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Hector Said:

is there any regulation of mortgage lenders that charge MASSIVE amounts of money for thier insurance binders?

We Answered:

You have pretty much answered your own question. It is "tough luck" as Suntrust put it. When your signed mortgage docs you agreed to this seemingly unfair agreement. So in a nutshell, yes this is regulated. The regulation is of the mortgage agreement as a whole, the insurance being a part of it. I believe the conventional wisdom is that mortgage institutions don't want any part of the insurance business, so they do this as a deterrent. To further add to your frustration, I believe that if anything were to have happened, the insurance policy Suntrust put on your loan would have only covered Suntrust's financial interest in the property. Your possession, liability and such would not have been covered.

In the future I would have my mortgagee pay my insurance and taxes. You pay a little extra each month and when the bill comes due they pay it for you. That way you will never have to worry about those bills not being paid.

Also FYI this is referred to as "placed coverage" by your mortgage company. A "binder" is what an insurance company provides to the mortgage company to prove insurance coverage.

Clara Said:

Do mortgage lenders pre-approve for more than they should?

We Answered:

I would not put it past them. Your friend should consider that. Just because you can afford a payment of X, doesn't mean you have to spend up to that limit. The more your friend buys, the bigger the commission for the Loan Officer. You should explain that to your friend.

I often wonder where these Loan Officer even come up with the amounts that they tell people they quailfy for. When I do appraisals, it's never ceases to amaze me at how high they go and when you tell them the the properties value isn't even close to that number, then they change the number.

Frankly if I were your friend, I'd find another lender.