what is a junk fee 
junk fees are a series of charges that a lender imposes at the closing of a mortgage these charges are often unexpected by the borrower and not clearly explained by the lender this surprise factor can lead to the impression that these fees are excessive and tacked on to other legitimate closing costs without good reason other junk fees often illegal can be found in consumer financial products like auto loans and deposit accounts and activities like student loan servicing 1 this article focuses on junk fees on mortgages understanding junk feesjunk fees in mortgages are a subset of the costs that appear on every hud 1 settlement statement traditionally that statement was a standalone form that federal law required a lender to provide a borrower at closing it contained a detailed itemization of all costs associated with the loan 3prior to closing at the point when the parties agree to the terms of the loan and begin preparations for closing the lender was required to provide a good faith estimate gfe of those costs in 2015 the consumer financial protection bureau cfpb consolidated these documents into one form the closing disclosure 3junk fees end up increasing the price of buying a home and may not be budgeted into the costs anticipated by a homebuyer in many cases this may financially stretch a buyer to a final cost that they are not comfortable with the costs listed on the hud 1 range from boilerplate items such as home inspection and title search fees to more questionable costs that some consider junk the latter group can contain items such as a document preparation fee an application fee a funding fee a verification of employment fee a sign up fee a translation fee or an automated underwriting fee junk fees can leave a bad taste regarding the homebuying process that should otherwise generally be a happy moment for most people the borrower always has had the right to challenge these fees and negotiate them with the lender but many lenders have found it profitable to assume that borrowers will fail to challenge all of these fees critics of the mortgage industry also have argued that lenders don t adhere to the good faith requirement of the gfe and liberally add fees to the final hud 1 statement that were never included in the gfe consumer financial protection bureau cfpb reforms on the closing processthe consumer financial protection bureau s cfpb s 2015 reforms to the closing process not only streamlined the paperwork associated with the closing process they also established restrictions on fees and adjustments that could be made after the gfe was provided to the borrower 4the cfpb in a march 2023 report on unlawful financial services junk fees pointed out those found in mortgages can include excessive late fees added costs for unnecessary property inspections for accounts in delinquency and a failure to waive certain fees during loss mitigation proceedings 1part of the aim of these changes was to minimize lenders ability to add junk fees that borrowers might overlook the major change that the cfpb instituted in this new set of rules is a limitation on the permissible inflation of charges listed on the lending estimate the document formerly known as the gfe in general no fee can be increased by more than 10 from the listing estimate to the final closing statement if a major change in the circumstances of the loan has occurred the lender must allow the borrower to review a new lending estimate as the restrictions stated by the cfpb may no longer apply 2junk fees found in mortgages largely aren t illegal even with the efforts of the cfpb to protect borrowers against deceptive lending practices the borrower bears the burden of carefully examining and questioning fees that appear unnecessary it is always the lender s goal to close a mortgage so that they can earn revenue therefore they are typically open to negotiation to ensure that the mortgage is finalized 