Many secrets are told over lunch—casual comments, candid confessions, things that would never be said to an outsider. Little things like slipping 40 bucks to the gal who locks in interest rates. Or big things like making 40 grand off of one deal.

This particular day, I was dining with a loan officer at Michael’s Broiler on the eighteenth floor overlooking Lake Washington and with a clear view of the Seattle skyline.

“Forty grand. That’s amazing,” I said, cutting another piece of my filet mignon. “How did you do that?”

The loan officer tapped his linen napkin to his lips and smiled proudly.

“It was a 5/1 ARM with an interest rate of six and a quarter.”

“Aha,” I responded. Perhaps I raised my eyebrows a tad, but nothing more. I understood perfectly. He had sold his client an adjustable-rate loan that had the interest rate of a 30-year fixed-rate loan. By selling the client a rate significantly over par, the officer was able to pocket a big back-end commission from the wholesale lender.

“Did you broker out the loan?” I asked this because I wanted to know if his client, the homeowner, had any idea how rich his loan officer was getting off him.

“I did it ‘in house,’” he said matter of factly.

Even better, he had a legal loophole for not revealing his windfall to the client, a windfall his client would pay for each and every month for the life of his loan. “That’s the beauty of correspondent lending,” he said. “You don’t have to disclose your YSP [yield spread premium].” He finished up his mashed potatoes and expressed his pleasure about the absence of garlic.

“How long did the loan take to close?” I asked.

“Three weeks. And I had four other loans last month. But this month I plan to do more.”

Our lunch was almost over, but I had one last question. “How long have you been in the mortgage business?”

“Two years. Two more and I expect to retire,” he boasted.

I mentally did the math and figured he was right. Four years of charging clients for secret back-end commissions that big could net a loan officer enough to quit the business and get on with perfecting his golf game.

Unfortunately, this is not an uncommon story. I know from years of personal experience that this kind of price gouging is rampant in the mortgage industry. Charging a higher interest rate than par is just one way for loan officers to collect extra pay. Most people are aware that there are also unnecessary “junk” fees.

Most homebuyers or people refinancing their loans know there are financial booby traps waiting, so they’re on the lookout for scams and junk fees. Nevertheless, they’re still paying way too much. On average, homebuyers are shelling out an extra $1,225 up front, and they’re taking a higher interest rate than necessary, to boot. They’re much like the senior couple who was signing for their refinance one rainy afternoon.

As a licensed notary, my job was simply to get the papers signed properly for the loan officer. I saw that there was a $2,000 bogus discount point. (The couple wasn’t getting a discounted interest rate by paying the fee.) I also noticed there was an unnecessary $395 Processing Fee. But, again, that wasn’t any of my business, as a signing agent. The couple happily signed away. Then we got to the $19 Flood Certification Fee. Suddenly, the wife threw down her pen and said she wasn’t going to pay that $19.

“Flood certification is a requirement in the state of Washington,” I explained. “The mortgage company must show that the property is not in a flood zone and therefore does not need flood insurance.”

She still objected, “But we’re on a hill.”

I said, “I understand. Most people around here are. But it’s a state requirement, so there’s no way around it.”

“Well, I’m not paying it; $19 for nothing is ridiculous,” she said adamantly.

I found it astonishing that she was happy to pay the unnecessary $2,000 and $395 fees and yet the $19 was a stumbling block she refused to get over.

Clearly, even people who are aware that scams and junk fees exist need to know which fees are fair and which are not. The question is, who’s going to tell them?

How are you going to find out what’s real, what’s fair, and what’s bogus when all the most important secrets are kept behind locked lips? The loan officers who are laughing all the way to the bank and slapping high-fives with one another behind your back aren’t going to tell you. “If they’re stupid enough to take it, it’s their fault,” one loan off icer said to me.

Even the many articles and books written by talented reporters who interview and research professionals in the mortgage industry can’t reveal all the rip-offs. How could these writers find out what’s going on in secret when no one is talking? Not even the loan officers themselves know everything that goes on. The wholesale lenders who provide money to the mortgage brokers have plenty of sneaky little secrets all their own.

Like what? Like bribes. And false “sales.” And loans for “important people,” who are essentially getting cuts in line ahead of other loans. Like certain documents “disappearing” from loan files, so a loan that got denied at first can get approved instead. This is just the tip of the iceberg, and it’s all very interesting, especially if you or someone you know happens to be buying a home or refinancing.

I wrote this book to keep you from becoming a victim to any one of the many rip-offs in the mortgage industry—rip-offs meticulously designed to steal your hard-earned money. It is organized to be a quick and easy resource, to help you can save the maximum amount of money possible:

In addition, I’m offering these extra benefits to buyers of this book, on my personal Web site, www.AskCarolynWarren.com:

As in other industries, mortgage lending has both a retail and a wholesale side. Retail includes banks, mortgage companies (also called direct lenders), and mortgage brokers. You can go to any of these three for a loan. If you go to a bank or mortgage company, they will use their “own money.” If you go to a mortgage broker, your loan officer will shop the wholesale division of these same banks and mortgage companies, as well as others that are wholesale only, to get your loan. Some mortgage brokers have their “own money” to lend, as well as the ability to shop wholesale. Clearly, then, a mortgage broker has the most options.

Loan officers—who also like to be called mortgage consultants or loan specialists or other fancy titles—work in banks, mortgage companies, and mortgage brokerages.

The wholesale representatives who provide their services to the loan officers are called account executives. It’s their job to help loan officers and to bring in business for their company.

I started my career in lending by working for a large, national mortgage company. It was a direct lender, so it had its own money and didn’t shop wholesale. After two years there, I wanted more options, so I went to a mortgage brokerage. (I also had short stints at a finance company and another big national lender—short, because I couldn’t tolerate their pricing shenanigans for long.)

I worked very hard at the mortgage broker shop for about seven years. Then, feeling that I needed to round out my career, I moved “inside” to wholesale lending, and spent almost two years there as an account executive. I worked “behind closed doors” with the manager and sales manager, underwriters, loan account manager, and the people who locked in rates, drew loan documents, and funded loans.

During this decade, I also served as a licensed notary public and worked freelance, signing loans for many companies, on...