees paid to the creditor carry a zero tolerance and nothing happened that would allow a revised estimate. Her title company, chosen from the lender's written list, billed $75 more than estimated, and that is permitted, because third party charges the borrower is allowed to shop for sit in the 10 percent cumulative tolerance group instead.

Common Mistakes and Exam Traps

• Origination charges are the lender's own fees. Third party costs such as the appraisal, the credit report, and title insurance sit in separate sections of the Loan Estimate, not inside origination charges.
• Origination charges can be quoted as points, and so can discount points, but only discount points buy a lower interest rate. An origination point is simply the lender's fee stated as a percentage of the loan amount.
• Origination charges are Section A on the Loan Estimate and on the Closing Disclosure. An answer that places them on the HUD-1 Settlement Statement is describing the pre-2015 forms.
• A higher origination charge does not by itself mean a worse loan. Compare Section A against the interest rate, because a lender can cut its fees and raise the rate.