My friend is currently refinancing his house and he went to a mortgage broker rather than directly to a bank. He was quoted 5.50% with no points (this was a week ago, before the latest dip in rates) and quoted about $1,460 in closing costs. When he received the Good Faith Estimate (GFE) from the broker, my friend noticed it contained an item that had not been previously discussed: "compensation to broker." The GFE is supposedly an estimate of the charges the borrower is likely to incur at settlement, and for the most part it is. I can see the appraisal fee, processing fee, title charges, etc. which add up to the $1,460 in closing costs. In addition, there is an interest charge to be paid in advance (since the closing would not take place on the first day of the month). My friend agress with all of those items. Then comes the "compensation to broker," which is listed at $3,289, or 1.1% of the loan. My friend is concerned that he will be expected to pay this. I think the actual lender (in this case, Washington Mutual) will be paying it to the broker as a finders fee. If indeed my friend is not responsible for this payment, why is it listed on the GFE when it specifically states it is a list of borrower's costs at closing? And also, doesn't that seem like a big payment to the broker? What if my friend refinances again in six months? Does Washington Mutual get any of that $3,289 back from the broker? And finally, if my friend had gone directly to Washington Mutual for the loan, would he be entitled to a discount because Washington Mutual wouldn't have to pay the broker's fee? Thanks.